Nucor Corp (NUE)

I've been in the steel business for 30 years and this is the most uncertain times by far. Nucor is a good company but the market is not there at this time. Times have been good for most of the steel group for a few years. We are are all hoping and praying for a miracle. Everybody in the steel business (myself included) is trying to hang on conserve any cash left. The selling price of steel has been discounted WAY more than the drop in scrap prices. The bail-out dollars have a direct steel value of less than 1% of last years domestic steel output. And now the foreign steel, even with it added tarrifs, is easing its way back in. 1st & 2nd qtr numbers will be way down. All in all, if your crazy enough to bet on steel, Go Nucor LONG TERM.

When the economic recovery comes Nucor should come out a big winner. First, the company has a tremendous balance sheet. They currently have over 1.5 billion in cash on the balance sheet, and more importantly, only 400 million in debt coming due over the next 5 years. This will allow Nucor to finance it's own growth from inside the company, avoiding the loanshark rates of the current credit markets. Nucor also has by far the best management in the steel industry. It's not even close. They manage to keep costs down by using scrap metal, relying on more efficient mini-mills, and avoiding any union labor by using generous profit sharing, performance based pay, and avoiding the bullsh*t executive perks that ruin the culture of so many other companies. The current 3%+ yield is also nice and appears well covered.

With shipments of 20 million tons and a roughly 18% market share, Nucor Corp (NUE) is the largest steelmaker in the US. Given the volume of scrap steel inputs to its minimills, as against usage of iron reserves, Nucor also stands as the nation's largest metal recycler.

The steel industry is cyclical and highly competitive, and presently, has been characterized by excess world supply. This supply has restricted the abilities of Nucor and the industry to raise prices during this period of economic contraction. Along with the usual seasonal slowdown, decreased construction demand and increased imports are the main causes behind the recent inventory build-up. Starting second quarter, excess service center inventory levels have began to exert downward pressure on hot-rolled product spot prices and the scenario is expected to continue through 2007.

Due to growth in worldwide steel production, steel imports to the United States are rising and, in 2005, accounted for almost 25% of the domestic steel market. Going forward, imports are likely to beat the historicals, posing as a threat to the top-line growth of the domestic companies.

Although Nucor's recent performance has been nothing short of remarkable, operating alongside such large competitors as Arcelor Mittal and Commercial Metals accentuates its risks. Energy prices jumped 30% in 2005, and the cost of natural gas shot up 48%, resulting in an increase in the company's operating costs. Due to this, the company appears to be a highly risky venture; legacy retirement liabilities compounded with expected low earnings would prove to be a roadblock to its free cashflows’ growth.

With the sector’s heavy exposure to construction, automobile and appliances customers, the company’s shares are sensitive to macroeconomic aspects, particularly market interest rates. Nucor hopes to capture market share by being a low-cost domestic producer and leveraging its strong financial position but should the US lapse into recession, Nucor’s revenues and earnings would be likely to suffer a setback.

They sell steel....who cares right? Actually you might not want close the door on this stock just yet. Give it a second look.

This company has several financial positives right now with what, I believe, is at a price that is a good buying point. Number one, tremendous free cash flow. Two, double digit profit margins. Three, return on assets of 20 plus percent and return on equity of 30 plus percent. Four, the PE is at around 11. This is a good sized discount to the market's multiple at the moment.

Then there are the macroeconomic conditions providing both revenue and momentum for this stock. With the Vast expansion of India and China still under way, this company is well positioned to make some windfall profits from that over the next 5 to 10 years.

Good stock....good company.....a Fool's company.

