Steelmaking is a hard business, and for investors in many of the companies in the industry, it's also proved to be a wonderful way to lose a lot of money. However, Nucor Corporation (NUE 1.80%) has broken the mold and made for a market-crushing long-term investment. A $1,000 investment in Nucor way back in 1980 would have generated more than $139,000 in total returns. Nucor's flexible operating model, management's incredible track record of allocating capital to keep the balance sheet strong, and timely acquisitions to grow its market share have all kept the company profitable for decades. 

But here's the question that matters the most: Is Nucor a buy now? Past success is important, but not if the company's prospects aren't what they once were. 

The short answer, in this Fool's opinion, is yes. Nucor is stronger than it has ever been, has the right leadership in place, and has excellent prospects for growth. Its shares may not be as dirt cheap today as they were a few months ago, but they're still cheaper than they've generally been most of the past decade. That makes Nucor a solid buy in my book. 

A hand drawing a scale with price on one side and value on the other.

Image source: Getty Images.

Why Nucor is the best steelmaker to own

The case for Nucor boils down to three things: operating model, balance sheet strength, and management's skill at capital allocation. Steelmakers supply some of the most cyclical industries out there, including homebuilding and commercial construction, energy and infrastructure, automotive, and many consumer products manufacturers. Since these are all industries that experience their own cyclical ups and downs, the steel industry can see big shifts in demand from one year to the next. 

With high fixed costs, falling demand can take a steelmaker from big profits to big losses quickly:

NUE Net Income (TTM) Chart

NUE Net Income (TTM) data by YCharts

Using the U.S. steel and iron mills producer price index as a proxy for steel prices and demand, this chart shows how sensitive steelmakers' profits are to sudden shifts in demand and/or prices. This is particularly true for traditional foundry-based steelmakers such as AK Steel (AKS) and U.S. Steel (X 0.53%), both of which have struggled with long periods of unprofitability over the past decade. Nucor, on the other hand, and smaller competitor Steel Dynamics (STLD 1.94%), use a different furnace technology that gives them greater financial flexibility to adjust their operating costs based on demand shifts. Like AK Steel and U.S. Steel, Nucor and Steel Dynamics also see their profits fall when steel prices and demand falls. The difference is how sharply those losses are for traditional foundry operators, versus the still profitable -- if less so -- operations of Nucor and Steel Dynamics. 

In short, Nucor's operating model makes it more resilient than most of its peers. That's paid off for investors for decades in share price and dividend growth. 

Nucor's near-term challenges 

The first half of 2017 has easily been the best six months for the company in a decade. However, the third quarter was a small step backward, with earnings declining both sequentially and from the third quarter of 2016. And while a profit decline isn't really ever "good" news, there is evidence that the truly short-term things are behind it, and Nucor is on track to come out the other side stronger and more profitable

Construction workers at a steel building construction site.

Infrastructure growth is a long-term opportunity for Nucor. Image source: Getty Images.

First, a Nucor iron production facility in Louisiana played a big role in last quarter's results. This facility, which produces direct-reduced iron, or DRI, has been an intermittent problem for the company since it opened, with multiple shut-downs costing millions in unplanned expenses and increasing iron costs. However, another Nucor DRI facility in Trinidad has performed nearly flawlessly for years, and management expects it can apply what has worked in that facility to get the Louisiana facility on track. Based on the company's long track record of excellent operations, I think it's reasonable to give management the benefit of the doubt on this one. 

Second is something that affects every U.S. steelmaker: illegal imports. For a number of years, several foreign countries have illegally subsidized their domestic steel production, giving them an unfair advantage over U.S. steelmakers. After trade actions a couple of years ago, imports started to fall last year, and prices improved as the market's competitive supply and demand returned to a more favorable balance.

However, illegal imports have surged again. According to Nucor CEO John Ferriola, finished steel imports were up 15% through the third quarter, with a substantial portion of that being products with illegal subsidies by the country of origin. As Nucor CFO Jim Frias put it, the result is that Nucor facilities have been "operating well below peak performance."

Don't let the short-term things cause you to miss the bigger opportunity 

Looking at the big picture, Nucor is in a very strong position to grow its profits. For starters, Nucor is making progress with the DRI facility, while the U.S. government is positioned to enact further trade actions to restore competitive balance to the steel market. Those two things alone should result in earnings growth for Nucor. 

Car frames on an assembly line.

Image source: Getty Images.

The good news is the company doesn't have to rely solely on those two things. Between a relatively strong economy and the need for major infrastructure investments in coming years, Nucor should see demand continue to grow from the energy, automotive, commercial and residential construction, and various other industrial steel users. 

Furthermore, Nucor's balance sheet, which includes $3 billion in cash and low-cost available debt on its credit facility, is a major strength. This is true whether it's riding out a cyclical downturn or making opportunistic acquisitions to further grow the company's market share and profit capabilities. 

Between the long-term prospects, a reasonable price for its shares, and a solid dividend it has paid for almost 45 straight years, investors who buy Nucor now and hold will probably be glad they did a decade from now.