Two Outstanding Shares to Invest in, Currently Sitting 20% Lower than Their Yearly Peak Prices
Two Outstanding Shares to Invest in, Currently Sitting 20% Lower than Their Yearly Peak Prices
Investors frequently oscillate between extremes, assigning lavish prices to some investments while undervaluing others. Currently, the S&P 500 is surging towards new record-breaking highs. However, certain sector leaders are struggling to keep up, with major players like United Parcel Service (UPS, -2.75%) and Nucor (NUE, -2.50%) currently around 20% below their 52-week peaks.
There are valid reasons to consider both of these underperformers.
UPS is in the midst of a turnaround
The reason why UPS is lagging behind the market is straightforward. In a nutshell, the company hasn't been performing at its best recently. For instance, through the first nine months of 2024, UPS's operating profit dropped to $5.5 billion from approximately $6.7 billion during the same period in 2023. The operating margin also reduced to 8.4% from 10.1%. Investors, needless to say, aren't enthused about the situation.
However, not all news is negative. UPS is one of a few significant package delivery companies. As more consumers shop online, the company is likely to benefit from this trend in the long term. Management is working tirelessly to enhance performance, and the efforts are starting to show results. The third-quarter operating profit increased to around $2 billion from $1.3 billion in the same quarter in 2023. The operating margin also improved to 8.9% from 6.4%. While it's not a full recovery yet, UPS seems to be heading in the right direction.
Furthermore, UPS has increased its dividend for 15 consecutive years. The stock currently offers an appealing 4.9% dividend yield. If you're comfortable with a turnaround situation, which appears to be approaching a crucial turning point, UPS could be an excellent addition to your portfolio.
Nucor is managing another industry swing gracefully
Nucor's story is drastically different. It's one of the largest steelmakers in North America, with a diverse business that includes both bulk steel and premium specialty products. Nucor is undeniably one of the best-managed steel companies in the world. However, the steel industry is inherently cyclical. Current market conditions are unfavorable, leading investors to sell off Nucor.
In numbers, Nucor's third-quarter revenue in 2024 decreased by 8% compared to the second quarter of the year and 15% compared to the third quarter of 2023. Despite the decline, this isn't an unprecedented event. When industry conditions are favorable, Nucor performs well. Conversely, it underperforms when conditions aren't favorable. However, over the long term, Nucor has consistently shown its ability to navigate industry cycles.
The best evidence of this is Nucor's status as a Dividend King, a select group of companies that have increased their dividends annually for at least 50 years. Achieving such a record, especially in a cyclical industry like steel, is a testament to exceptional management. Nucor's strength lies in its focus on reinvesting in its business, particularly during weak periods, when it can maximize its investment returns. Currently, the company is in the midst of a capital spending plan, which management believes will prepare Nucor for even brighter future prospects. This is a story that should appeal to long-term investors.
Still standing strong
UPS and Nucor are time-tested companies with impressive histories of success. It's undeniable that both companies are facing challenges, with their stocks currently around 20% below their respective 52-week highs. Despite the broader market reaching new record highs, long-term investors might want to give these two industry giants a closer look.
Considering their current underperformance in the market, it's worth exploring potential investment opportunities in both UPS and Nucor. Despite facing challenges, UPS is showing signs of improvement with a turnaround strategy in place, as evidenced by its increasing third-quarter operating profit and improved operating margin. The company's strong online shopping trends and consistent dividend payouts make it an appealing investment for those comfortable with turnaround situations.
Similarly, Nucor, another industry giant, is navigating the cyclical steel industry well. Despite current market conditions leading to a decrease in revenue, Nucor's status as a Dividend King and its focus on reinvesting during weaker periods demonstrate its ability to weather industry downturns and prepare for future growth. This long-term focus should appeal to investors seeking steady performance.