Where does a value investor find bargains in a market in which all 10 sectors of the S&P 500 posted gains in the first half of the year? The worst-performing sector, basic materials, may be a good place to start. While the S&P 500 index had its strongest first half since 1998, gaining 12.63%, the basic materials sector managed only a 1.68% gain, according to data from Standard and Poor’s. “… Commodity prices remained volatile, and the ability of companies to quickly pass along costs was limited,” the market research firm said in a note.
The return marks a significant slow down for the sector, which posted a 14.97% gain in calendar year 2012, lagging the S&P index by 1.03%. It also indicated the end of a strong run, with a 2.69% return in the fourth quarter of 2012, compared to 15.39% in the fourth quarter of 2011.
A large number of gurus bought shares of materials stocks in the first half of this year. Below is an overview of the most-bought companies and who is most bullish about them, found using this screener.
Newmont Mining Company (NYSE:NEM)
With 19 gurus holding Newmont Mining, about 14 bought or added to their existing holdings in the past six months. About nine reduced our sold out of their positions.
First Eagle holds the most shares outstanding, at 1.22%, and Arnold Van Den Berg of Century Management has the biggest concentration of his portfolio in the company, at 4.07%.
The investors may have been enticed by the mining company’s 42% plunge in share price year to date. On Tuesday, it is trading for $27.07 a share.
Newmont is a Fortune 500 gold mining company with operations in the U.S., Africa, Australia, South America and Asia.
In the first quarter, Newmont’s gold production declined 11%, and copper went up 9%, compared to the previous year. Lower recoveries, lower grade and shipping delays all contributed to the company’s 44% year-over-year decline in net income.
The company is expecting production to increase in the second half of the year after it begins production at a new mine in Ghana and has greater throughput in Nevada. In an effort to streamline its business and cut costs, the company will lay off 33% of its Denver workforce in the 90 days beginning in June.
Newmont has incredibly low valuations currently. Its P/E, P/B and P/S ratios are each at 10-year lows, at 8.4, 0.98 and 1.48, respectively.
See Newmont’s 10-year earnings and revenue history:
Nine gurus bought or added to their positions in Cemex, and 14 were holding the stock at the end of the first quarter.
Andreas Halvorsen of Viking Partners has the largest position in the company, at 5.04% of shares outstanding, and the highest portfolio concentration, at 3.3%. Mason Hawkins follows him, with 2.8% of his portfolio invested in the company.
Cemex is a Mexico-based cement manufacturer that sells products in more than 50 countries. Year to date its stock climbed 10.5% to trade for $10.49 on Tuesday.
The company reported a 5% revenue decrease in the first quarter, due largely to fewer business days in the quarter, and lower volumes in Northern Europe, Mexico, South, Central America and the Caribbean. Also, the company had its seventh consecutive quarter of year-over-year improvement in operating EBITDA.
Cemex’s P/S is current near a three-year high at 2.8, and it has a P/B of 3.1.
See the company’s revenue and earnings history for the past 10-years:
Weyerhaeuser Co (NYSE:WY)
In the past six months, nine gurus initiated a position in or increased their holding of Weyerhaeuser Co., and 14 were holding the stock at first quarter’s end.
Weyerhaeuser grows and harvests trees, builds houses and makes other forestry products. The company has a stock gain of 3.27% year to date, trading for $28.73 Tuesday.
Weyerhaeuser’s first quarter was its strongest since 2005 for earnings in its wood products segment. Overall net earnings reached $144 million, compared to $41 million the previous year. The increase was primarily due to strong demand for Western logs. Its revenue also increased to $1.95 billion, compared to $1.49 billion the previous year. As a result, the company’s board raised its quarterly dividend by 18%.
On June 16, Weyerhaueser welcomed a new president and CEO, Doyle Simons, former CEO and chairman of Temple-Inland, effective August 1.
See the company’s 10-year revenue and earnings history:
Peabody Energy Corporation (BTU)
Nine gurus initiated a stake in or added to their existing holding of Peabody in the past six months. It is held by eight gurus as of the first quarter end.
Peabody is the largest private-sector coal company in the world, fueling more than 25 nations. Its stock declined 41% year to date, to trade at $15.70 a share on Tuesday.
Peabody’s first quarter revenues declined 14%, due to lower U.S. shipments and lower prices in Australia. Adjusted EBITDA totaled $280.1 million, compared o $511.5 million the previous year. Cole CEO Gregory Boyce said in the first quarter statement that coal demand increased in the first quarter as generators switched back from higher-priced natural gas, and he expects that in 2013 coal demand will largely recapture that which was lost to natural gas in 2012.
The three key valuation ratios of Peabody are each at their respective 10-year lows. P/E has declined to 5.5, P/B to 0.81 and P/S to 0.5.
See Peabody’s 10-year price and revenue history below:
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