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With sizable cash reserves, Nucor may interest value investors

|Includes: Nucor Corporation (NUE)

Tim Biggam, TradingBlock  (October 4, 2011, 3:05pm CDT)

Symbol Analyst Target Price Target Date
NUE 40.00 March 1, 2012

Nucor Corporation (ticker: NUE) and its affiliates manufacture steel and steel products. Nucor also produces direct-reduced iron (NYSE:DRI) for use in the Company’s steel mills. It operates in three segments: steel mills, steel products, and raw materials.

The stock has dropped nearly 30% this year, with NUE currently trading near the March 2009 lows. Implied volatilities are also at extreme levels, which in the past have portended market bottoms.

With $7.21 in cash per share, and $1.5 billion in cash flow, the balance sheet is rock solid. Indeed, cash per share is almost 25% of the market cap, a nice cushion for value investors. Nucor has expanded its debt load recently to take advantage of record low interest rates.

Technically, the shares held support at the 30 level, confirming an oversold 14 day RSI reading. With a 4.5% dividend yield, NUE should start to attract buyers on a relative yield basis.

I look for NUE to fight its way higher towards the 40 area by next March.

Play of the Day

Based on  Nucor Corporation's (ticker: NUE) current market price of $31.57 and using a target price of $40.00, a target date of March 1, 2012 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.

Click on the strategy name below to access trade details using TradeBuilder on TradingBlock.com. Powered by TradingBlock's TradeBuilder.

Strategy (click for details) % Return at Target Probability of breaking
even or better
Buy Apr Call Spread +113% 47%
Buy Apr Call +98% 42%
Sell Apr Put Spread +62% 54%
Buy Stock +27% 59%

* Subject to change due to changing market conditions.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services.