It is necessary to distinguish between pure commodity plays in the materials sector and management bets. NUE has arguably the best management in the business and a relentless continuous improvement culture. NUE is US focused and gets its raw material from scrap. I have no idea where we are in the commodity cycle, but a proven strategy is to buy good management at a great price and let the cycle take care of itself - In the short run , could fall further as money rotates out of commodities will add to position in my RW port on a meaningful decline

Nucor which recently raised its quarterly dividend from 11 cents to 30 cents a share, an enormous increase of 172.7%. And to top it off, the company also declared a 31-cent supplemental dividend. Equally impressively, Nucor has bumped up its disbursements every year since 1973. This steel manufacturer said the increase reflects the successful building of "Nucor's long-term earnings power." The stock offers a price-to-earnings (P/E) ratio of 12, a P/E-to-growth (PEG) ratio of 1.8 and a yield of 2%. It also recently announced a Massive shares buyback scheme.

Nucor is owned by SAC Capital, a group of hedge funds that purportedly has generated a return in excess of 40% every year since inception.

With demand not an issue and prices set to rise in 2008 by at least 5% Nucor looksset for another bumper year along with other major players in the steel sector.

It's hard to imagine a less attractive business than the production of steel. Steel is a commodity - that is, there is no differentiating feature of the product amongst competitors, other than price. A steel beam is a steel beam is a steal beam, regardless if it comes from Nucor (NUE), US Steel (X), or Arcelor Mittal (MT). Like most commodities, the price of steel has been quite erratic over history due to the extreme fragmentation of providers. Commodity production is usually a business with low barriers to entry, and when you have a lot of competitors, it's very likely that a few will price product irrationally, destroying profits for all players. Add to the commodity aspect of steel the fact that it takes a lot of heavy and expensive equipment to run the mills. This leads to high capital expenditures to both maintain existing operations and to increase capacity. Foreign competition, with it's low labor costs, is a major threat. At first blush, this does not look like an industry that meets many of the criteria that leads to competitive advantages, and by extension the MagicDiligence Top Buys list.

However, Nucor has long been a company that has flourished in a difficult market. The company has not reported a quarterly loss in over 40 years, despite numerous large and small competitors disappearing from the scene (Bethlehem Steel being the most visible example). Nucor has averaged nearly 45% MFI return on capital over the past 5 years, excellent for any large firm. Free cash flow margin is a very respectable 9%. Growth in sales, profits, and dividends has also been great over the past 10 years, rising at a compound annual rate of 17%, 23%, and 20%, respectively. If the proof is in the pudding, Nucor's numbers seem to indicate that this is indeed a firm with some durable competitive advantages in a tough industry. So how have they achieved this?

Predictably, Nucor's formula for success in a tough industry mirrors that of Dell (DELL), Southwest Airlines (LUV), and Wal-Mart (WMT) in similarly difficult markets - by consistently being the low cost provider. In Nucor's case, the low cost advantage has been achieved through consistently doing things better than competitors. Nucor uses scrap steel from automobiles and demolitions which is then recycled in what are known as "mini-mills". This is in contrast to the historical method of making steel by extracting iron from ore and alloying steel in integrated mills. The mini-mill method is much more efficient in energy, labor, and raw material cost. Nucor has a culture of technological advancement that has consistently allowed the company to price steel cheaper than both integrated and competing mini-mill operations.

Another reason Nucor has thrived is because of outstanding management and company culture. Management matters a lot in competitive industries and Nucor earns an A+ here. The company has very little hierarchy - only 2 management levels separate the CEO from a floor worker. The majority of compensation for all employees is based on performance, up to 3 times base salary. This encourages constant improvement to stay ahead of the competition. Also, all of Nucor's 12,000 employees are independent of unions, which prevents disruptive work stoppages and expensive labor negotiations that plague several of the older steelmakers.

Nucor is a great company, and has continued to expand their competitive advantages. David J. Joseph, a scrap metal broker, was acquired earlier this year to strengthen Nucor's raw material acquisition ability. Other acquisitions have led to the company acquiring over 20% market share in the U.S. Industry trends are favorable too. Steel production is no longer a highly fragmented industry, as the "big 3" of Nucor, U.S., and Arcelor account for over 70% of the domestic market. This leads to more rational pricing. The weak dollar has helped too, as U.S. sales are less attractive to foreign steelmakers when this is the case. Emerging economies, where steel skyscrapers are sprouting like weeds and more and more cars hit the road, is a long term growth driver for steel demand.

