Nucor (NYSE: NUE), an operator steel mills and marketer of steel products, closed at $32.27 Tuesday. NUE December option implied volatility of 91 is above its 26-week average of 73 according to Track Data, suggesting larger price movement.
AK Steel (NYSE: AKS), a producer of steel products, closed at $6.86 Tuesday. AKS December 7.5 straddle is priced at $2.40, January 7.5 straddle is priced at $3.50. AKS January option implied volatility of 158 is above its 26-week average of 102 according to Track Data, indicating larger price movement.
Mechel Steel (NYSE: MTL) closed at $4.59 Tuesday. MTL is a Russian mining, steel and power company. MTL December 5 straddle closed at $2.25, January 5 straddle closed at $3.15. MTL April option implied volatility of 185 is above its 26-week average of 117 according to Track Data, suggesting larger price fluctuations.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Nucor Corporation (NYSE: NUE) recently reported record second-quarter earnings of $1.94 per share, beating the consensus estimate by nearly 8% and topping the year-prior $1.14. Consolidated net sales of $7.09 billion also reached a record level, exceeding last year's $4.17 billion. For income, the company is yielding 2.3%, which well ahead of the industry average.
Company Description
Nucor and its affiliates, which make the most steel in America, manufacture steel products. The company's operating facilities are primarily in the U.S. and Canada. Nucor also brokers ferrous and nonferrous metals, pig iron and HBI/DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap. The company is also North America's largest recycler.
As the second quarter earnings crunch begins in earnest this week, the bear market has investors jittery and prognosticators spinning out dire warnings. In the wake of mixed results from Alcoa (NYSE: AA) and General Electric (NYSE: GE) kicking things off last week, here's a look at what Wall Street is expecting from many of the companies scheduled to report this coming week.
Analysts surveyed by Thomson Financial are expecting the following companies to report a rise in earnings when compared to the same period of the previous year.
Nucor Corp. (NYSE: NUE): $1.80 EPS (36.6%) on sales of $6.4 billion (+53.0%)
Google Inc. (NASDAQ: GOOG): $4.74 EPS (24.9%) on sales of $3.9 billion (+41.6%)
Nokia Corp. (NYSE: NOK): 56 cents EPS (23.2%) on sales of $19.9 billion (+17.8%)
CSX Corp. (NYSE: CSX): 90 cents EPS (21.1%) on sales of $2.9 billion (+12.8%)
Altera Corp. (NASDAQ: ALTR): 27 cents EPS (18.5%) on sales of $346.7 million (+8.4%)
IBM (NYSE: IBM): $1.82 EPS (+17.6%) on sales of $25.9 billion (+9.0%)
eBay Inc. (NASDAQ: EBAY): 41 cents EPS (17.1%) on sales of $2.2 billion (+18.0%)
"Global steel producers are thriving, and their stocks are hitting new highs," note Yiannis Mostrous and Roger S. Conrad, who add, "But the best is yet to come."
In the industry-leading Personal Finance, the two advisors explain, "We're still in the early stage of a truly global bull market cycle for steel, and the companies best positioned to take advantage are headed a lot higher." Here, they look at their "Iron Five."
"As is the case with other building blocks of economic growth, steel is enjoying explosive demand from the developing world. And with the world expanding as never before, steel companies are literally selling as fast as they can produce.
"In the August 2007, we highlighted five first-rate global steel producers. Since then, they've returned an average of 67.4%, versus a decline of 3.7% for the S&P 500.
"The Iron Five are five picks that we believe are ripe for even bigger gains. Like the last group, these stocks are often volatile. They're also vulnerable to the possibility of a general stock market slide and most of all to a dip in global demand growth, particularly from China.
US Steel (NYSE: X) shares are trading higher after competitor Nucor (NYSE: NUE) raised its earnings outlook for its upcoming second-quarter earnings. The previous forecast of 1.55 to 1.60 was lifted by 20 cents to 1.75 to 1.80. Analysts were looking for 1.69 and an upside surprise by NUE should signal good things for X as well. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on X.
