Nucor Strapping In For The Downturn

While I preferred Steel Dynamics (STLD) and Commercial Metals (CMC) to Nucor (NUE) back in late January, Nucor has been the better performer over the last three months, outperforming Steel Dynamics by about 5% and CMC by about 10%. Over the past year, Nucor has been the laggard, but as the outlook for the steel industry has deteriorated investors seem to have switched their preferences a bit. This isn’t exactly unprecedented, as higher-quality commodity companies tend to outperform into downturns, and while both Steel Dynamics and CMC are high-quality, Nucor is still widely regarded by some investors as best-of-breed.

As far as the outlook goes, at this point I would still prefer Steel Dynamics to Nucor, but that’s just a relative valuation call. Nucor has better capex flexibility over the next few years, but it also has more at risk from longer downturns in the oil/gas and non-residential sectors, as well as more upside from infrastructure stimulus. Nucor is likely the safer call, but both have some appeal for investors with relatively bullish takes on the U.S. economy in the second half of 2020 and into 2021.

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Nucor Strapping In For The Downturn