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.

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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