Nucor Has The Right Mix, But Will The Market Cooperate?

I continue to prefer Steel Dynamics (STLD) among U.S. steelmakers, but Nucor (NUE) has been the better performer over the past year (they're tied over the last two years, and STLD wins the five-yr comp), and the shares are up about 15% since the Christmas Eve 52-week low on renewed enthusiasm over better steel demand and pricing in 2019. I do like Nucor's comparatively stronger leverage to long products and plate (where I think prices will be noticeably better in 2019 relative to hot-rolled coil), but I think investors will need to wait until 2021/22 to see year-over-year growth in EBITDA again (on a full-year basis), and I see more that can go wrong with pricing and demand at this point than what can go right.

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Nucor Has The Right Mix, But Will The Market Cooperate?

Steel Dynamics Getting No Love Despite Excellent Margins And Cash Flow

These remain tough days for the steel sector. Although protectionist policies and healthy end-markets have significantly improved the price environment for U.S. producers like Steel Dynamics (STLD), Nucor (NUE), and ArcelorMittal (MT), prices have softened and meaningful capacity expansions are now on the board. With Steel Dynamics planning the biggest expansion so far announced, there are renewed risks that this marks the peak of the cycle, even though the capacity expansion makes a lot of sense for the company for the long term.

When I last wrote about steel stocks in late September, I was concerned that the risk/perception of peaking steel prices and EBITDA would make it difficult for these stocks to get ahead, even though I thought Nucor looked a little too cheap relative to Steel Dynamics and other steel stocks. Since then, both stocks have weakened further, but Nucor has noticeably outperformed Steel Dynamics over that limited time period. The nearly 25% pullback in Steel Dynamics does make the stock more interesting today, and the “stronger for longer” bull argument could still prove valid, but this looks like a tough place to earn market-beating returns.

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Steel Dynamics Getting No Love Despite Excellent Margins And Cash Flow

Wall Street Believes Winter Is Coming For Steel Dynamics

Metal spreads have continued to improve, but steel prices in the U.S. have come off their highs and analysts are now modeling 2018 as the peak year for Steel Dynamics’ (STLD) EBTIDA for this cycle. Fading prices and fading EBITDA expectations are never a good combo for commodity companies, and although these shares have outperformed peers on a one-year and year-to-date basis, the performance in recent months has been lackluster.

I do believe that Steel Dynamics is undervalued now and I do believe this is a relatively better place to be in the steel sector, but this looks more and more like a difficult place to make money for at least the next few quarters. Protectionist measures and a healthy economy may support a “stronger for longer” steel cycle, but I think it will be hard for these shares to significantly outperformance unless pricing and/or volumes really surprise.

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Wall Street Believes Winter Is Coming For Steel Dynamics

Tenaris Has A Lot Of Appealing Qualities, But Undervaluation Isn't One Of Them

The Tenaris (NYSE:TS) story is an odd one. As far as companies hugely exposed to oil and gas drilling activity go, Tenaris has held up better than most through this downturn, with quarterly operating income only recently turning negative and EBITDA remaining positive throughout. Adding to the strangeness, this is a company that will make a double-digit EBITDA margin in a trough year, and has seen EBITDA margins go north of 30% in peak years, despite the fact that industry capacity is usually around double the level of demand (or more) in all but the best of years, and there are numerous commodity producers in China and South Korea willing to operate at razor-thin margins (or take losses) to stay busy.

What's not so odd is that this company's shares have strengthened on expectations that 2016 will mark the bottom for the U.S. onshore energy sector, and that important markets like Argentina will likewise contribute to meaningful growth in the coming years. While I think Tenaris is a well-run company and I am bullish on the prospects for the company's efforts to improve its mix and go-to-market strategy to drive better results, the shares already trade above what would seem fair in a normalized scenario.

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Tenaris Has A Lot Of Appealing Qualities, But Undervaluation Isn't One Of Them

Seeking Alpha: Steel Dynamics Grinding Through The Lows

I continue to believe that Nucor (NYSE:NUE) and Steel Dynamics (NASDAQ:STLD) are extremely well-run steel companies, but it's hard for even the best-run companies to make a lot of headway when imports help push prices down almost 40% in a year. Likewise, weakness in energy, off-road machinery, and "general industrial" is an ongoing concern going into 2016.

