Despite a Gain of 120% in the Last 12 Months, Nucor Looks Solid as Steel

I wrote about Nucor (NYSE: NUE) prior to its first-quarter earnings report. At that time, I said investors should pay attention to the stock’s floor than its ceiling. NUE stock was already up about 50% for the year. However, in the month prior to its earnings call it wasn’t doing much.  

At that time, Congress was still debating the infrastructure bill. And I saw that as a potential catalyst. But I was more “concerned” about falling steel prices as the supply chain started two-level out. Nevertheless, I felt that Nucor had formed a solid floor.  

It turns out, I was wrong, but in the best way possible. Despite a double miss, NUE stock surged after the company reported earnings. At one point, shares of the steel producer climbed over $110 per share. Watch the floor indeed investors told me. 

But NUE stock has retreated in the last month. It’s down about 3% and analysts project that the stock is heading to around $80 per share. If it does, it will put it right where it was when I wrote about the stock in April.  

Steel Demand Remains Strong 

In April, the World Steel Association forecast that global steel demand would reach 1.8 billion metric tons; a 5.8% year-over-year increase. And in 2022 growth would grow another 2.7%.  

But what made this growth more impressive is that the organization reported that global demand was “only” down 0.2% in 2020. This was markedly improved from the prior forecast of a 2.4% decline. This means that the steel sector is launching off a much stronger base.  

And while much of the demand in 2020 came from China, that is moving to the United States. In fact, the price of U.S.-made steel has soared in 2021 partly due to the pandemic and partly due to the tariffs on low-cost imported steel combined with consolidation within the industry.  

That last note is particularly good for Nucor since it is the leading steel producer in North America.  

Nucor Passes the Barbershop Test 

All that data is well and good. But does it play out on Main Street. For that, I’ll turn to what I call the barbershop test.  

My barber told me that local construction companies were going out of business. But not because there’s no business. Rather, because they can’t hire enough staff to meet the demand. 

That tells me that the demand for steel is likely to remain high. And perhaps for a lot longer than just 2021. Construction companies are facing this before the infrastructure bill kicks into gear. Add the millions of dollars to bid on with those projects and it’s easy to see NUE stock moving significantly higher.  

Dismiss it as getting stock tips from the person who shines your shoes if you must. But this was information given to me by someone who has a son in the industry right now.  

A Fundamentally Strong Company 

Steel is a commodity. And like any commodity, there are boom and bust cycles. If you’re thinking about buying NUE stock thinking you’ll continue to get 12-month gains of 120%, think again. In the five years prior to 2020, Nucor stock climbed only 29%. In contrast, the Dow Jones Industrial Index (DJIA) climbed approximately 63% in that same period. 

But when it comes to Nucor, you’re buying into a fundamentally sound company that is on the doorstep of joining the exclusive Dividend KIng club. The company has increased its dividend for 48 years and continued to raise it during the pandemic.  

Heading into earnings the expectation is for Nucor to post earnings of $4.87 on revenue of $8.26 billion. Based on the company’s recent announcement that it’s purchasing Hannibal Industries for $370 million, it won’t surprise me if they miss on the bottom line.  

It shouldn’t matter. NUE stock continues to find support at higher levels. That’s unlikely to change.