After hitting a one-year low of $74.41 in August, the stock hit a one-year high of $185.55 last month. X opened this morning at $177.00. So far today the stock has hit a low of $175.25 and a high of $182.22. As of 12:55, X is trading at $183.10, up 9.88 (5.7%). The chart for X looks bullish but deteriorating slightly, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $140 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just seven weeks as long as X is above $140 at July expiration. US Steel would have to fall by more than 23% before we would start to lose money. Learn more about this type of trade here.
X hasn't been below $140 since March and has shown support around $170 recently. This trade could be risky if the stock has risen too quickly and has a correction, but even if that happens, this position could be protected by the support the stock might find at $150, where it formed a bottom in May.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in X or NUE.
MOST NOTEWORTHY: First Solar, Pride International and EnerSys were today's noteworthy downgrades:
Friedman Billings downgraded First Solar (NASDAQ: FSLR) to Underperform from Market Perform citing margin risk concerns, as the company aggressively pursues utility-scale projects in the US. The firm said risks are not reflected in share valuation near $300 and could be a source of disappointment but could also lead to downside EPS risk.
Wachovia said Pride International (NYSE: PDE) has the least potential EPS upside vs. peers given the company has contracted the highest percentage of its floater days into 2012E. Additionally, the firm views a takeout by Seadrill as unlikely. Shares were cut to Underperform from Market Perform.
Merriman downgraded shares of EnerSys (NYSE: ENS) to Neutral from Buy as they believe the strong Q4 results were driven by a one-time benefit from lead procurement mechanics and that data does not support the company's sustained margin expansion story.
OTHER DOWNGRADES:
Citigroup lowered Intuit (NASDAQ: INTU) to Hold from Buy.
UBS downgraded Nucor (NYSE: NUE) to Neutral from Buy.
Smart Modular (NASDAQ: SMOD) was downgraded at Oppenheimer to Perform from Outperform.
The Airlines Sector was cut by Soleil to Neutral from Outperform.
Nucor (NYSE: NUE) shares are falling after the company announced its plans to raise roughly $3 billion by selling stocks and bonds to raise money to buy other companies and pay off debt. The company intends to sell 25 million shares for more than $2 billion. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on NUE.
After hitting a one-year low of $41.62 in August, the stock has risen to hit its one-year high of $83.56 just last week. This morning, NUE opened at $79.13. So far today the stock has hit a low of $77.38 and a high of $79.61. As of 12:30, NUE is trading at $79.46, down $1.86 (-2.3%). The chart for NUE looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $90 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in five weeks as long as NUE is below $90 at June expiration. Nucor would have to rise by more than 14% before we would start to lose money. Learn more about this type of trade here.
After hitting a one-year low of $41.62 in August, the stock hit a one-year high of $76.48 last week. NUE opened this morning at $73.66. So far today the stock has hit a low of $73.24 and a high of $75.60. As of 12:20, NUE is trading at $73.92, unchanged from Friday's close. The chart for NUE looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $55 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just three months as long as NUE is above $55 at July expiration. Nucor would have to fall by more than 25% before we would start to lose money. Learn more about this type of trade here.
NUE hasn't been below $55 at all since January and has shown support around $67 recently. This trade could be risky if the global economy shrinks and reduces the worldwide demand for steel, but even if that happens, this position could be protected by the support the stock might find from its 200 day moving average, which is currently around $60 and rising. Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in NUE.
Nucor (NYSE: NUE) shares are trading lower today after along with the broader market after a weak first-quarter earnings report from General Electric Co. (NYSE: GE) stirred worries about the U.S. economy. A lower-than-expected consumer confidence reading also weighed on investors. If the economy does not make a quick recovery, steel manufacturers could be among the hardest hit stocks. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on NUE.
After hitting a one-year low of $41.62 in August, the stock hit a one-year high of $75.67 in March. This morning, NUE opened at $70.23. So far today the stock has hit a low of $69.20 and a high of $70.75. As of 11:20, NUE is trading at $69.45, down $2.20 (-3.1%). The chart for NUE looks bullish and steady while S&P gives NUE a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $75 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in just one week as long as NUE is below $75 next Friday. Nucor would have to rise by more than 7% before we would start to lose money. Learn more about this type of trade here.
