Last August, we shared a scan for cheap stocks in the basic materials sector. At the time, we aimed to find companies with cheap valuations and strong growth prospects that could benefit from higher commodity inflation. Since then, inflation peaked and moderated, led by commodity prices. As such, we thought it would be helpful to rerun the scan.
With lower prices, we had to reduce our EPS growth forecasts and prior growth to 15% from 25%. Lower prices over the last six months negatively affected their current and expected EPS. Despite the reduction, we only found four stocks that met our criteria. Two of which, STLD and WFG, were in the original scan.
The screen and data are courtesy of Finviz.
Screening Criteria
- Market Cap >$2.0 bn
- 5yr EPS Growth Est. > 15%
- Prior 5yr EPS Growth >15%
- P/E and Forward P/E < 15
- PEG Ratio < 1
- P/S < 1
Commodity companies tend to be highly leveraged; therefore, higher interest rates can negatively impact their earnings. Geopolitics, labor-management problems, and environmental impact costs can also pose risks in the future.
Company Summaries
Olin Corporation (OLN)
Steel Dynamics (STLD)
UFP Industries (UFPI)
West Fraser Timber Co. (WFG)
Disclosure
This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.
Follow Michael on Twitter or go to 720global.com for more research and analysis.
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