When a sector gets hot enough, finding a winning stock takes about as much talent as falling into a pool and getting wet. And so too is it for the companies themselves -- good times can make even poor operators look good. But when times get tough, the companies that last are the ones that are well-run and well-positioned for the long haul.
In the steel sector, Nucor
If you're just tuning in, you might not see what all the hubbub is about. After all, sales were up 4% and earnings per share were up about 3% on flat net income. The exciting bit, though, is that Nucor's result surpassed the average expectation by a pretty fair mark, and guidance for the next quarter was much higher than the prior estimate. Consequently, it's a pretty safe bet that analysts will be adjusting their future expectations . again.
Looking at some of the operational statistics for the quarter, ASP's were down about 10% from last year (but up sequentially), while tons shipped increased 15% (down 4% sequentially). On the cost side, Nucor's average scrap cost declined 14% from last year's level, and energy costs rose about $10 per ton.
What makes Nucor special isn't just that it has better margins or returns on capital than other American operators like U.S. Steel
I also like the fact that I don't have to make heroic assumptions to get an attractive target price on Nucor. In fact, you could assign them a negative mid-single-digit cash flow growth rate for the next five years, and a growth rate matching expected global economic growth thereafter, and you'd end up with a target that pretty much matches today's price.
So as long as it's able to hold steady, there should be value here. That's the sort of situation that appeals to my inner cowardly cheapskate. So while the recent boom in steel stock prices and the chatter about global steel M&A has lifted the prices on the good and bad alike, long-term investors might still find value in Nucor.
For more cold-wrought Foolishness:
POSCO is a Motley Fool Income Investor recommendation.
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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