Playing April's Weak Auto Sales Figures: Add To Shorts In U.S. Steel, Cliffs

Poor auto sales data from the major auto makers on Tuesday is hurting their respective stocks Tuesday morning. Shares of General Motors Company (NYSE: GM) lost nearly 3 percent, Ford Motor Company (NYSE: F) lost nearly 4 percent and Fiat Chrysler Automobiles NV (NYSE: FCAU) lost more than 5 percent.

While the correlation between weak auto sales and auto stocks is obvious to most, there is another correlation investors should be aware of. According to Gordon Johnson of Axiom Capital, steel companies, particularly United States Steel Corporation (NYSE: X), Cliffs Natural Resources Inc (NYSE: CLF) and AK Steel Holding Corporation (NYSE: AKS) all have "material leverage" to U.S. auto sales from both a revenue and margin perspective.

With that said, Johnson argued in a brief report on Tuesday that after years of strong growth, auto sales don't plateau. Rather, they fall "drastically," and this is notable for steel companies since the analyst's estimates peg the U.S. auto industry as the second largest contribution to U.S. steel demand at 25 percent.

The largest contributor to U.S. steel demand is the U.S. new privately owned housing segment at 40 percent, a sector which is also a worthy sector for investors to continue following closely.

Bottom line, the analyst believes Tuesday's poor sales reports from major car-makers are reason enough to add to short positions in U.S. Steel and Cliffs Natural Resources.

Related Links:

U.S. Steel: Q1 Was Bad, But Things May Only Get Worse From Here

U.S. Steel: The Best Fade Of The Trump Trade