Not every investor wants to invest in a cyclical sector. But it can be an important addition to a well-diversified portfolio. Nucor (NUE 2.21%) is the largest pure-play steel and steel products company in North America.
While it is most commonly thought of as more of an income stock than a growth stock, shares popped as much as nearly 12% at one point this week. The stock has now moved off a three-year low it hit in early April. That was aided by the 10% surge it has made this week as of early Friday morning, according to data provided by S&P Global Market Intelligence.
This week’s move came after President Donald Trump announced the doubling of steel tariffs to 50% and officially implemented that raised level on June 4. That could be a meaningful move for the leading domestic steel company.
Image source: Nucor.
Watch the cash-flow cycle
Nucor has poured more than $10 billion into growth investments over the past five years. Many of those projects are just beginning to contribute to earnings. Two important projects will also begin ramping up operations later this year. Its largest current project — a new greenfield sheet mill in West Virginia — is expected to complete construction by the end of next year.
That makes it a good time to look at an investment in Nucor. It looks to be near the bottom of a free-cash-flow cycle with capital spending beginning to decrease in coming years as those investments start generating revenue.
Nucor generated over $8 billion in free cash flow in 2022 and another $5 billion in 2023. It dropped to negative $495 million in the first quarter, though. That could mark a point close to the bottom if the U.S. economy continues to grow.
The tariffs supporting steel prices will only reinforce the strength in Nucor’s business. Investors may be sensing a turn for this cyclical stock with the tariff catalyst. That helps explain the outsize move in Nucor stock this week.
