Should You Invest in Nucor Corporation?

PHOTO CREDIT: Nucor Corporation

OVERVIEW

Nucor Corporation designs and manufactures steel products in the United States, Canada, and Mexico. They design and manufacture everything from sheet steel products, beams, reinforcing products, and other infrastructure products that they make from recycled as well as other raw materials.

Why You Should?

1. Nucor is a great infrastructure play in a portfolio as they are one of the largest companies that make the essential products to build roads, bridges, and other buildings by both government and private companies. Regardless of who our next president will be, spending on infrastructure will continue to increase and will benefit the company’s future growth.
2. Nucor was seeking to reduce its operating costs to make steel cheaper and they used the idea of a Mini-Mill to do this. This reduced the operating costs of making steel as the company can use scrap to make their products now. This will benefit the company to sell cheaper products to more consumers as well as allowing it to build a stronger balance sheet.
3. Nucor has given guidance for its Q3 2020 earnings at a time where there are few companies guiding their investors due to uncertainty. This shows that Nucor has seen stability as the economy starts to return to normal. A strong economy means that more infrastructure is being built and this will benefit Nucor.

Why You Should Not?

1. Nucor faces tough competition from several other players such as US Steel in the Steel Industry. Pricing for infrastructure matters and the company needs to be on top of cutting costs in an effort to get more contracts. This tough competition might hurt the company in the future.
2. The COVID-19 Pandemic resulted in less infrastructure being build and the demand for some infrastructure (such as office spaces) to decrease as people worked and studied from home. Roadwork projects were also limited in some cities to prevent COVID-19 exposure amongst the construction workers. This negatively impacted the company’s sales.
3. Nucor has to deal with trade tensions and they are adversely impacted due to more trade restrictions. This administration has taxed foreign steel and construction products which have led to tariffs on Nucor’s products. This will negatively impact the company’s international growth until the trade war is solved.
4. Nucor has seen a drop in both revenue and profit in the financial year of 2019 due to volatile steel prices and volumes. This uncertainty will negatively impact the company’s top and bottom line and force them to slow growth and investment. In the financial year of 2019, the company reported revenues of around 22.6 billion and profits of around 1.3 billion. Both of these metrics are lower than what the company reported in the financial year of 2018 when they had revenues of around 25 billion and profits of around 1.4 billion.

PHOTO CREDIT: Yahoo Finance

MY OPINION

In my opinion, I think that Nucor Corporation is a great long-term investment due to the bipartisan effort to increase infrastructure spending, a stronger economy, and the drastic reduction of operating expenses. However, volatile steel prices and volumes, part of which were caused by trade tensions, as well as a Pandemic and tough competition might keep investors away from this company.