How a Fund Manager Says Goodbye to a Winning Stock
Time to take the money and run on Nucor (NUE)? After holding the specialty-steel producer since 2005, John Buckingham, manager of the Al Frank Fund and chief investment officer at Al Frank Asset Management, is cutting the stock loose. After rising more than 35% from its low last May, Nucor has become too expensive for Buckingham based on such key ratios as price to book value, sales and analysts’ consensus estimate of 2013 earnings.
The stock chart above confirms his observations. Price to book and price to sales have indeed crept up and stand near their highest levels in nearly two years. On other occasions when the ratios were around present levels, the stock tumbled. The next chart makes for more ominous viewing for Nucor shareholders. It shows that the forward PE multiple has risen at a much steeper angle than the other ratios and by more than the share price. Forward PE stands at a two-year high, a suggestion that the stock is running ahead of earnings estimates.
An assessment of Nucor’s valuation based on projected earnings growth, the forward PEG ratio, shown below, sends the same message. A figure below 1 means that a company’s annual earnings growth is forecast to exceed the present PE ratio and suggests that its stock is cheap. Nucor’s forward PEG ratio has risen substantially, to 1.09 from barely more than 0.3 in late 2011.
Conrad de Aenlle, a contributing editor at YCharts, has covered investment and personal-finance topics for more than 20 years, writing for The New York Times, International Herald Tribune, Los Angeles Times, Bloomberg News, Institutional Investor, MarketWatch and CBS MoneyWatch. He can be reached at editor@ycharts.com.
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