Horacio Marquez Says Nucor (NUE) Poised for Big Gains

Horacio Marquez — Mon, 08 Sep 2008 12:52:16 +0000

Steel-sector stocks have been taking investors on a roller-coaster ride lately. At one point this year, they had climbed a whopping 36%, but they are now down 16% for the year.

US steelmaker Nucor (NYSE:NUE) took a thumping along with the rest of the sector. Shares are down 18% for the year, dropping 42% from their peak for 2008.

However, Money Map Report editor Horacio Marquez reckons Nucor’s “terrific fundamentals” mean its shares are poised for big gains. He says, “all the technical indicators … point to a massively oversold condition in Nucor’s shares.”

Shares of the Charlotte, N.C.-based Nucor could not escape the carnage and have endured an even bigger swing: From their low of $50.30 a share in early January, the shares of the No. 1 U.S. steelmaker soared 66% to a trade at a high of $83.56. From their peak, Nucor’s shares have declined 42%, closing Friday at $48.45. They’re down 18% for the year.

This sell-off came on the heels of spectacular second-quarter earnings, where earnings per share jumped 70% to $1.94 a share on the back of major strengthening in global steel prices. The disappointment came from a charge to inventory and forward-looking guidance of $1.80 to $1.85 a share, which was below Wall Street’s expectation of $1.91 a share.

Nucor remains one of the most admired companies in the steel sector, thanks to its superb management, ability to innovate, unquestionable leadership in the mini-mill steelmaker sector, and its disciplined business model.

Wall Street has soured on the overall steel sector. Just last Thursday, investment banking giant Goldman Sachs (NYSE:GS) downgraded the sector from “Attractive” to “Neutral.” It maintained its “Buy” rating on both Nucor and United States Steel (NYSE:X), but removed the latter from its “Conviction Buy” list.

The million-dollar question is this: Are we trying to catch a falling knife, or are we poised to capitalize on a superb buying opportunity? Unlike most cases, in which a good argument can be made either way, the answer here is very clear-cut.

Indeed, the situation with Nucor’s shares stands as an interesting case study of how Wall Street – and the financial markets in general – can overlook the profit opportunities that are then left for us to discover. In this case, in fact, Nucor may actually have created the profit play.

Let me show you just what I mean.

Among other peculiarities of Goldman’s shift in opinion, coming after such a spectacular decline – where sector coverage was transferred from one analyst to another – was the investment bank’s recognition that the “valuations of some of these stocks reflect a doomsday scenario, which we believe is not what longer-term fundamentals suggest.”

I could not agree more with this last assessment.

You see, I have been calling my many contacts at hedge funds, on Wall Street, and with local businesses in New York, Brazil and even China to find out exactly what the global situation is with respect to steel demand, and steel prices.

Yes, here in the United States, car sales of 13 million are a temporary disaster. But the needs in terms of infrastructure are huge. And construction of condos, which seemed doomed not so long ago, will reignite pretty soon.

Prices in the real-estate bubble areas have collapsed, and lenders have taken already huge losses. Multi-billion-dollar funds, which had been waiting up to three years to start deploying their capital, are starting to invest, and are buying entire buildings at discounts of as much as 50 cents on the dollar. And even the noted doomsday prophesier – PIMCO manager William H. “Bill” Gross – recognizes that investing in distressed mortgages represents an interesting investment opportunity.

Indeed, this is actually an understatement: When you are one of the only bidders in the market, and the banks are forced sellers, you can name your price. And current prices of distressed mortgages have incredible discounts to the financial model prices in normal conditions, guaranteeing great returns for buyers.

These and other de-leveraging sales and recapitalizations are ultimately cleaning up the balance sheets of banks and allowing them to return to and resume their regular and profitable bread-and-butter lending business. Non-residential construction and other steel-consuming manufacturing have barely slowed down – and in some cases are actually increasing due to strong export growth.

No wonder the U.S. economy grew at a 3.3% clip in the second quarter. The August payroll numbers indicate that it is growing at 2% or more, without counting the effect of the fiscal stimulus. The relatively weak – but by no means recessionary – job picture guarantees that interest rates will remain on hold (at current low levels) for quite some time, helping the U.S. economy out of the temporary slump.

On the international front, my conversations with locals and other business reports I reviewed present a mixed bag for steel prices: Let’s take a look at the steel outlook in key markets around the world.

In Brazil, there is an imbalance between the supply and demand for slab steel that will take five years to fill.

