There is nothing going on the market lately and truth to tell I have no inspiration to write posts. I mean, if I think that shares are expensive and they are barely moving there is nothing which can potentially change my mind in short term. This is why I prefer looking or on names in my portfolio or some rapidly moving companies. There is also another possibility which I should seriously consider – I should go beyond my current investment spectrum and look for some other high quality companies.
This week Nucor was performing really badly and dropped more than 7% within 5 trading sessions. That’s pretty good discount isn’t it? Let’s have a look what’s happened.
Let’s go through some headlines:
Mapping Nucor’s 1Q17 Guidance against Analysts’ Estimates – Nucor (NUE) expects to post EPS (earnings per share) between $1.10–$1.15 in 1Q17 compared to EPS of $0.50 in 4Q16 and $0.27 in 1Q16. Nucor’s 1Q17 guidance came in higher than analysts’ estimates – good info
Nucor to Modernize Rolling Mill at its Ohio Bar Mill – Nucor Corporation announced today that it will be investing $85 million to upgrade the rolling mill at its steel bar mill in Marion, Ohio. Nucor Steel Marion, Inc. is Ohio’s largest producer of rebar and signpost, capable of producing over 400,000 tons annually. – non material with this market cap
Deutsche Bank Raises Price Targets on Top Steel Stocks to Buy – This top steel company could do very well if the economy sees a solid pickup this year and the administration’s infrastructure push remains in place. Nucor Corp. (NUE) and its affiliates are manufacturers of steel products, with operating facilities primarily in the United States and Canada. The company also is North America’s largest recycler. – good info
Well, I see no other negative news. Let’s look on commodity prices:
We can see that in the beginning of November Nucor share price went up and the same was true for Iron Ore. This is because commodity prices matters for steel producers – when prices are high they are making more money!
If we look on chart above we can see that there is still no change in trend of Iron Ore and truth to tell growth potential is still huge. Though keep in mind that with slowing down Chinese economy I would not expect record highs levels for Iron Ore.
So from macro perspective it seems it is all right for Nucor. Let’s look on valuation:
EV/EBITDA = 7.1
P/E = 15.5
It is not expensive, truth to tell it is one of the cheapest Dividend Aristocrat! Dividend yield of 2.5% is also a decent level, but keep in mind that company is not buying back tones shares.
Summing up, taking into account volatility of Nucor I see 7% down within one weak as nothing unusual. Maybe market is a little bit worried about steel prices etc. Nucor is not expensive company, but the real art is to buy it when every player in steel industry is almost bankrupt – then you can multiply your investment even with such safe bet as Nucor. Now shares are around all-time highs. Not for me.
Disclosure NUE – no position