The Market Just Proved This Company Is Substantially Undervalued

Value investors can have a tough time when it comes to investing. They can recognize that a company is trading at a discount to its value. But short of taking it private, it’s hard to get that value unlocked. It takes time and patience.

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  • Recently, a proposed merger agreement led to a rejection by the company that was set to be taken private at a premium to where its shares traded. Typically, a rejection would mean shares would trend lower.

    In this case, they moved higher. The market now sees upside in the company’s shares if they go private. The company? U.S. Steel (X).

    Competitor Cleveland-Cliffs (CLF) made a buyout offer, and was rebuked. But the industry may need to consolidate given strong foreign competition. And that could lead to U.S. Steel getting bought out at a higher price.

    Action to take: Investors may like shares at current prices. Even with their pop higher, the possibility of a buyout in the next few weeks or months is now on the table. That could lead to quick gains in the high-single or low-double-digits.

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  • For traders, the October $35 calls, last going for about $0.86, could see mid-double-digit returns on a credible buyout offer that the company could accept. Traders may want to use any jump higher in shares from here as an opportunity to book a quick profit.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.