In light of commodity prices rebounding on Friday following a sharp tumble earlier this week, four basic materials stocks with high business quality, earnings yield and return on capital as of Friday are Franco-Nevada Corp. (FNV, Financial), UFP Industries Inc. (UFPI, Financial), Reliance Steel & Aluminum Co. (RS, Financial) and WD-40 Co. (WDFC, Financial) according to Joel Greenblatt (Trades, Portfolio)’s Magic Formula Screen, a Premium feature of GuruFocus.
Commodity prices rebound slightly after Thursday tumble
On Friday, futures prices for commodities like copper, gold and palladium rebounded slightly following a sharp decline on Thursday as China announced steps to curb rising costs. According to a Reuters article from Wednesday, China’s National Food and Strategic Reserves Administration announced it will release copper, aluminum and zinc from reserves to control surges in metal prices fueled by post-pandemic economic recovery and speculative trading.
As such, investors may find opportunities in basic materials stocks that have high business quality, earnings yield and return on capital. Greenblatt, portfolio manager of Gotham Asset Management, implemented a “magic formula” in which stocks that have high earnings yield and return on capital are ranked higher than stocks with low earnings yield and return on capital.
Franco-Nevada
Franco-Nevada (FNV, Financial) owns a diversified network of precious metals and royalty streams, generating revenue from metals like gold, silver and platinum. GuruFocus ranks the company’s profitability 9 out of 10 on several positive investing signs, which include a five-star business predictability rank, a high Piotroski F-score of 8, a Greenblatt return on capital that outperforms more than 78% of global competitors, and a Greenblatt earnings yield that outperforms over 81% of global metals and mining companies.
Gurus with large holdings in Franco-Nevada include Jim Simons (Trades, Portfolio)’ Renaissance Technologies and First Eagle Investment (Trades, Portfolio).
UFP Industries
UFP Industries (UFPI, Financial) produces and sells lumber and treated wood products in several consumer categories: retail, industrial and construction. GuruFocus ranks the Grand Rapids, Michigan-based company’s profitability 8 out of 10 on several positive investing signs, which include a five-star business predictability rank, a Greenblatt return on capital that outperforms over 92% of global competitors and a Greenblatt earnings yield that tops more than 70% of global forest product companies.
Gurus with large holdings in UFP Industries include Chuck Royce (Trades, Portfolio)’s Royce & Associates and Jeremy Grantham (Trades, Portfolio)’s GMO.
Reliance Steel & Aluminum
Reliance Steel & Aluminum (RS, Financial) provides metal processing and inventory management services for carbon and stainless steel, aluminum and alloys. GuruFocus ranks the Los Angeles-based company’s profitability 8 out of 10 on the back of Greenblatt returns on capital outperforming more than 83% of global competitors and Greenblatt earnings yields outperforming over 63% of global steel companies.
WD-40
WD-40 (WDFC, Financial) sells lubricants and cleaning products. GuruFocus ranks the San Diego-based company’s profitability 9 out of 10 on several positive investing signs, which include a four-star business predictability rank, a high Piotroski F-score of 7 and a Greenblatt return on capital that outperforms over 96% of global competitors. Despite this, the company’s Greenblatt earnings yield underperforms more than 60% of global chemical companies.
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