The good news is that Steel Dynamics has some internal efforts that can help, including ongoing improvements at the Columbus facility and efforts to improve its market penetration in categories like auto production. It also looks as though the government is going to help, as there seems to be a lot more momentum behind efforts to punish artificially cheap steel imports.

Valuation is a head-scratcher. The shares look about 10% undervalued on 2016 EBITDA, but closer to 20% undervalued on 2017 EBITDA and the company has continued to generate cash flow throughout this downturn. I'm not sure there is such a thing as a buy-and-hold materials company, but if you think the outlook for the U.S. economy is going to improve as 2016 goes on, Steel Dynamics could be a name to consider.

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Steel Dynamics Grinding Through The Lows

Seeking Alpha: ArcelorMittal Down, But Not Out

You'd be hard-pressed to find a steel stock that has done worse since my last favorable write-up on ArcelorMittal (NYSE:MT). The shares are down about 13% since then, about as much as Latin American steel companies Ternium (NYSE:TX) and Gerdau (NYSE:GGB), but worse than Nucor (NYSE:NUE) and much, much worse than Steel Dynamics (NASDAQ:STLD), AK Steel (NYSE:AKS), and U.S. Steel (NYSE:X).

That ArcelorMittal is underperforming AK Steel and U.S. Steel isn't shocking to me; less efficient players like U.S. Steel and AK Steel do better in recovering markets and both of those companies are more highly leveraged to the U.S. market (one of the stronger steel markets today). Some of the other relative performances are a little harder to explain; tempting as it may be to blame ArcelorMittal's woes on weak iron ore, even Vale (NYSE:VALE) and Fortescue (OTCQX:FSUGY) (both iron miners) have outperformed ArcelorMittal over the past three-plus months. With all of that said, I'm still bullish on ArcelorMittal as a play on better steel prices, production rationalizations, and a global construction recovery.

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ArcelorMittal Down, But Not Out

Seeking Alpha: Share, Prices, And Costs Seem To Be Working In Nucor's Long-Term Favor

Commodity stocks can be frustratingly counter-intuitive during recoveries, as it is often the inferior companies that outperform. I don't know if anybody will argue that Nucor (NUE) isn't the best-run steel company in the business (or at least very near the top), but over the past year the shares of AK Steel (AKS) and U.S. Steel (X) have dramatically outperformed Nucor.

This year has been a little more frustrating, though, and Nucor has been outperforming on a relative basis - just barely negative while Steel Dynamics (STLD), AK Steel, U.S. Steel, and ArcelorMittal (MT) have fallen around 5% to 15%. Nucor doesn't immediately jump out as a cheap stock on conventional multiples, but the company's cost-reduction efforts should improve long-term margins and the company is still waiting for the recovery in construction that should boost demand, utilization, and margins.

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Share, Prices, And Costs Seem To Be Working In Nucor's Long-Term Favor

Seeking Alpha: New World Resources Fighting Hard To Keep A Recovery In Play

It doesn't matter if you look at U.S.-only miners like Arch Coal (ACI) or James River (JRCC), international miners like Rio Tinto (RIO) and Peabody (BTU), or European miners like Mechel (MTL) and New World Resources (OTC:NWFFF) (NWR.L), there is a whole lot of pain in the sector as companies struggle with low prices and particularly in the met coal world.

The largest miner in the Czech Republic and one of the largest in Europe, New World is scrambling to cut costs and rationalize production in order to stem losses and cash burn in the midst of difficult pricing. I believe the company's moves will keep them in the game for at least a little while longer, but it's going to take met coal prices above $160 per tonne for New World to make it. With that, New World is not a particularly interesting idea if you buy the current sell-side expectations for met coal prices during 2014-2018, but should met coal prices go another run to $180 or higher, these shares will likely do very well.

While these shares technically have a U.S. ticker , that is for all intents and purposes a dead listing. The best practical way these shares is to own those traded on the LSE (the NWR.L), though shares do trade in Prague and Warsaw as well.

