10. Nucor Corporation (NYSE:NUE)
Number of Hedge Fund Holders: 40
Cramer called Nucor Corporation (NYSE:NUE) “America’s best steel company”. Expounding on what happened after the company released its earnings on October 21, he said:
“Last night, Nucor reported and the market was not impressed. The stock ended up plunging $10 or 6.5% today. That’s unfortunate because this company’s a great bellwether for the whole material sector. And after what we heard last night, it’s clearly gonna take some time before these stocks can rebound after one rate cut. Now, Nucor’s results weren’t exactly a surprise. The company issues rough earnings guidance about two weeks before the end of every quarter.
That was a month ago. And this time, management pre-announced some disappointing earnings per share figures.
Wall Street was looking for a buck 73 per share, the management said it was expecting more than a dollar, maybe a dollar 30, a dollar 40 thanks to lower pricing caused by weak demand from a host of end markets like autos, farm equipment, and household appliances. But a funny thing happened here after that pre-announcement, it didn’t seem to matter to the stock. See, even before we got those numbers, Nucor’s stock had already fallen 34% from its highs in April to its lows in mid-September.”
Cramer highlighted how investors were “already circling on this one over a month ago, betting that it was ready to bottom”. He went on to say:
“And of course, it’s not a coincidence that the stock bottomed on September 11 right before the Fed leaked that we’ll likely get a 50 basis point double rate cut. Once we heard that, the stock caught fire because who cares about the current quarter when the Fed’s about to become our best friend again? Everybody knows the industrials benefit from rate cuts so they were willing to look past the weakness in the third quarter. But apparently they’re actually not willing to look past weakness in the fourth quarter, which is what we heard about last night and that’s what torpedoed the stock today.
It’s kind of a rude awakening. See, the headline numbers for the reporting quarter were slightly better than expected after last month’s hideous pre-announcement. Even though Nucor’s business is down substantially year-over-year, thanks in large part to weak pricing, they still delivered a clean revenue beat.”
Cramer mentioned that Nucor (NYSE:NUE) reported earnings of $1.49 per diluted share, 9 cents more than the high end of the pre-announcement, while the figure was 2 cents lower than what the analysts were expecting.
“Those third-quarter numbers were awful in absolute terms though, but everybody knew they’d be bad and nobody let that bother them for the past month. So what changed here? The outlook. Unfortunately, Nucor’s guidance for the current quarter was quite disappointing. Management made some grim comments on the conference call.
For the fourth quarter especially, Nucor said that its unadjusted earnings per share will be down from the third quarter they just reported, definitely less than a buck o five [$1.05] per share. Their steel mills in their finished product business are being hit by weaker volumes and lower average selling prices. Still, the only bright spot is the raw materials side of the business where volumes and pricing are stable while costs are coming down but it’s not enough to move the needle. What’s going wrong here? Aside from weakness in key end markets like construction, manufacturing, autos, management called out election uncertainty, geopolitical concerns, product delays, tight lending requirements, and elevated levels of imports for certain steel products.”
Calling the above a “parade of horribles”, Cramer went on to say:
“To be fair, Nucor also did call out some potential catalysts that could turn things around like more rate cuts, pent-up demand for residential commercial construction, and an extremely soft landing for the economy.
But there’s a reason they’re potential catalysts and not actual catalysts. It’s because they haven’t happened yet. Through it all, though, Nucor reaffirmed that they’ve been navigating economic cycles for five decades and emerged stronger every time. And I can tell you, that is definitely true, but it’s also cold comfort if the fourth quarter is gonna be worse than the third quarter.
When Nucor held its conference call this morning, it was a bit of a mixed bag and CEO Leon Topalian’s prepared remarks… I’m gonna quote here ‘The Federal Reserve’s recent actions are a good start, but it will likely take more time, more rate relief, and looser lending conditions before we start to see the flow through effect in the construction, industrial, and consumer durables market that are so impactful to steel demand.’
On the other hand, he called out several markets that do remain quite healthy, including construction related to semiconductor factories, advanced manufacturing facilities, data centers of course, and institutional buildings. Basically, the Fed is Nucor’s friend. But given the nature of the steel business, it takes a few more rate cuts for the friendship to really kind of bond, kick in. Looking into next year and beyond, Topalion pointed to all sorts of things that could turn around things for the steel industry. I agree with him, I think it’ll turn, but that doesn’t necessarily mean that stock’s worth buying on weakness right now.
Ultimately, there’s a reason the stock plunged 6.5% today. I don’t think Nucor is really doing anything wrong at all. I was just hoping we see more signs that materials space is turning, especially after all the bottom calls we heard over the past couple of months. But the turn clearly isn’t here yet. We probably need more rate cuts before I know I feel comfortable pounding the table on the steel or the other material stocks.”
Cramer mentioned that he thought it was the right time to buy the stock but has become circumspect after the earnings call.
“Now, if you’re willing to look a bit further in the future then I do think Nucor is worth buying on weakness. However, I’m starting to get a little concerned by this relentless rise in longer-term interest rates ever since the rate cut from the Fed last month. Yesterday we got conflicting messages from the Fed. Mary Daly, president of the San Francisco Fed, she says she doesn’t see a reason to stop cutting rates, but then Minneapolis Fed president Neel Kashkari says he favors a slower pace of rate cuts. He’s currently a non-voting member, still influential.
Personally I’m confident in the Fed. I believe that they’ve tamed inflation. However, we might not get true clarity on the rate hike front or a cut front until after the election. Both candidates have potentially inflationary policies but in different ways and to different extents. Two days after the election, we’ll learn the outcome of the next Fed meeting. Might be worth putting Nucor on hold until we know more, that’s how I’m approaching it. As much as I would like to tell you to dive into Nucor here, because I’ve loved it so long… But after last night’s update, I’m a little less sanguine.”
Cramer said that the weak quarter wasn’t surprising but the guidance was, which makes it harder for him to root for the company presently. He concluded by saying:
“If I had to decide today, I’d still guess that the Fed keeps cutting, rates come down in 2025, and cyclicals like Nucor and the rest of the materials stocks can be big winners. But you know what, we don’t have to decide that today. Given that the situation’s uncertain, we can keep watching and gathering information for the next couple of weeks. Won’t be too late to make a decision on Nucor when we know more about where we’re headed. But I am again concerned. I know I was premature in thinking it could bottom today. It didn’t. I gotta wait and see.”
Nucor (NYSE:NUE) manufactures and sells a variety of steel products, serving customers across North America. The company also engages in raw materials production and processing, providing essential materials for steel manufacturing and other industries. During the first 9 months of 2024, the company announced consolidated net earnings of $1.74 billion, or $7.22 per diluted share. This contrasts with consolidated net earnings of $3.74 billion, or $14.83 per diluted share, for the same period in 2023.
