Steel Dynamics Looks Undervalued As A Lagging Trade On The Short-Cycle Recovery

I turned more positive on Steel Dynamics (NASDAQ:STLD) after the last quarter, largely on a "it's really not that bad" call, and the shares have done alright since then, with the 19% total return beating the S&P by a bit, as well as beating other steel names like Nucor (NUE) (though not Commercial Metals (CMC)). That decent performance has come despite a pretty weak underlying steel market that has seen steel largely get left behind compared to many basic metals over the last few months.

I think management's guidance may be a bit too bullish, and I'm concerned about the long-term impact of capacity additions in the U.S. market, but I still think the shares are too cheap relative to the long-term/full-cycle earnings and cash flow-generating capability of this company. I still believe Steel Dynamics has a solid claim to "best of breed" (with Nucor and CMC in that mix too), and I think buying best-of-breed names when the stock has been punched in the face generally works out okay.

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Steel Dynamics Looks Undervalued As A Lagging Trade On The Short-Cycle Recovery