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Minyan Mailbag: Will Nucor Bounce?


...if Nucor felt that business was going to be really strong for a sustained period of time, wouldn't it have a higher dividend payout ratio?

Prof. Udall,

I'm glad
someone is talking about the low P/E calculations on peak earnings. Nonetheless, you're losing me on the specifics of the Nucor (NUE) example. Nucor's FCF has been north of $4 a share since 2003 if the numbers I am seeing are correct. The company has roughly $900 million in debt and over $2 billion in cash. On a market cap of $16 billion, this looks pretty cheap.

What am I missing in your argument?
Do you believe NUE's earnings are like to implode?
At what price is NUE a buy in your opinion?
How far do you see it falling from current levels?

I started building a position in the $48-$50 range and would appreciate your feedback.


Minyan Henry,

Thanks for the questions and interest. It's hard to say how far NUE's EPS may fall. As I stated in the piece it does have a big catalyst of the summer Olympics in front of it and the stock could bounce pretty well. However, I have a hard time thinking it will produce much "sustained" long term EPS growth from current levels.

What happens after the Olympics? What happens with this compression in housing construction? What happens with the tear-down and rebuild market? What happens to the refinance and remodel home market? Is there much bearishness out there in the steel stocks currently?

Again, my biggest concern is probably more of a total risk reward scenario. As it seems the positive catalysts are pretty well-known (China and commercial infrastructure markets), plus the fact that the stock has been a five-bagger in the last three years and now even the long term chart is looking pretty shaky.

As I said in my article, I don't like commodity stocks in this environment, so I wouldn't have a buy level. The 200 dma is right at $60 so if the stock can clear that level again, maybe it will be back to full health.

I guess my last fundamental comment would be that if NUE felt that business was going to be really strong for a sustained period of time, wouldn't it have a higher dividend payout ratio?

Good luck with the investment and keep checking in with Minyanville.

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