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Yamil Berard
Yamil Berard
Articles (173) 

Global Materials Industry Foresees Growth

4 stocks gurus have chosen again and again over the last year in a materials industry that analysts say is among the three expected to surge. The other two are energy and tech

July 12, 2018 | About:

A well-known group of stocks in the basic materials industry have caught the attention of gurus who have been keeping an eye on opportunities to cash in on global growth.

Over the last three consecutive quarters, many gurus have bought stakes in DowDuPont Inc. (NYSE:DWDP) as the company executes on its plan to split into three different entities. DowDuPont Inc. (NYSE:DWDP) is the world’s second-largest chemical producer by sales.

Petrochemical producer LyondellBasell Industries (NYSE:LYB) has been another popular stock in the global chemicals sector, which is part of the basic materials industry. The company plans to build the world’s largest propylene oxide and tertiary butyl alcohol plant in Houston in the second half of the year. The chemicals are used to make plastics, perfumes and other products.

The company drew kudos from shareholders late last year when it posted double-digit revenue and profits even after its major facilities on the U.S. Gulf Coast were affected by Hurricane Harvey.

Gurus also have been busy trading shares of Axalta Coating Systems Ltd. (NYSE:AXTA), which makes paints and coatings for cars. Axalta last year faced headwinds from higher costs on raw materials.

Albemarle (NYSE:ALB) has seen stock increases over the last year because of positive news about global growth opportunities for electrical vehicles. The company is one of the largest manufacturers of lithium compounds.

Sector reviews

This month, the materials sector, as a whole, received favorable reviews from Wall Street analysts, who have predicted that materials, energy and tech companies are best positioned for growth. Utilities, real estate and telecom, on the other hand, have the least growth opportunities, analysts believe.

Those who believe the sector could take off include Brad Sorensen at Charles Schwab. Sorensen encourages investors to quiet concerns about trade tariffs with China and their negative impact on global growth. He believes the concerns are “overdone” by news headlines and don’t tell “the whole story.”

As it stands, he and others say the sector could take off as developing countries require more raw materials to support new construction efforts. The nation’s big banks will be open to lending, which supports economic activity.

Sorensen also laid out some negative forces that could dampen earnings for the materials industry. Of course, the trade issue could get worse. Labor costs could continue to increase, while China becomes less dependent on imported products.

DowDuPont

After the merger of Dow Chemical and DuPont a year ago, gurus Jeff Auxier (Trades, Portfolio) and Daniel Loeb (Trades, Portfolio) expressed confidence in the company’s leadership in a May 7 letter to shareholders. DowDuPoint represents one of Loeb’s largest positions.

At $66.25 a share at market close on Thursday, the stock price was above the historical value, based on GuruFocus’ median price-sales chart. The stock has jumped 27% in three years.

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The stock hit $66.25 a share, slightly down 0.08% at market close. It was trading at 89.41 times earnings and 15.95 times forward earnings.

The stock provides a dividend yield of 2.42%, which is higher than 84% of its competitors in the global chemical industry.

The company reported $70.7 million in revenue and earnings per share over the trailing 12 months of 74 cents. It is projecting revenue of $94 billion in 2020.

Revenue per share has declined for the company over the last five years, but it has seen operating margins expand.

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GuruFocus ranks the company 6 out of 10 in financial strength and 5 out of 10 in profitability and growth. The company has a market cap of $153.7 billion.

LyondellBasell Industries

More than seven gurus jumped on the stock of this specialty chemical company over the last three quarters. It closed at $106.72 a share on Thursday, up 0.04%.

The company has an assortment of attributes, including a price-earnings ratio that is at a 10-year low, strong operations, expanding operating margins and a price-book ratio near a three-year low.

Analysts estimate revenues will climb to more than $41.6 billion in 2020. Earnings before interest, taxes, depreciation and amortization is projected to grow to more than $7.5 billion in 2020.

The Peter Lynch chart, though slightly incomplete, suggested that it is undervalued.

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The median price-sales chart from GuruFocus suggested the stock is trading above its historical value.

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The stock is trading at 7.99 times price-earnings, which is higher than 87% of the more than 960 companies in the Global Specialty Chemicals industry. It is trading at 9.38 times forward price-earnings.

The company pays a dividend of 3.56%, which is higher than 85% of its peers. With a Piotroski F-Score of 8, the company has very healthy business operations. Profits have been steadily rising in recent years as revenues peaked in 2015.

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GuruFocus reported 6 out of 10 in financial strength, profitability and growth. The company has a market cap of $42 billion.

Axalta Coating Systems

Over the last three consecutive quarters, nearly a dozen gurus have opened positions in Axalta.

Axalta stood at $30 a share, up 0.13%, at market close on Thursday. In the last year, the stock of Axalta has lost 10%.

The stock is trading at 199 times its price-earnings and 22.73 times forward-price earnings. It has a price-book ratio of 5.12 and a price-sales ratio of 1.50.

The median price-sales chart shows that its current stock price is above its historical market value.

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The Peter Lynch chart, however, suggests the stock is undervalued, though the chart is incomplete.

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It is forecasting EBITDA of $1.1 billion on revenues of $5.2 billion in 2020. It has had EBITDA growth of 16% over the last 12 months. The company’s revenue per share has been on the decline, but it has seen its operating margins expanding.

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GuruFocus ranks the company 5 out of 10 in financial strength and 6 of 10 in profitability and growth. It has a market cap of $7.34 billion.

Albemarle

Albemarle has seen stock increases over the last year because of positive news about global growth opportunities for electric vehicles. The company is one of the largest manufacturers of lithium compounds.

In Thursday trading, the chemical company closed up at $95.35 a share, or an increase of 0.71%. The GuruFocus median price-sales chart shows the stock is above its historical value.

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GuruFocus identified two severe warning signs, including a decline in revenue per share and operating margins. The company, however, has a Piotroski F-Score of 7, indicating healthy business operations.

Abermale pays a dividend of 1.37%, which is lower than 63% of its peers. Revenue is expected to reach $3.8 billion in 2020 while EBITDA is expected to reach $1.1 billion.

Profits have dropped significantly in recent years while the company has experienced inconsistent growth in revenue.

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GuruFocus ranks it 6 out of 10 in financial strength, profitability and growth.

The company has a market cap of $10.6 billion.

A total of seven gurus opened positions in the company over the last year. In the first quarter, some of the new buys were made by gurus Ray Dalio (Trades, Portfolio), Jim Simons (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).


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