Investors in steel giant Nucor (NUE -0.98%) had a great day on Thursday, with the stock exploding as much as 11% higher before succumbing to selling pressure on a red day for the markets, and ending with just a 3.7% gain.
Today, the selling continues. Indeed, with its 6.5% loss as of 11:50 a.m. ET this morning, Nucor stock has been dragged down below where it traded before reporting its earnings beat yesterday. Is that fair?
Nucor beat earnings yesterday. Analysts forecast the company would earn only $7.30 per share in its fiscal first quarter, but it actually earned $7.67. What's more, management predicted that the upcoming second quarter will be the most profitable quarter in its history, buoyed by strong demand for steel, high prices in the company's raw materials division, and increased profitability at its sheet and plate mills.
As my Motley Fool colleague Reuben Brewer pointed out yesterday, Nucor's sales rose only 1% sequentially in the first quarter on slightly lower steel prices. Combined with the market as a whole selling off, this may have been enough to give investors second thoughts about wanting to own Nucor today. And yet, if not up much sequentially, revenue was still up 50% year over year.
Viewed in that context, the relatively weaker growth quarter-to-quarter since the end of last year doesn't seem like a good reason to suddenly turn around and start selling Nucor stock -- certainly not when it's selling for less than 6 times earnings, and still paying a 1.2% dividend yield.
Admittedly, Nucor is a cyclical company, and with earnings pegged for more than $28 per share this year (according to analysts polled by S&P Global Market Intelligence), and forecast to drop back down below $10 next year (also according to analysts), Nucor is probably closer to the top of its profits cycle than to the bottom right now.
But with so much of the global steel industry essentially taken off-line by the war in Ukraine, and little prospect for the lifting of sanctions on Russia in the near term, I suspect Nucor's historically high profits might last a bit longer than many investors expect -- and I wouldn't bet on that big drop in 2023 actually happening as forecast.
I believe the folks buying Nucor stock have a better argument than the people selling Nucor stock today.