China has slowed a bit – reaching high single-digit rates – due to the shutdown of factories and electricity in the major cities. But this was temporary, part of an overall strategy intended to clean the air and reduce overcrowding for the Summer Olympic Games. But all these activities are being restarted, even as we speak. China’s energy needs keep growing exponentially, which bodes well for the demand for steel for the new power plants. Out in China’s provinces, these needs are even more critical today, demanding that the construction of new plants and transmission lines – all of which require steel – get under way immediately. China’s Baosteel Group Corp. barely reduced prices to deal with its temporary oversupply. Japan and India did the same.

The Middle East slowed down construction for the summer, as usual, given the high temperatures and other seasonal factors. But South Korea’s steelmaking leader, POSCO Ltd. (NYSE:PKX), a favorite of U.S. investing guru Warren Buffett, saw no need to reduce prices. And Germany’s Salzgitter AG actually has increased prices, despite all the news about a supposedly slowing economy.

And while India’s economy has seen its growth slow to a still-robust annual pace of 7% to 8%, new steel mills are being planned in order to be able to keep up with that country’s massive infrastructure needs, for which no slowdown is seen.

The Most Undervalued Stock on the S&P 500?

Bryan Bottarelli — Fri, 02 May 2008 03:18:51 +0000

When you have a market that’s in the process of hammering out a bottom (as I believe we have right now), my “best investing idea” involves carefully adding some of the very best small cap stocks to your portfolio.

But how do you uncover and identify the very best small cap companies?

Well, the trick is to identify specific market niches that are in the very early stages of growth – and invest in the companies (if any) that are positioned to exponentially grow sales, revenues, and profits when these market sectors take flight.

In this spirit, here are three of the top market niches that I’ve recently identified – and the corresponding small cap stock charts that fit into each powerful category.

Market Niche: Bullish on Titanium

I find it amazing that we’re in the heart of a commodity boom – not one in a hundred commodity investors realizes that titanium (not steel) will soon be viewed as “The Metal of the 21st Century.” In fact, while steel stocks are blasting higher across the board, one small cap titanium stock (listed below) could be one of the best investing opportunity you see all year.

Here’s the situation…

Discovered in 1791 and named after Titans of Greek mythology, titanium is a light, strong, and corrosion-resistant metal with a grayish color. The two most useful properties of titanium are the fact that it’s resistant to corrosion and that it has the highest strength-to-weight ratio of any metal.

In its unalloyed condition, for example, titanium is as strong as steel but 45% lighter.

As you can imagine, this unique combination of strength, light weight, and corrosion resistance makes titanium useful in hundreds of applications. For example, it can be alloyed with iron, aluminum, vanadium, or molybdenum to produce alloys for jet engines, missiles, spacecrafts, petro-chemicals, or desalination plants.

If you’ve bought a new golf club in the last 12 months, odds are the overweight head on your driver is made of titanium.

And here’s the thing. When you consider the cost benefits of titanium on lifetime basis, the market is quickly discovering that no other metal is as reliable or as economical as titanium.

It’s categorized into the “Nonferrous Metals” group, which is defined as a metal (other than iron) such as copper, lead, zinc, nickel, and aluminum – and this is one of the specific sector niches that I’m bullish on right now.

The top small cap company that’ll capitalize off this titanium bullishness is Titanium Metals (TIE – NYSE). And in fact, TIE just might be the most undervalued stock on the S&P 500.

After all, if you run a screen of stocks on the S&P 500 that are down over 30% in the past three months and that also carry double digit earnings growth forecasts for the next fiscal year, the one company with the most attractive readings is TIE!

Their 3-month percent change is -42.5%, yet their Earnings Per Share growth rate currently stands at 35.3%. No other stock, which has fallen over 31%, has earnings per share growth this high. Not even Google (GOOG – Nasdaq)!

Therefore, you can realistically argue that TIE is the most under-valued stock on the S&P 500 right now. No other company with an EPS growth rate of 35% has fallen so far, and the best part is, most investors don’t realize this fact.

I’m currently recommending shares of TIE in my Bottarelli Research Small Cap letter, and I advise you to pick up some shares as well.

Sincerely,
Bryan Bottarelli
Editor, Bottarelli Research Small Cap

P.S. If you’d like more information on Bottarelli Research Small Cap, we invite you to review the letter below:

Contrarian Stock Market Investing News - Featuring Bargain Stocks » Steel Stocks

Horacio Marquez Says Nucor (NUE) Poised for Big Gains

The Most Undervalued Stock on the S&P 500?