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New World Resources Fighting Hard To Keep A Recovery In Play

Investopedia: Gerdau Seeing Brazil Get Better, But U.S. Ops Are Struggling

The wait for the turnaround in the steel industry has been a challenging one for shareholders. While some companies, including U.S. minimill operators Steel Dynamics (Nasdaq:STLD) and Nucor (NYSE:NUE) and foreign producers like Ternium (NYSE:TX) have seen their shares turn around, other steelmakers like ArcelorMittal (NYSE:MT), U.S. Steel (NYSE:X), and Gerdau (NYSE:GGB) have had a rougher go of it.

Sentiment seems to be turning around for Brazil-based Gerdau. Steel companies there are having more success in pushing through higher prices and demand has been pretty solid from customers in autos, aviation, and other types of heavy industry. What's interesting, though, is that sell-side enthusiasm isn't really reflected in their estimates, and Gerdau doesn't look all that cheap on a near-term numbers basis. While improving conditions in Brazil and a pick-up in the U.S. could definitely lead to upward estimate revisions, the bull case does require investors to look out beyond just the next 12 to 18 months of EBITDA.

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Investopedia: ArcelorMittal Looks Like A Good House In A Really Tough Neighborhood

Although the U.S. mini-mill companies Nucor (NYSE:NUE) and Steel Dynamics (Nasdaq:STLD) have beaten the market over the past year, these are still tough times in steel, as stocks like U.S. Steel (NYSE:X), POSCO (NYSE:PKX), and ThyssenKrupp really have not been strong. Even though it may enjoy the reputation of being the best integrated steel company out there, that reputation hasn't helped ArcelorMittal (NYSE:MT) that much, as the stock has languished in a tough steel market. These shares do seem undervalued, but it's probably going to take more optimism about the global economy for shareholders to see the benefits.

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Investopedia: Another Quarter, Another Warning From Steel Dynamics

Tuesday evening marked a continuation of a pretty unfortunate trend for Steel Dynamics (Nasdaq:STLD), as the company once again revised its quarterly guidance lower. Although Steel Dynamics' situation may not be identical to other domestic steelmakers, it would seem that investors would continue to do well in approaching these stocks with caution for the time being.

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http://www.investopedia.com/stock-analysis/2012/Another-Quarter-Another-Warning-From-Steel-Dynamics-STLD-NUE-CMC-X0913.aspx

Investopedia: Another Challenging Quarter At Steel Dynamics

Unfortunately, another quarter is in the books and the song pretty much remains the same for the steel industry. Customers are pushing back fairly successfully on price hikes, and demand in traditional steel-heavy applications just hasn't recovered as expected. Steel Dynamics (Nasdaq:STLD) still looks undervalued, but it's tough to be patient with a lagging stock in an otherwise reasonably good market.

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http://stocks.investopedia.com/stock-analysis/2012/Another-Challenging-Quarter-At-Steel-Dynamics-STLD-NUE-AKS-X0420.aspx

Seeking Alpha: If High Steel Prices Stick, U.S. Steel Has A Lot Further To Go

All you really need to know about whether U.S. Steel (X) stock will outperform this year is how strong steel prices will be. Simple, right? If only. Although steel prices have been heading higher in recent weeks and commentary from top mini-mills Nucor (NUE) and Steel Dynamics (STLD) has been constructive, there more than a few worries about the health of key markets like autos, construction, and energy.

A Tough Q4, But Who Cares?
By and large U.S. Steel had a disappointing quarter. Sales climbed 12% from last year, but dropped 5% from the third quarter. Shipment volume wasn't bad (especially in flat roll), but pricing was a little disappointing outside of the flat roll business. Worse, costs were quite a bit higher despite improved utilization and overall segment operating profit wasn't a profit at all. At the bottom line, U.S. Steel missed analyst expectations by a fairly significant amount.