I'll be keeping an eye on Nucor as a potential Top Buy, and this is a fine pick for Magic Formula investors today. For now, though, there are other Magic Formula companies with more sustainable competitive advantages and less volatile industries to choose from. The near term could be difficult. The domestic automobile industry is at least 15% of Nucor's customer base (possibly higher), and the future for this industry is up in the air right now. The dollar is strengthening, making foreign steelmakers more competitive. Still, Nucor has a track record of great results, and this record is likely to continue into the future.

Solid pick in the Basic Materials sector, which I've been looking at recently to diversify my investments. Current P/E is 11, RoE/RoA and margins look good, cash flow at the moment is negative due to inventory and receivables. Nonetheless I'll be an optimist here.

This stock will probably go way down when you see their goodwill impairment charge for 4th qtr 08. Don't even look at 09. GREAT company in HORRIBLE market...you are forewarned!!

Very well managed company wth tons of free cash flow, Building new plants in the south near new auto plants. Will sellshet metal to those auto companies, Inovative method of producing sheet metal

Nucor is the low-cost provider of steel in many areas. It is the only US steel producer that has consistently remained profitable through good times and bad, has an employee friendly management, as well as a shareholder friendly one. The firm emphasizes technological innovation, does not make stupid acquisitions and keeps a healthy balance sheet. Steel is cyclical, but Nucor has been able to mute the cycles by remaining smart, expanding into scrap metal supply (muting input costs). In good times, Nucor has returned cash to shareholders in the form of special dividends, and has continued to raise its regular dividend each year for 35 years.

With such a low p/fcf ratio compared to its peers, NUE will be leading the bullish steel sector over the next few weeks. A great management team which has produced a ROE of 36% will have a great shot at blowing away estimates.

I am an environmental consultant in the energy permitting business and infrastructure build-out is booming. There is a lot of steel in energy infrastructure.

1) Nuclear energy is on the move and steel is a big part of the infrastructure.

2) Each deep water oil platform has enough steel rebar in them to circle the world 7 times! The deepwater sites are now where all the action is and the price of oil ensures that their construction will happen.

3) Windfarms all have steel towers - with the largest ones coming on line at 18 feet in diameter and over 100 meters high.

4) Transmission lines are under construction everywhere and the stanchions are steel.

5) Gas pipelines are being permitted and these are steel too.

I would also invest in Shaw Group and AECOM if you like the permitting business as this is essential BEFORE the build-out.

I don't know what the people who run this company are thinking, at least the ones running the plant in Wallingford Connecticut. They have just finished a major up grade to this plant in order to increase production. But in the past week they have shut off all there small customers. They (NUE) now will only sell steel by the tractor trailer load. I know this because I am / was one of their smaller customers. Smaller companies, like mine, don't have the room or the money for such an order. This came without warning, (real professional like) we found out when we tried to place an order. My orders with them run between 3 to 5 K , and they no longer want them. I was given several names of "bigger" companies from which I could buy NUE made steel but they are all my competition, and that is not going to happen.

The bottom line is this. The building industry is in a slow down, so why would you want to get rid of any customers, big or small? To me it is a dumb move, and I think it will come back to haunt them.

Fundamentally very strong.

cash monster...

Steel is real, and the world will use megatons of it when things turn around. Not IF, but WHEN. Cash flow is king, and NUE has more than it's share.

The entire steel sector is down on lower steel prices and general economic fear. China is still expanding and the recent infrastructure infusion from the stimulus bill will raise the entire sector over the next two years.

Simply put....supply & demand. With the rising demand for steel in emerging countries & the increase in demand for new oil wells & off-shore platforms domestically, Nucor is well positioned to meet this demand. Add to these already anticipated increases, the newly realized need to improve our rail infrastructure & usage, which requires what this company produces, Nucor is set to explode!