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Stock Strategist Industry Reports

High-Quality Steelmaker Steals

We think Nucor and Commercial Metals are undervalued.

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 Nucor (NUE) and  Commercial Metals (CMC) are trading at the most compelling valuations across the U.S. steelmaking space. With considerable leverage to the production of long-rolled steel used in construction, Nucor and CMC are positioned to benefit from an upturn in U.S. nonresidential construction activity, which has lagged the recovery in other steel-intensive sectors. We expect robust construction spending growth across the most steel-intensive nonresidential project categories, such as infrastructure and manufacturing. Combining this view with our assertion that the U.S. steel industry is gradually emerging from a cyclical trough, we expect Nucor and CMC to generate attractive returns over the long run.

Nucor Remains Our Top Global Steelmaker Pick
The only investment-grade steelmaker under our coverage, Nucor offers the most attractive risk-adjusted return potential across our steel coverage universe. Our outlook for improving nonresidential construction spending supports our thesis for Nucor, as we think the company will be one of the biggest beneficiaries of this trend. Although Nucor manufactures nearly all major steel product lines via its fleet of minimills, the company offers a considerably higher degree of exposure to construction-related steel demand than its blast furnace-operating peers. The shares are currently trading at a significant discount to our $62 fair value estimate.

Andrew Lane does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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