Warren Buffett's Berkshire Hathaway Just Revealed More Than a Billion Dollars in New Investments -- and This Steel-Manufacturer Is on the Short List

Key Points

• The famed investor and his team only loaded up on two new stocks for their equity portfolio recently.

• One of them is a giant in the U.S. metallurgy space.

• 10 stocks we like better than Nucor ›

One of the best ways for any stock to attract a wave of attention is to be tapped for inclusion in the equity portfolio of Warren Buffett's Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). That's what happened to top steelmaker Nucor (NYSE: NUE) in mid-August, when the company made its debut in Berkshire's closely watched 13F quarterly portfolio update.

Here's a glance at Nucor and its business, an educated guess as to why Buffett and his team might have picked it, and my take on whether it belongs in our portfolios, too.

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The biggest bet of the bunch

That update revealed two new Berkshire equity plays; besides Nucor, the company opened a position in insurer UnitedHealth Group. It also added to its stake in one construction company, Lennar, and reinvested in another it had previously sold out of, D.R. Horton. As of June 30, the Nucor stake was valued at a cool $857 million.

As ever, Buffett and his lieutenants aren't letting the public see how the sausage is made; they prefer to keep quiet about the thinking behind their investments (of course, Buffett may subsequently choose to discuss them in the always-witty shareholder letters he writes that are tucked into Berkshire's annual reports).

So, we can only speculate as to the motivations behind the recent buys. As in previous quarters, Berkshire was a net seller of portfolio stocks, and has elected to maintain a huge mountain of cash in an apparent save-for-better-days strategy. It feels obvious that Nucor, Lennar, and DR Horton are moves on the development of American construction and infrastructure.

This would make sense, given President Trump's zeal for "returning" manufacturing to this country, which, if managed effectively, will see build-outs that should benefit steel and construction companies alike.

American infrastructure isn't dependent on Nucor, but the company is a commanding presence in the steel world. It claims to be the largest and the most diversified steel company in this country, where it's responsible for producing around 25% of the raw metal. It also says it's the market leader in most of the categories in which it's involved.

Mention the words "steel factory" to an average American, and they'll likely picture a massive, dirty, hulking old hotbox with aging equipment.

That isn't Nucor, which, some might be surprised to learn, is quite a cutting-edge company in the metallurgy space. It makes steel with electric arc furnaces (EAFs), also known as mini-mills, that are more energy- and cost-efficient than traditional methods. They also give the company a relatively high degree of production flexibility to adapt to changing market conditions.

On the financial side, Nucor is a disciplined operator that knows how to consistently book a net profit, no mean feat given the very cyclical nature of the steel industry. Management is also good at keeping up free cash flow (FCF), so much so that the company has increased its shareholder dividend for a hard-to-believe 52 years in a row. It's also not shy to buy back its own stock.

Building the future

Another solid piece of proof that Nucor is a forward-thinking company is its establishment, in 2024, of Nucor Data Systems (NDS) upon its acquisition of Southwest Data Products. NDR is a specialty unit that provides all the construction infrastructure for data centers, a property segment that's booming on the back of the relatively heavy resource demands of artificial intelligence (AI) technology.

In other words, NDS is a one-stop shop for data center developers. That's quite the compelling sales pitch for a segment that needs to build mission-critical facilities much sooner rather than later. In Nucor's words, its unit "serves as the ultimate single-source provider, delivering a complete suite of data center essentials including optimal containments, server cabinets, and cages."

Buffett is an old-fashioned guy in many ways, and to some degree, that might have guided Berkshire toward its Nucor buy. But the clever thing about investing in the steel company is that, while it has a strong tradition rooted in its past, it's well primed for a ramp-up of domestic infrastructure spending in the present, and for building the facilities that will vault us all into the future.

I think this is a smart buy for Berkshire, and we should all consider loading up on Nucor, too.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, D.R. Horton, and Lennar. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.