Contents
The Emerging Boom in North America
A significant transformation is underway in North America, characterized by a resurgence of domestic production and major upgrades to infrastructure. This burgeoning boom offers immense opportunities for businesses poised to capitalize on it.
The Scale of the Opportunity
Since early 2021, over $1.4 trillion worth of projects, each valued at $1 billion or more, have been announced. These ventures present a golden opportunity for companies like Nucor and Eaton to thrive. Investors might want to keep an eye on their stock performance, as potential discounts could make them attractive buys.
Nucor: A Steel Industry Powerhouse
Nucor stands out as a leading and diversified steel manufacturer in North America. Utilizing electric arc mini-mills, Nucor efficiently adjusts production to meet market demand, thereby maintaining strong profit margins throughout the steel industry’s cyclical nature. In contrast, competitors relying on outdated blast-furnace technology often grapple with significant losses during economic downturns.
The Demand for Steel
With more than 440 major projects in the pipeline, the demand for steel is set to surge. Although Nucor may not secure contracts for every project, the potential for substantial demand from those it does win is high. This demand is expected to bolster Nucor’s revenue and earnings, reinforcing its position as an industry leader.
Dividend King Status
Nucor’s appeal extends beyond just its operational capabilities. As a Dividend King, it has increased its annual payouts for over 50 years, even amidst the steel industry’s volatility. Despite current challenges, such as a glut of cheap imported steel driving its stock price down by approximately 30% since early 2024, Nucor presents a compelling long-term investment opportunity.
Investors should be mindful of the steel industry’s cyclical nature. For instance, Nucor’s stock price plummeted nearly 60% during the pandemic-induced recession. Should another bear market or recession occur, it might be wise to consider investing more heavily in Nucor.
Eaton: A Company on the Rise
While not a Dividend King, Eaton boasts a 15-year streak of dividend growth. This pause in raises was due to a significant acquisition that transformed Eaton into a leading supplier of electrical management equipment.
Positioned for Growth
Eaton is strategically positioned to benefit from the $1.4 trillion in upcoming mega projects. With a global presence and a vast product portfolio, Eaton has consistently adapted to changing market conditions over its century-long history.
Dividend Growth
Over the past decade, Eaton has increased its dividend at an annual rate of 7%, significantly outpacing inflation. This growth ensures that the purchasing power of its dividends remains robust.
Market Dynamics
Eaton’s stock has recently dipped about 10% from its highs, a common fluctuation of 20% to 30% is not unusual. If market conditions cause a further drop, Eaton’s shares could become an enticing buy, especially given its potential to benefit from the impending construction boom. Notably, Eaton’s backlog in its Americas division has grown by 29% year over year, with a book-to-bill ratio of 1.2, indicating a healthy pipeline of future earnings.
Potential Investment Opportunity
Market downturns often result in broad sell-offs, impacting even strong stocks like Nucor and Eaton. Should their prices fall further, particularly in light of the favorable outlook for North American mega projects, these stocks might be worth adding to your investment portfolio.
Investment Considerations for Nucor
Before investing in Nucor, consider this insight: The Motley Fool Stock Advisor team has pinpointed what they believe are the 10 best stocks for investors right now, and Nucor is not on that list. These selected stocks have the potential for significant returns in the coming years.
For example, when Nvidia was recommended on April 15, 2005, a $1,000 investment would have grown to $710,860 by now. The Stock Advisor service provides investors with strategic insights, portfolio guidance, and regular updates, consistently outperforming the S&P 500 since 2002.
Explore the 10 stocks ›
Stock Advisor returns as of September 17, 2024
