BHP Billiton plc (ADR) (BBL), Nucor Corporation (NUE): Steel Buys for the Industry’s Inevitable Rebalancing

The Domestic Innovator

Nucor Corporation (NYSE:NUE) has an impressive history of innovation which has led to highly efficient steel mills. That said, the company’s main market is the United States and the housing bust had a big impact on performance, driving the top line down by more than 50% between 2008 and 2009. Sales picked up for a few years, but now appear to be heading lower again, though not as dramatically as during the recession.

Prior to the recession, Nucor Corporation (NYSE:NUE) shares traded hands in the $80 range, today they are in the mid $40s. The dividend yield is around 3.1%. The annual disbursement, however, has been increased regularly. Debt, meanwhile, is low at about 30% of the capital structure. Although the company’s fortunes are tied to the U.S. economy, it’s more than strong enough to survive the inevitable soft patches.

International Steel Giant

Industry giant ArcelorMittal (ADR) (NYSE:MT), meanwhile, saw its top line fall some $10 billion between 2011 and 2012. With high fixed costs, earnings plummeted from about $1.20 a share to a loss of $2.40. This year hasn’t seen much of an improvement.

That said, the company is somewhat unique in that it supplies a lot of its own raw materials, including iron ore, coal, and coke. That allows the company to control costs to a degree that many of its competitors can’t. Moreover, the globally diversified steel maker has notable exposure to emerging markets, which should allow it to benefit as those higher growth regions start building again. And it is a major supplier to key industries like the autos, which are currently in a recovery phase.

Debt only makes up about 30% of the capital structure, it yields around 5%, and its price to book value ratio is about half of its five-year average. When the steel market recovers, this giant has plenty of upside potential and will probably start to move earlier than competitors focused on mature markets.

A Shifting Industry

Supply and demand are powerful forces and they almost always work to an equilibrium over time. The steel industry has been knocked out of balance and it’s trying to get back to normal. BHP, Nucor Corporation (NYSE:NUE), and ArcelorMittal (ADR) (NYSE:MT) all have the staying power to survive that process and the ability to prosper once supply and demand are in sync again.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Nucor. The Motley Fool owns shares of ArcelorMittal. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Three Steel Buys for the Industry’s Inevitable Rebalancing originally appeared on Fool.com is written by Reuben Brewer.

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