U.S. Steel Stock Has a Rich History. Apple, Tesla Investors, Beware.

U.S. Steel is in play and shares are up about 26.5% in midday trading on Monday, while the

S&P 500

and

Dow Jones Industrial Average

are up 0.3% and almost 0.1%, respectively.

It’s almost unthinkable, but U.S. Steel could end up in the hands of private equity or be subsumed into a larger entity. The company has been around, and traded, since 1901 after John Pierpont Morgan himself created it by merging Andrew Carnegie’s steel company with several others. The new firm had a market value of more than $1 billion, the first billion-dollar corporation in America.

Steel, which is essentially an alloy of iron and carbon, was the hot commodity, a better construction material for buildings and bridges. U.S. steel was dominant, shipping about eight million tons in 1901, roughly one-third of the global total.

Dominance faded. U.S. Steel shipped about 15 million tons of steel in 2022, for an average annual growth rate over its history of about 0.5%, and the 15 million ton total amounts to about 0.7% of the world total.

Steel is mainly for infrastructure, and the U.S. has developed and stopped growing its steel use per capita decades ago. Things shifted East. Now China is the world’s dominant maker of steel, producing roughly 1.1 billion tons in 2022, or more than 50% of the global total.

Commodity producers become the most valuable companies in the world from time to time. U.S. Steel, oil producers such as

Exxon Mobil

(XOM) and

Saudi Arabian Oil Co

(2222.Saudi Arabia), or Aramco, and

DuPont

(DD), boosted by the strength of plastics in the 1950s, have all claimed the top spot.

Commodity producers rarely keep the number one ranking, though, and don’t seem to perform all that well after ascending to first place. U.S. Steel stock had a nice run, peaking in 1929, but Barron’s found that U.S. Steel stock returned roughly 5% a year on average for the past 100 years, about half the rate of the Dow Jones Industrial Average. What’s more,

DuPont

and Exxon both underperformed the U.S. stock market in the 10 years after becoming most valuable.

(Tracking returns for a century is difficult and companies aren’t that much help. They should be viewed as approximate.)

That’s a warning to EV investors looking at a potential boom in copper or lithium, which are today’s hot commodities as

Tesla

(TSLA) disrupts the traditional auto business. with battery-powered electric vehicles.

Tesla

investors might want to take a note from history, too.

General Motors

(GM) became the world’s most valuable company in the 1920s. It underperformed the market in the 10 years following.

The problem for GM appears to be more about valuation. The stock traded for about 30 times earnings in 1927, when the S&P 500 was trading for closer to 15 times. GM shares traded for closer to 10 times earnings in 1937. The car industry grew and GM made money, despite the Great Depression. Still, investors cooled on the shares.

Tesla stock trades for 70 times estimated 2023 earnings. Things have to go well for the coming years to justify that lofty multiple.

Apple

(AAPL) became the world’s most valuable company in 2012 and it has crushed the S&P 500 since then, returning roughly 21% a year on average, 10 percentage points better than the market.

Apple

‘s success highlights the need to keep investing in profitable businesses. In 2012, Apple’s services business accounted for less than 10% of total sales. In 2022, it amounted to almost 20% of sales.

Apple’s success is also a warning to investors. Don’t sell things just because they are valuable. It’s the underlying strength of the business and management that determines long-run stock returns.

Write to Al Root at allen.root@dowjones.com