There’s no sugar coating the facts — the nation’s second-largest steel producer struggled with softer prices and weaker margins in the first quarter, largely because of sluggish construction markets and cheaper imports from China. Last week, Nucor (NYSE:NUE) reported earnings that had slipped more than 9% from the same quarter last year.
But those numbers don’t tell the whole story. Stronger sales in the vehicle manufacturing and energy sectors are giving NUE a boost on production and shipping volume as well as price. Analysts expect the second quarter to be fairly soft, with $5.3 billion in revenue and an EPS of 76 cents. But they’re bullish about next year, forecasting an EPS of $2.75 on nearly $21 billion in revenue.
At around $39 today, NUE is still 17% below its 52-week high. The stock has a P/B ratio of 1.6 and a P/S ratio of 0.6 — though its forward P/E is on the high side at 17. On the upside, NUE does offer an attractive 3.7% dividend yield.
Like X and NUE, Luxembourg-based ArcelorMittal’s (NYSE:MT) earnings and share prices shriveled up when the global economy went south. As a European company, MT is feeling the pain of the sovereign debt crisis and EU recession more acutely. It also has a lot of debt — more than $26 billion, compared to less than $4 billion in cash.
ArcelorMittal is the world’s largest steel producer — but it’s also the fourth largest iron-ore mining company. That’s why low raw materials prices are a significant challenge to current earnings and margins and likely will continue to be pressured for the next couple of quarters.
Still, analysts are bullish about the future of MT, which next reports earnings on May 11. They estimate EPS of $1.95 this year to grow to $3.18 next year. Revenue also is expected to grow about 6% in 2013 to $98 billion. However, the best argument for MT is in the cyclical nature of the sector. Sooner or later, China’s manufacturing will get a second wind, Europe will get off the schneid and iron ore prices will rebound — and this undervalued stock will start to soar.
At around $16.50, MT still is 55% below its 52-week high. The stock trades at 0.5 times book, 0.3 times sales and 9 times forward earnings. And like Nucor, ArcelorMittal offers an attractive 3.7% yield.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.