What happened
Shares of Nucor (NUE 1.32%), the largest steelmaker in North America, rose as much as 15% this week, according to data from S&P Global Market Intelligence. At the open of trading on Friday, Feb. 4 the stock was higher by roughly 12.5%. But the gains didn't actually start this week.
So what
Nucor reported fourth-quarter 2021 earnings on Jan. 27. It was an impressive update, with the steelmaker announcing record quarterly earnings of $7.97 per share. That was up from $1.30 per share in the final quarter of 2020 and higher than the $7.28 per share it earned in the third quarter of 2021.
Nucor is not alone in its success. Peer Steel Dynamics (STLD 2.60%), for example, broke five records in its fourth quarter, including new highs for revenue, cash flow, and net income. Basically, steel companies ended 2021 on a very positive note. All of the major U.S. players, including United States Steel and Cleveland-Cliffs, have had a good week.
Image source: Getty Images.
At least part of that has to do with the outlooks provided during their earnings releases. Specifically to Nucor, management noted that, "End use market demand remains strong for steel and steel products, and we are confident that 2022 will be another year of strong profitability for Nucor." Steel Dynamics, which reported earnings on Jan. 24, was even bolder, explaining that, "We believe the market dynamics are in place for domestic steel consumption to further increase in 2022 when compared to 2021." Strong results and upbeat steel industry outlooks look like they got investors excited about the group, noting that Nucor's stock has been moving higher since it reported earnings last week.
Now what
To be fair, Nucor and its peers largely make commodity products. Steel prices move around and that plays an important role in investors' perceptions of the stocks in this group. However, with such positive outlooks, it's not shocking that investors are taking a glass half-full view of Nucor's future right now. And yet long-term investors still need to remember that steel is a highly cyclical industry. Good times, like the ones being experienced today, are eventually followed by hard times.
Indeed, given the historically modest dividend yield on offer from Nucor today (roughly 1.8%), it looks like the stock might be a bit on the expensive side. Long-term investors would probably be better off putting this name on the wish list for the next downturn rather than jumping aboard when Mr. Market is so enamored of it.
