Nucor Coulda Stayed Home

From the looks of it, Nucor (NYSE: NUE  ) CEO Dan DiMicco should have just rescheduled the earnings call for Monday and sent the management team golfing. At least that might have been rewarding. Today, the markets were in no mood to reward good earnings from one of Wall Street's top steel names.

Nucor handily beat estimates this time out, but today was a bad day for the stocks of basic-materials and metals companies. As a result, 21% revenue growth and 40% operating income growth went more or less unappreciated -- at least for now. But at least Nucor's doing its part, along with other mini-mill operators such as Chaparral (Nasdaq: CHAP  ) and SteelDynamics (Nasdaq: STLD  ) , to support my case that steel isn't quite dead yet.

As you might imagine, Nucor saw a pretty favorable mix of shipment growth, pricing, and cost containment. Shipments were up 15% from last year and 4% from the prior quarter, while pricing improved by 5%. On the cost side, scrap prices were flat from last year and up slightly from Q1, and energy prices continue to ease. What's more, management's commentary on guidance suggests that the rest of the year is shaping up pretty nicely.

I have the not-so-proud distinction of not picking up these shares about six months ago. Instead, I went with an even larger name in the steel industry, and though I'm up by a double-digit percentage, that performance has dramatically lagged that of Chaparral, Steel Dynamics, and Nucor. I guess protracted and ultimately overpriced acquisitions have a way of doing that.

Nucor has produced double-digit returns on equity in seven of the past 10 years, double-digit returns on capital in six of the past 10, and positive returns in every one of those years. That's a pretty remarkable performance when you stack it against U.S. Steel (NYSE: X  ) , POSCO (NYSE: PKX  ) , or frankly any other steel company.

That sort of quality is hard to come by, and it suggests to me that picking up these shares when they seem undervalued is a pretty Foolish thing to do. Steel will have its ups and downs, but good companies such as Nucor almost always deliver -- though you might have to wait a while to see the rewards.

For more heavy metal Foolishness:

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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