Nucor, IBD Stock Of The Day, Breaks Out As Cyclicals Show Strength – Investor's Business Daily

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Nucor

Nucor

NUE

$5.65 4.8% 132%

IBD Stock Analysis

  • Broke above 122.16 buy point in heavy volume
  • Added to IBD Leaderboard and SwingTrader
  • Other steel, material and mining stocks rallying

Composite Rating

Industry Group Ranking

Emerging Pattern

Cup with Handle

* Not real-time data. All data shown was captured at 1:48PM EST on 01/05/2022.

Nucor (NUE) is Wednesday’s IBD Stock Of The Day as the steel producer, enjoying record profits, led a move higher by materials stocks. NUE stock broke out of a bullish base Wednesday.

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To start 2022, Wall Street has bid up cyclical stocks that have the mettle to hold strong amid expectations for strong growth, elevated inflation and a series of Fed rate hikes this year. NUE stock, among the big S&P 500 gainers in today’s stock market action, charged past a buy point from a cup-with-handle base.

On Wednesday, NUE stock was added to IBD’s elite Leaderboard portfolio. IBD’s SwingTrader platform also established a new position in NUE stock.

Fellow steelmakers Commercial Metals (CMC) and Cleveland-Cliffs (CLF), both members of the flagship IBD 50 list, also are among a long list of materials stocks rallying this week. Copper mining giant Freeport-McMoRan (FCX) and infrastructure play Vulcan Materials (VMC) rose in buy zones.

Steel’s Cyclical Sweet Spot

Bank of America’s 2022 investment outlook points out that materials stocks have historically been the best-performing group, just ahead of industrials, in the three months leading up to the first Fed rate hike of the cycle. That’s on point, as markets price in 67% odds for a Fed rate hike at the March 16-17 meeting.

BofA’s base case calls for an “inflationary boom” — elevated inflation and growth. “Sectors and industries with pricing power (Energy, Materials, Industrials — infrastructure related — and Financials), economic leverage and strong profits growth mixed with attractive valuations dominate the year.”

Steel has something extra going for it in this cycle: passage of the $1.2-trillion infrastructure bill, which includes $550 billion in new spending. Nucor CEO Leon Topalian has said that approval could boost U.S. steel demand by as much as 5 million tons per year for every $100 billion of new investment. However, given the time to get projects up and running, it’s not clear how much of a boost will come before 2023.

Nucor’s Record Profit ‘Warning’

On Dec. 15, Nucor said it expected record earnings in Q4 of $7.65-$7.75 per share, up from the prior record of $7.28 in Q3. But NUE stock sold off, since guidance was below analysts’ $7.95 consensus estimate.

However, Wall Street estimates for 2022 paint a less rosy picture, with full-year EPS seen falling nearly 30%. The potential issue isn’t demand, but growing supply. Among the new supply, Nucor’s $1.7-billion steel plate mill under construction in Brandenburg, Ky., is on track to start production in late 2022, serving military, infrastructure, heavy equipment and offshore wind energy sectors.

NUE Stock Analysis

NUE stock surged 4.8% to 122.72 Wednesday afternoon. That was enough to hold Nucor above a 122.16 handle buy point. The chart pattern is evident on a weekly MarketSmith chart. The buy range runs through 128.27.

Despite the sell-off on Dec. 15, NUE stock found support at its 50-day average. Today’s breakout in heavy volume suggests institutional buying.

The Leaderboard analysis notes that NUE stock is breaking out from a second-stage base, an early-stage pattern that is more likely to bear fruit.

However, the relative strength line, the blue line in the chart provided, is off its August peak, reflecting underperformance vs. the S&P 500 since then. In other words, NUE stock hasn’t fully established its future leadership credentials. But the RS line is hitting a four-month high.

Still, NUE stock has an excellent 98 IBD Composite Rating, a single rating combining technical and fundamental factors.

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