Nucor is the best performing Aristocrat of 2016 with above 50% rate of return. I was quite positive on company, but too miserly so I am not a Nucor shareholder. As Warren Buffett says: It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. It’s good to remember.
Let’s see how business and valuation is changing.
First of all steel is still growing – that’s definitely good for company. It is quite interesting in fact – steel index is up around 100% and Nucor is 50% -> normally I would expect company to has higher beta than commodity, but maybe it’s a matter of quality/leverage. Nucor is high quality so also declines were smaller than in risky/highly leveraged companies.
Valuation (on 2017 estimates):
EV/EBITDA = 7.9
P/E = 18.2
It is quite funny. Share price is up significantly, but also expectations are up, so rerating on multiples is not so big. Well, it shows how well long term forecasts are J I do not feel buying commodity based companies, similar case is with XOM, CVX.
Look at some headlines:
- Nucor Gives Weak View for Q4, Sees Improvement in FY17
- What Headwinds Could U.S. Steel Face in 2017?
- [$$] US steel industry expected to return to growth
- Why China’s Capacity Cuts Still Matter for U.S. Steel
- Steel Dynamics Is Second Steel Maker To Warn On Profit In 2 Days
- Nucor’s Q4 Warning Bends Steel Stocks, But They Don’t Break
I do not really know what to think about steel market…
Summing up, when shares were lower I was bullish, but I was waiting for better prices and shares went up. Now I have no idea whether it is still a right time to buy…
Disclosure NUE – no position