NUE hasn't been above $75 by more than a few cents at all in the past year and has shown resistance around $72 recently. This trade could be risky if the economy gets some positive news in the coming week, but even if that happens, this position could be protected by resistance NUE has formed between $70 and $75 over the past month.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in NUE. He does own and control a bullish hedged position in GE.
TheStreet.com's Jim Cramer says U.S. Steel is a puzzle, and he ponders how to play it here.
U.S. Steel (NYSE: X) (Cramer's Take) presents the ultimate conundrum. It is hitting on all cylinders, courtesy of the incredible demand for steel domestically because of pipelines. And it is finally not suffering from dumped imports, because the dumpers are from countries growing so much faster than we are that they need all the steel they can get - China, for example, is struggling to build its own share instead of dumping.
John Surma, the CEO, has taken this once-great company right back to greatness with a rise from $9 to $127 in five years. That defies gravity. He has done that by cutting labor costs and growing the business, he has done it by emphasizing areas he can dominate and cutting ones he can t. And he has done it by taking advantage of the 30 bankruptcies in this sector, leaving him one of the few publicly traded companies left, including Nucor (NYSE: NUE) (Cramer's Take), which is a great company, AK Steel (NYSE: AKS) (Cramer's Take), which levitates all of the time on takeover talk and then DOESN'T come in, and Reliance (NYSE: RS) (Cramer's Take), which is another fave of mine.
After hitting a one-year high of $69.93 in June, the stock hit a one-year low of $41.62 in August. NUE opened this morning at $53.81. So far today the stock has hit a low of $53.77 and a high of $55.72. As of 10:.30, NUE is trading at $54.83, up $2.38 (4.5%). The chart for NUE looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $42.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just two months as long as NUE is above $42.50 at March expiration. Nucor would have to fall by more than 25% before we would start to lose money.
NUE hasn't been below $42.50 since August and has shown support around $52 recently. This trade could be risky if the sour feeling surrounding the economy continues to pull cyclical stocks like steel manufactures down, but even if that happens, this position could be protected by the support the stock might find around $50, where it has bounced twice in the past few months.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in NUE.
MOST NOTEWORTHY: Monster Worldwide, Business Objects, Arcelor Mittal, Walgreen and Sealy Corp were today's noteworthy downgrades:
Wachovia downgraded shares of Monster Worldwide (NASDAQ: MNST) to Market Perform from Outperform citing increased risk of an economic slowdown and execution issues in its N.A. Careers segment.
Credit Suisse downgraded shares of Business Objects (NASDAQ: BOBJ) to Neutral from Outperform on valuation with shares above their $46 target.
Banc of America downgraded Arcelor Mittal (NYSE: MT) to Neutral from Buy on valuation. The firm also downgraded Walgreen (WAG) to Sell from Buy, as they see further downside following the Q4 miss and believes the problems in Q4 are company-specific and not industry-wide.
Citigroup downgraded shares of Sealy Corporation (NYSE: ZZ) to Sell from Hold following the Q3 results, as they believe Sealy faces increased competitive pressures at the high end of the market where the best margins are derived.
OTHER DOWNGRADES:
Goldman Sachs removed Cisco Systems (NASDAQ: CSCO) and Nucor (NYSE: NUE) from its Conviction Buy List.
Nucor (NYSE: NUE), an operator steel mills and marketer of steel products, closed at $32.27 Tuesday. NUE December option implied volatility of 91 is above its 26-week average of 73 according to Track Data, suggesting larger price movement.
Here are some highlights from this past week's 
By Alex Kolb, 
As the second quarter earnings crunch begins in earnest this week, the bear market has investors jittery and prognosticators spinning out dire warnings. In the wake of mixed results from 
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Closing Bell: Stocks slump as AMD, AT&T, GM and Merck decline
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