Nucor: Don't Heed Its Warning
Shares of this large steelmaker still are a good bet despite a profit warning from the company.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
The news out of Nucor's headquarters in Charlotte, N.C., drew liberally from the playbook of corporate jargon. Earnings will be "significantly impacted." Sales are showing "softness." There's "uncertainty in the future direction of the market" for steel because of the housing slump and the overall economy. You get the idea.
Nucor (symbol NUE), America's largest steelmaker by total stock market value and second by revenues, said September 12 that when it announces third-quarter profits in the middle of October, earnings per share will trail the $1.70 earned in the year-earlier period by 32% to 35%. It added, more ominously, that profits will fall short of analysts' average estimate of $1.23 per share for this year's period by as much as 11%.
The company's shares, however, climbed after Nucor issued its profit warning.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The company announced the coming shortfall before the market opened on September 12. The stock, which had closed at $53.46 the previous day, closed at $56.30 on the day of the disclosure. It closed at $58.77 on September 19, down 0.2% for the day.
These warnings are usually a blow to stockholders. Sonoco Products (SON), which makes packaging materials, warned of weak third-quarter earnings September 18, only hours before the Federal Reserve lowered the target for the federal funds rate by half a percentage point and sent investors into a buying stampede. The thundering herd nonetheless trampled Sonoco's shares. They started the day down 7% and stayed down.
The most notorious profit warning in recent history has to be the one from Apple's Steve Jobs in September 2000. Jobs said that Macintosh sales were slowing rapidly and that earnings would "hit a speed bump" in the final quarter of the fiscal year that was to end that September 30. The stock fell 53%, from $53.50 to $25, when trading began the next day.
So what is the difference between profit warning A and profit warning B? If you own a stock and the company issues discouraging news, what should you expect?
Here's a guide, from Rob Arnott, an experienced investor and chairman of Research Affiliates, a money-management company in Pasadena, Calif.
Says Arnott: Your stock should survive okay if "the market hasn't priced the stock to reflect the expectation of perfection and there's no sign that things are changing to the long-term outlook for the company."
This is a good description of the Nucor case. The stock was nowhere near its 52-week high, nor did it carry an inflated price-earnings ratio on the day of the warning, so you could hardly call the shares "priced for perfection."
Plus, most of the yardsticks for the steel industry -- or at least the non-unionized, mini-mill segment of it -- remain positive. Prices for scrap steel, which mini-mills use in production, have been rising, but that should stop soon. The slowdown in U.S. car manufacturing hurts, but flat-rolled sheet steel used for autos is only 10% of Nucor's sheet sales, and that in turn is only one of Nucor's many product lines.
Moreover, although Nucor (and other domestic steel producers) complain about surging imports from China, there are fresh reports questioning the quality of Chinese steel. All of this should support Nucor's production volumes and profit margins and boost its stock.
Credit Suisse just added the company to its focus list, citing the Fed's rate cuts as positive for the economy. At today's price, Nucor trades at 11 times estimated 2008 profits. That's less than the historical average of 14 times year-ahead earnings.
-
Dow Leads in Mixed Session on Amgen Earnings: Stock Market TodayThe rest of Wall Street struggled as Advanced Micro Devices earnings caused a chip-stock sell-off.
-
How to Watch the 2026 Winter Olympics Without OverpayingHere’s how to stream the 2026 Winter Olympics live, including low-cost viewing options, Peacock access and ways to catch your favorite athletes and events from anywhere.
-
Here’s How to Stream the Super Bowl for LessWe'll show you the least expensive ways to stream football's biggest event.
-
If You'd Put $1,000 Into AMD Stock 20 Years Ago, Here's What You'd Have TodayAdvanced Micro Devices stock is soaring thanks to AI, but as a buy-and-hold bet, it's been a market laggard.
-
If You'd Put $1,000 Into UPS Stock 20 Years Ago, Here's What You'd Have TodayUnited Parcel Service stock has been a massive long-term laggard.
-
How the Stock Market Performed in the First Year of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Lowe's Stock 20 Years Ago, Here's What You'd Have TodayLowe's stock has delivered disappointing returns recently, but it's been a great holding for truly patient investors.
-
If You'd Put $1,000 Into 3M Stock 20 Years Ago, Here's What You'd Have TodayMMM stock has been a pit of despair for truly long-term shareholders.
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
-
If You Put $1,000 into Qualcomm Stock 20 Years Ago, Here's What You Would Have TodayQualcomm stock has been a big disappointment for truly long-term investors.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
