Sweet Smells From Stinky Steel

Skilled investors have a keen sixth sense, but I'm not suggesting they can commune with the dearly departed. Rather, successful investors possess the ability to detect the scent of profit in the air before the rest of the herd.

Offering a welcome counterpoint to U.S. Steel's (NYSE: X  ) $267 million loss, scrappy rival Nucor (NYSE: NUE  ) posted a fourth-quarter profit of $58.9 million to cap its string of consecutive quarterly losses at three. Like smaller competitor AK Steel (NYSE: AKS  ) , however, Nucor took a sizable LIFO credit ($116.9 million) to achieve that result. Moving forward, looming margin pressure from rising scrap costs foretells of an untimely reversal to LIFO charges, and returning near-term threats to overall profitability.

Some day, the U.S. steel industry will return to sustained profitability and begin to resuscitate the massive dormant capacity idled by this steep and protracted economic downturn. Just like Warren Buffett's forward-looking investment in the future strength of the U.S. economy -- referring to Berkshire Hathaway's (NYSE: BRK-B  ) purchase of Burlington Northern Santa Fe (NYSE: BNI  ) railroad -- Foolish investors will want to arrive early to beat the rush once the smell of profit wafts through the industry.

Great idea, Mr. Buffett
In the not-too-distant future, I intend to initiate my own long-term investment in the future strength of the American economy by purchasing shares of Nucor. I may not dive in right away, since the valley of disconnect between the widespread recovery expectations underlying equity markets and the stark reality of enduring economic weakness still has this Fool bracing for a substantial equity correction. Consider some nuggets of insight from the steely straight-talker himself. According to Nucor CEO (and registered Fool) Dan DiMicco:

The fact is, the market stinks ... no product group, no product type, no end market is anywhere near back to where it was two years ago. Raw material costs are putting pressure on everybody.

Looking to the telltale construction markets, DiMicco cautions that "the early part of this year will probably be worse than last year." That's saying a mouthful! Grueling losses reported this week by Cemex (NYSE: CX  ) and wallboard manufacturer USG (NYSE: USG  ) offer nothing in the way of counteracting expectations.

Eventually, I expect Nucor's strategic advantage from the use of electric arc furnaces to translate into relative strength as the industry gets back on its feet. The company enjoys ample liquidity to protect against a double-dip, and a loyal workforce thankful for the no-layoffs policy retained throughout this downturn. I will signal Fools after I place this Buffett-inspired wager on the prospects for truly sustainable economic recovery. I won't expect a breakneck pace for gains, and I may spend some time underwater like so many brave homeowners, but I look forward to an investment that's based upon hope for nothing less than the return of American prosperity.

Have you placed your own Buffett-style bets on the eventual restoration of strength in the American economy? Please share your hopeful picks in the comments section below, write a pitch for your fellow CAPS members, and vote in our Motley Poll.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns no shares in the companies mentioned. Berkshire Hathaway and USG are Motley Fool Inside Value recommendations. Berkshire Hathaway and Cemex are Motley Fool Stock Advisor selections. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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