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If High Steel Prices Stick, U.S. Steel Has A Lot Further To Go

Investopedia: Nucor's Rally Leaves Little On The Table

Since the title of this article largely hints at the conclusion, let me make it clear that I think Nucor (NYSE:NUE) is one of the best commodity companies in the world and maybe one of the best-run companies in the country. The question for 2012, then, is whether the market for steel products can develop even more favorably than a generally bullish chorus analysts already expect. 

2011 Ends on a Shrug  
Although Nucor's year-on-year comparisons for the fourth quarter look strong, whatever happened last year may as well have happened 100 years ago for all it matters to current market conditions. So, 25% revenue growth and 120% earnings before interest, taxes, depreciation and amortization (EBTIDA) growth is all well and good, but largely irrelevant to investors. (For related reading on EBITDA, see EBITDA: Challenging The Calculation.)

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http://stocks.investopedia.com/stock-analysis/2012/Nucors-Rally-Leaves-Little-On-The-Table-NUE-STLD-MT-AKS0130.aspx

Investopedia: The Market May Have Already Given Steel Dynamics Its Due

I have made little secret of my admiration for Steel Dynamics (Nasdaq:STLD). I think it's one of the best-run steel companies in the world, and offers an excellent growth profile in an industry that seldom gets much credit for quality management or strategy. Unfortunately, I didn't follow my own advice to buy this stock about a quarter ago and now it looks like it may be too late. (For more, see Earning Forecasts: A Primer.)

Another Quarter, Another Warning  
One of the best signs that momentum is with a stock is that bad news doesn't really knock it off stride. To that end, Steel Dynamics warned the Street in December 2011 that the fourth quarter results weren't going to be as good as they hoped. As is often the case, what is true for Steel Dynamics is broadly true for Nucor (NYSE:NUE), and this larger mini-mill operator likewise announced a weaker fourth quarter would be coming.

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Investopedia: Still Waiting On Steel Dynamics

Once again, investors are being asked to look ahead to the future with Steel Dynamics (Nasdaq:STLD). Tepid construction activity and iffy auto sales have kept a lid on this very efficient American steel company, but investors write this one off at their own risk. While a roaring recovery across STLD's markets is not likely in the near-term, the current stock price does not seem to account for this company's competitive position nor its full cycle earnings potential.

Q3 - Not Good, But Better than Feared  
Like its larger rival Nucor (NYSE:NUE), Steel Dynamics warned investors earlier that this quarter was not going to be as strong as the original projections suggested. Perhaps counter-intuitively, the stocks in the steel space were actually fairly strong that week as investors seemed to be relieved that conditions were better than their worst-case fears.

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http://stocks.investopedia.com/stock-analysis/2011/Still-Waiting-On-Steel-Dynamics-STLD-X-MT-NUE-CLF-AA-UNP1023.aspx

Investopedia: Play Steel Dynamics For The Next Materials Story

Every commodity and resource boom is a little different, but it is not uncommon to see divergent trends between materials. Materials like copper and iron ore can have their runs only to be followed later by the likes of steel and aluminum. With steel prices starting to firm up, and industrial conditions staying strong, now might be a good time to consider the likes of Steel Dynamics (Nasdaq:STLD).


A Solid Open to the Year
Due in part to strong pricing, Steel Dynamics surpassed the average revenue estimate for the quarter. Investors should note, though, that there was a very wide range of published estimates ($1.1 billion to $2.2 billion). In any case, revenue rose nearly 30% from last year and almost 32% sequentially. Average selling prices rose 21% from the year-ago level, and more than 18% sequentially, while shipments rose about 10% on a sequential basis. (For more, see Steel Cycle Looks Good.)

The company's cost and profit performance was also stronger this time around. Scrap costs were higher, but operating efficiency handily surpassed that increase. Gross margin jumped more than a full point from last year, and nearly six full points from the fourth quarter. Operating margin improved even more - up more than 160 basis points from last year and more than tripling from the fourth quarter.


