Investors looking to take advantage of market volatility may want to look for stocks that are trading at significant discounts to their GF Value, a unique intrinsic value calculation from GuruFocus which considers the stock's historical returns, past valuation multiples and analysts' estimates of future business results, among other factors. According to historical studies by GuruFocus, these stocks may offer a higher chance to unearth value opportunities.
This article will examine two industrial names that are trading well below their respective GF Values and also offer market-beating dividend yields. I found these stocks using the All-in-One Screener, a Premium feature of GuruFocus.
Avient’s main product lines include resin and other plastic additives such as thermoplastic compounds, polymer colorings and polyvinyl chloride resins. The company’s additives are used in flooring, bottles, wire coating and appliance parts. The company has partnerships with many of the largest plastic manufacturers in the U.S., giving it a wide customer base.
Following a 46% share price decline year-to-date, the GF Value chart now shows Avient to be significantly undervalued.
Avient closed Thursday’s trading session at $30.62. With a GF Value of $52.73, the price-to-GF-Value ratio is 0.58. Shares could return more 72% from current levels if they were to rise to their GF Value.
The company also has a high GF Score of 87 out of 100.
Breaking down the GF Score, Avient receives a 10 out of 10 on its GF Value rank, primarily due to a variety of low valuations relative to the more than 1,200 companies in its industry. For example, the stock’s price-earnings and forward price-earnings ratios are both more attractive than nearly two-thirds of Avient’s peer group. The current valuation is also very attractive on a 10-year historical basis for the stock.
The company has an 8 out of 10 growth rank, led by excellent book growth over the last three years. Forward earnings per share without nonrecurring items and revenue growth estimates from Morningstar (MORN, Financial) analysts top three-quarters of the competition.
Avient’s weakest showing is on financial strength, where the company has just a 5 out of 10. This is mostly on account of an increase in debt, which places the cash-to-debt and debt-to-equity ratios near the bottom of the industry group. The company has also had trouble creating value for shareholders, as shown by the return on invested capital (ROIC) of 8.4%, which is below the weighted average cost of capital (WACC) of 9.6%.
The company does have a decent dividend growth track record, having raised its payment to shareholders for 11 consecutive years. The 10-year compound annual growth rate (CAGR) is close to 12%. Shares of Avient yield 3.1%, nearly twice the average yield of the S&P 500 Index.
The second industrial name to consider is Eastman Chemical Company (EMN, Financial), which is also a leading specialty chemicals company. The $8.8 billion company produced revenue of $10.5 billion in 2021.
Eastman Chemical has been in business for more than 100 years and manufacturers a number of chemicals, plastics and fiber products. The company has an extensive reach, operating in more than 100 countries around the world. Few peers can match such a network. Eastman Chemical’s business model is fairly diverse, with the Additives and Functional Products, Chemical Intermediaries, Advanced Materials and Fibers segments contributing 38%, 27%, 23% and 12% of annual revenues, respectively.
After a 39% decrease in value in 2022, shares of Eastman Chemical are trading at a sizeable discount to GF Value.
Currently trading hands at $72.50, Eastman Chemical has a GF Value of $114.63, which results in a price-to-GF-Value ratio of 0.63. Investors buying at this price could see returns of more than 58% if the stock were to reach its GF Value. Eastman Chemical is rated as significantly undervalued.
The company has a GF Score of 81 out of 100.
Eastman Chemical receives perfect 10 out of 10 scores for both value and momentum. The stock’s price-earnings and forward price-earnings ratios are among the most attractive in the industry and also are more undervalued compared to Eastman Chemical’s performance over the last decade. The stock’s relative strength index over multiple time periods tops the majority of peers and reinforces the GF momentum rank.
The company’s profitability rank is a solid 8 out of 10. Gross margin is near the middle of the pack of the industry, but net margin tops 69% of peers. It is also one of the best results in the last 10 years for the company.
Financial strength is weak at 5 out of 10. Debt levels haven’t changed much in the last decade, but interest coverage is middling. On the plus side, interest coverage is one of Eastman Chemical’s best showings in the last decade. Like Avient, Eastman Chemical’s ROIC of 8.3% is below its WACC of 9.8%. One metric that is favorable for the company is that it’s Piotroski F-Score indicates a healthy financial situation.
Eastman Chemical has raised its dividend for the past 12 years, with the dividend enjoying a CAGR of 11% for the 2012 to 2021 period of time. Shares yield a generous 4.2%, which is much higher than the average yield for the market index.
The ongoing market volatility has resulted in many stocks losing considerable value in share prices. This has positioned some names at a steep discount to GF Value. Avient and Eastman Chemical are two names that fit this description, with each stock offering high total return potential. Both names also have solid GF Scores and high dividend yields. For investors looking for deep value stocks in the industrial space, Avient and Eastman Chemical could be two names worth looking into.
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