Nucor's Healthy Spreads Aren't Enough As The Cycle Moves Past The Peak

It’s often difficult to make money in commodity sectors when the cycle has reached and passed its peak, and that seems to be holding true for steel. Although spreads continue to improve and earnings expectations for Nucor (NUE) have continued to rise for both 2018 and 2019, the shares really haven’t gone anywhere this year as investors expect meaningful earnings erosion from here and move onto to greener pastures.

I believe it’s better to be in mini-mill and/or specialty steel companies at this point, but I’m still mostly lukewarm on Nucor. I do see some risk of overspending on M&A, as well as some vulnerability to increasing capacity, though I will emphasize again that this is a very well-run company in the sector. I continue to believe that fair value is above $70 per share, but this may be a tough place to make money unless/until there’s a reason to believe this cycle will persist beyond current expectations.

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Nucor's Healthy Spreads Aren't Enough As The Cycle Moves Past The Peak