Investing Club: We're sticking with Nucor for now, but its rally to new records may not last

Published Thu, Mar 24 20223:44 PM EDTUpdated Thu, Mar 24 20223:57 PM EDT

Kevin Stankiewicz @in/kevinstankiewicz @kevin_stank

We're holding onto our position in Nucor (NUE), even as shares of the steelmaker climb continue to hit all-time high after all-time high. We want to offer Club members an update on our thinking about the stock at this point. As a reminder, we trimmed our position three times already this month along to lock in profits and raise cash. On March 14, we sold 100 shares for around $130 for about a 33% gain. On March 2, we sold 50 shares for around $138 for about a 42% gain. On March 1, we sold 50 shares for around $129 for about a 27% gain. Jim Cramer's Charitable Trust, whose holdings serve as the Club's portfolio, now holds 250 Nucor shares at a roughly 1% weighting, with on an average cost basis of just over $98 each. Nucor was up another roughly 4% on Thursday, trading round $153 per share. A higher close would be its fifth straight for a stock that's gained more than 33% year to date, making it among the 20 best-performing stocks in the S & P 500 in 2022. Why stick with it? So why not trim some more Nucor at $20 higher than our last sale? We're tempted but going to let it ride for a bit because we've taken a lot of profits in Nucor lately — eight total sales back to November 2021. You also have to let your winners stretch their legs when they're on a roll. However, we are on high alert because we know how quickly commodities can turn and a Thursday filing revealed the CEO sold some stock in the prior session. The rally in Nucor could be late in the game. Estimates still too low We've been saying for months — all the way back to last fall — that Wall Street's earnings estimates for Nucor are too low because, in our view, analysts were misjudging the resiliency of steel prices given the demand environment. To be sure, estimates have since been raised. As of Thursday, analysts believe Nucor will earn $19.53 per share in fiscal year 2022, according to FactSet. That's up by more than $1 per share since late January and $4 per share since October. Most upward revisions may already be in, but we still feel estimates are probably too low for this best-of-breed operator. We also think rising commodity prices may dent the profits of other industrial names that cannot completely pass through their higher costs to customers. If that happens, Nucor's potentially stronger-than-expected earnings could be received more favorably by investors and propel the stock higher. For these reasons, we think it's prudent to continue owning Nucor here. The Club has a 2 rating on Nucor, which we generally consider a hold recommendation. What's next for Nucor? Nucor is set to report first-quarter results in a few weeks, on April 21. Last Thursday, Nucor announced guidance for the period, saying it expects Q1 EPS between $7.20 and $7.30 . That's slightly below the $7.39 analysts expect, according to FactSet. We also mentioned in the Club's "Morning Meeting" that day that second quarter earnings estimates seemed light based on the update. The company also offered some color on how its business was progressing in last week's pre-announcement. Continued solid demand across most end markets we serve combined with the strength of Nucor's business model provide confidence that 2022 will be another very strong year. We have recently announced price increases across the steel mills segment and expect profitability to improve. Recent geopolitical events and the resulting price increases for steelmaking raw materials have accentuated the value of Nucor's adaptive business model and flexible raw materials profile. Nucor's buyback program has continued, too. As of March 17, the North Carolina-based company said it repurchased about 4.3 million shares at roughly $115.35 apiece. (Jim Cramer's Charitable Trust is long NUE. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A truck driver chains down a roll of steel to his flatbed at the NUCOR Steel Gallatin plant in Ghent, Ky.

Timothy D. Easley | AP