Motley Fool: Nucor weathers downturns

Recently sporting a market value of $17.4 billion, Nucor (NYSE: NUE) is America’s largest steel producer and North America’s largest recycler of steel. The use of electric arc furnaces and mini-mills has helped fuel its success, and it’s known for avoiding layoffs, too. Built on a solid financial foundation, Nucor has posted profits in many tough years when peers posted losses.

Nucor likes to get stronger during industry downturns, when bargains abound. Since 2009, it has built a direct reduced iron ore facility to help ensure it has access to low-cost steel for its mills. It has also acquired steel foundation distributor Skyline Steel, flat-rolled steel mill Gallatin Steel, two cold finished bar mills, a plate mill, and three pipe and tube mills. Nucor also expanded operations at multiple facilities, and it’s building a new mill in Canada and another through a joint venture in Mexico.

Nucor’s business is exposed to many risks, including a general economic downturn and the potential for a flood of imports that would drive steel prices down. Yet management has executed well through such environments in the past. The company’s track record of allocating resources between managing capacity and expanding into more favorable market niches has allowed Nucor to increase its dividend annually for more than 40 years. Its payout recently yielded 2.7 percent. (The Motley Fool has recommended Nucor.)

Ask the Fool

Q: How do I deal with brokerage trading commissions when recording my gains and losses on my tax return? – G.K., Keene, New Hampshire

A: It’s smart to factor them in, lest you pay extra taxes unnecessarily. Since the costs of buying or selling a capital asset (stock, in this example) are capital costs, they should be part of your calculations determining your cost basis and proceeds.

Imagine, for example, that you bought $1,000 of stock and paid a $15 commission. Your actual cost is $1,015. You sell the stock later, when it’s worth $1,600, paying another $15 to the brokerage. Your “net” sales proceeds (generally, the amount reported to you by your broker at year-end via Form 1099-B) are $1,585, or $1,600 less $15. So on your tax return, you would report a gain of $570 ($1,585 less $1,015). If you’d ignored the commissions, your gain would be $600, and your taxes higher. These little sums can add up.

If you think you’re paying a lot in commissions, know that many reputable brokerages charge just $10 or less per trade. For help in finding a good brokerage, visit fool.com/how-to-invest.

Q: I have shares of a mutual fund that has a 4.75 percent front-end load. Should I sell it and switch to a no-load fund? – D.R., Kenosha, Wisconsin

A: That’s a sizable fee, but you’ve already paid it, when you invested in the fund. If you don’t like the fund’s performance or, more important, its prospects, consider selling. There are plenty of terrific no-load funds. Also, check out the fund’s expense ratio (annual fee). If it’s much more than 1 percent, that’s not promising. Some index funds will charge you less than 0.10 percent.

My dumbest investment

Lured by the Oprah effect, I bought some shares of Weight Watchers when she endorsed the company – and when the stock fell, I didn’t sell! Ugh. Buying the shares was an emotional decision, though I have worked in the health and wellness arena my entire career and wasn’t exactly buying blind. I knew the Weight Watchers way of eating is sound. I never read anything about the company’s financial condition, management or growth strategy, though. I just put my money on Oprah. Lesson learned. – Jane Diamond, Philadelphia

The Fool responds: The Oprah-and-Weight-Watchers story wasn’t over when you shared this experience with us about a year ago. On the day in 2015 when Oprah announced she was an active investor in the company, with a 10 percent stake in it and a seat on its board, shares more than doubled. They surged further – and then began retreating.

It’s generally a positive sign when a major investor makes a significant commitment to a company, but that’s not enough.

Weight Watchers had been struggling with increased online competition and declining demand and revenue, and it ended up replacing its CEO. It has been turning itself around, and since you wrote to us, shares have quadrupled. A lesson here is that it’s good to be very patient if you really believe in a company and its prospects. If you don’t, though, sell.