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http://stocks.investopedia.com/stock-analysis/2011/Play-Steel-Dynamics-For-The-Next-Materials-Story-STLD-NUE-AKS-PKX-CMC0420.aspx

Investopedia: Nucor And The Steel Sector Look Toward A Better 2011

Nucor (NYSE:NUE) was the last major U.S. steel company to report earnings in this cycle, but many of the themes in the results and outlook were familiar. Mini-mill operators Nucor and Steel Dynamics (Nasdaq:STLD) and conventional steel makers AK Steel (NYSE:AKS) and U.S. Steel (NYSE:X) are clearly all different companies, but every company pointed to a tough fourth quarter, improved pricing in early 2011 and a stronger overall outlook for steel demand. Barring any odd twists in the economic situation, it looks like 2011 will be a better year all around, as better pricing seems to not only be sticking, but outpacing cost growth. 

Nucor Probably Glad to be Done With 2011
Although 2010 was by no means a disaster for Nucor, the last half of the year was a tough operating environment as the company was squeezed by so-so pricing and higher costs. For the fourth quarter total revenue dropped 7% though external shipments climbed about 15% and realized prices climbed about 14%. Scrap costs were also considerably higher in the quarter, though, climbing about 30% from last year.

Talking about the quarter and its outlook, management did point to signs of improvement in demand as well as a solid pricing environment. Though not specific to Nucor, the increase in hot-rolled prices since November lows has roughly doubled the increase in scrap costs, so that is clearly moving in the right direction for Nucor. Moreover, the company is moving ahead with a direct reduced iron plant in Louisiana - a plant that will help the company's cost structure over time, as direct reduced iron is an important ingredient in improving the quality of steel produced by mini-mills. (For more, see Steel Cycle Looks Good.)

The Look Around
As mentioned, Nucor's results were directionally in line with the rest of the U.S. steel sector for the fourth quarter. Steel Dynamics reported that shipments and pricing were soft on a sequential basis (that is, comparing the fourth quarter of 2010 to the third quarter), while up by a low-teens rate on a year-over-year comparison. Steel Dynamics also pointed to a revival in demand and a firm pricing outlook for 2011. Investors should keep in mind that both Nucor and Steel Dynamics are relatively leveraged to construction - a market that has yet shown only the barest signs of recovery. (For more, see Is Now The Time To Invest In Steel?)


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http://stocks.investopedia.com/stock-analysis/2011/Nucor-And-The-Steel-Sector-Look-Toward-A-Better-2011-NUE-STLD-AKS-X0131.aspx

Commercial Metals - A Tough Market May Be Getting Better

Although the sector has had a rough 2010, the stocks of many players have been doing a lot better of late, as investors take a more encouraging view of steel prices and demand in 2011. As Commercial Metals (NYSE:CMC) earnings reflect, though, there are still a lot of pressures in the industry and a great 2011 is no guarantee. 

Fiscal First Quarter Results - Some Good, Some Bad
In many respects, CMC's earnings this quarter are a microcosm of the industry; some good and some bad, with reasons for cautious optimism. On a simple top line basis, for instance, revenue was up 27% from last year as units like recycling and American mini-mills did well (each up about 41%) and no units had year-on-year declines. Within that top line number, the company saw total mill tons shipped increase 9%, with fabrication tons shipped up a similar 8%. Selling prices were also strong, with domestic prices up almost 20% and foreign mill prices up more than 30%.

Profitability also improved from the year-ago level. Although scrap costs were quite a bit higher (up 17% domestically and 23% overseas), per-ton operating profits still grew almost 22% and 45% at home and abroad, respectively. Interestingly, the purchase prices for scrap (as opposed to the cost of scrap used) were even higher, and that could be an issue. Still, the company reversed a year-ago operating loss and was profitable on an as-reported basis. 


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http://stocks.investopedia.com/stock-analysis/2010/Commercial-Metals--A-Tough-Market-May-Be-Getting-Better-CMC-STLD-NUE-X-MT-VALE-TCK1223.aspx

A Rare Opportunity In Steel Dynamics (STLD)

Along with Peabody (which I also wrote on recently), this is one of the few companies where I actually believe what management tells me and trust them to run the business.

Sadly, an increasingly novel concept...

http://community.investopedia.com/news/IA/2008/A-Rare-Opportunity-In-Steel-Dynamics-STLD1022.aspx