Nucor (NUE) has a fantastic historical record of growing shareholder return. Shareholders in Nucor have realized a 17% CAGR since the year 2000, a return that thoroughly beats the overall market. Even better, the company has not laid off an employee due to work shortages in over 30 years. The practice of avoiding layoffs is a rarity in the cyclical steel industry. Nucor has accomplished its fantastic record of growth through treating its employees well. The company is one of the largest adopters and pioneers of the “pay for performance” employee incentive program. Employees as a whole are guaranteed at least 10% of the company’s profits, aligning employee incentives with shareholder and management incentives.
The company’s management is “confident the company’s best years are ahead,” but long-term macroeconomic conditions suggest otherwise. Nucor operates in the highly cyclical steel industry. The steel industry is currently in a down cycle, which has depressed the price of Nucor. The image below shows how the company’s Price to Book ratio hovers around 3.5 when the U.S. Steel (X) market is booming (pre 2009 in the picture), versus an average of below 2.0 when the U.S. Steel market is slumping. Continue Reading »