Summary
- NUE is within 3% of 52-week low
- Dow Theory says that NUE may fall to the $38 or $32 level
- Standard technical analysis says next levels are $40 or $32
- Commodity cycle (steel) could drop further
- Drastic increases in earnings and dividends could revert to long term mean
- 35 years of dividend increases
Nucor Details
Just on the horizon with a declining price trendline is Nucor (NUE). NUE is described by Mergent Online as a company that, "...produces and sells steel and steel products via its steel mills and steel products segments."
As of today, NUE is within 2.35% of the one year low. On the technical side, according to Dow Theory, NUE potentially could fall from 22% to 33%. The 22% represents a price of $38.09 which is part of Dow Theorist E. George Schaefer’s 50% Concept.[1] The 33% represents a price of $32.78, which is derived from the standard Dow Theory 3-phase analysis.
Using standard technical analysis we see that the fact that NUE has fallen below the $50 level could spell disaster for this stock. The next meaningful support level is at $40 and is followed up at the $32 levels. Considering the fact that Dow Theory and standard technical analysis converge at the $40 and $32 levels we can conclude that $40 is the next stop for this stock with a $32 not far behind.
According to Valueline, NUE typically trades at or near the 10x cash flow level. Interestingly, the last time this stock broke resoundingly above the 10x cash flow level was in 2002. It appears that NUE has the pattern of trading up to the 10x level but not going too far above for a long period of time. 10x cash flow means that this stock is expected to trade up to the $65.10 level based on Valueline’s 2007 full year numbers. Currently, NUE is 25% below Valueline’s cashflow figures. If we took NUE’s average low price/cashflow over the last 11 years then we arrive at a $36.65. This would be the most ideal purchase price.
As of today, NUE is within 2.35% of the one year low. On the technical side, according to Dow Theory, NUE potentially could fall from 22% to 33%. The 22% represents a price of $38.09 which is part of Dow Theorist E. George Schaefer’s 50% Concept.[1] The 33% represents a price of $32.78, which is derived from the standard Dow Theory 3-phase analysis.
Using standard technical analysis we see that the fact that NUE has fallen below the $50 level could spell disaster for this stock. The next meaningful support level is at $40 and is followed up at the $32 levels. Considering the fact that Dow Theory and standard technical analysis converge at the $40 and $32 levels we can conclude that $40 is the next stop for this stock with a $32 not far behind.
According to Valueline, NUE typically trades at or near the 10x cash flow level. Interestingly, the last time this stock broke resoundingly above the 10x cash flow level was in 2002. It appears that NUE has the pattern of trading up to the 10x level but not going too far above for a long period of time. 10x cash flow means that this stock is expected to trade up to the $65.10 level based on Valueline’s 2007 full year numbers. Currently, NUE is 25% below Valueline’s cashflow figures. If we took NUE’s average low price/cashflow over the last 11 years then we arrive at a $36.65. This would be the most ideal purchase price.
According to Geraldine Weiss, editor of IQTrends, NUE is considered undervalued when the stock is yielding 1.4%. Currently, NUE is yielding 2.6%. NUE has sported double digit return on equity and return on assets in the low twenties and high thirties. While these are exceptional numbers we have yet to determine whether or not this is a new standard for the company. If nothing else, NUE is a candidate for takeover by the likes of Acelor Mittal.
NUE’s earnings have been relatively smooth until 2004. After 2004 the earning figures jumped 17 times the 2003 numbers. Likewise, the dividend jumped dramatically from $0.24 to $0.93 to $2.15 in 2004, 2005 and 2006 respectively. Such drastic changes may have to be pared back when and if the commodity boom completely falls flat (if it hasn’t done so already.) However, NUE’s ability to remain lean and mean along with its 35 years of consistently increasing its dividend bode well for the stock price. Put this on your watchlist, do your research and be ready to buy. Touc.
[1] Schaefer, E. George. How I Helped More Than 10,000 Investors To Profit In Stocks. Prentice-Hall. 1960. p. 73.
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