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Alberto Abaterusso
Alberto Abaterusso
Articles (1248) 

3 Basics Materials Stocks With Attractive Earnings Yields

Cleveland-Cliffs tops the list

December 06, 2018 | About:

When screening for value investment ideas amid basic materials companies, I like to search for stocks whose earnings yields are doubling the spot rate on 20-year high-quality market corporate bonds, which I consider a benchmark.

These bonds are securities representing the corporate loan issued by companies that are triple-A, double-A and single-A rated. Their monthly spot rate indicates a yield of 4.66% as of October. The data can be retrieved from the economic research section of the Federal Reserve Bank of St. Louis’ website.

Therefore, the list is composed of basic materials stocks that have an earnings yield of not less than 9.32% based on the market value at close Tuesday. As a result, the following stocks have a price-earnings ratio of less than 10.73.

The first stock is Cleveland-Cliffs Inc. (NYSE:CLF), with a price-earnings ratio of 3.33 versus an industry median of 14.76. The price-earnings ratio without NRI is 3.94 compared to an industry median of 25. The U.S. iron ore mining company was at $9.14 per share on Dec. 4 for a market capitalization of about $2.72 billion.

The stock has climbed 16.43% so far this year and has outperformed the S&P 500 index by nearly 17%. The stock price at close on Tuesday was 51.8% above the 52-week low of $6.02 and 43.3% below the 52-week high of $13.1.

The stock has a price-sales ratio of 1.21 versus an industry median of 1.49, a forward dividend yield of 0.55% compared to an industry median of 3.36% and an EV-Ebitda ratio 6.43 versus an industry median of 9.3. Cleveland-Cliffs has reported a trailing 12-month Ebitda margin of nearly 28% versus an industry median of nearly 24%.

Further, the stock has a forward price-earnings ratio of 5.41 that, multiplied by forecasted full-year earnings per share of $2, yields to $10.82, reflecting 18.4% upside from the share price at close Tuesday. Earnings per share of $2 is a quarterly weighted average and refers to the following 12-month period through the third quarter of 2019.

The recommendation rating is 2.2 out of 5, and the average target price is $13.17.

The second company is Mechel PJSC ADR (NYSE:MTL). The stock closed at $2.58 on Tuesday with a market capitalization of about $686.42 million. The stock has a price-earnings ratio of 3.36 versus an industry median of 11.68.

The Russian global mining and steel company is down 51% year to date, underperforming the S&P 500 index by about 50%. The 52-week range is $2.30 to $5.60.

The price-sales ratio is 0.14 versus an industry median of 0.47, the EV-Ebitda ratio is 7.17 compared to an industry median of 9.3. The trailing 12-month Ebitda margin is nearly 22% and almost on par with the industry median.

The company is not paying a dividend. Shareholders looking for return on Mechel PJSC ADR would find it through stock appreciation. For the next 52 weeks, analysts have set an average target price of $2.70, reflecting a 5% growth from the market value as of Dec. 4. The average recommendation is to hold.

The chart below shows the stock was trading underneath the Peter Lynch earnings line on Tuesday. This is an additional indication of a cheap stock.

The third stock is Ferroglobe PLC (NASDAQ:GSM) which has a price-earnings ratio of 3.44 versus an industry median of 14.76 as of Dec. 4. The stock closed at $2.17 per share on Tuesday following an 87% decline since the beginning of the year. The U.K.-based global silicon and specialty metals producer underperformed the S&P 500 index by 86.6% over the same period. The 52-week range is $1.77 to $17.61.

The stock has a market capitalization of $373.19 million, a price-book ratio of 0.36 versus an industry median of 1.74, a price-sales ratio of 0.19 versus an industry median of 1.49 and a forward dividend yield of 11.06% versus an industry median of 3.36%. The EV-Ebitda ratio stands at 1.55 compared to the industry median of 9.3. With a value of 14.2%, the trailing 12-month Ebitda margin of Ferroglobe PLC is below the industry median of almost 24%.

The forward price-earnings ratio is 3.14, and analysts are predicting earnings per share of 64 cents for full-year 2018 and earnings per share of 69 cents for full year 2019.

The stock has a recommendation rating of 1.8 out of 5 resulting from three strong buy recommendations, one buy suggestion and one hold recommendation. The average target price, which is a mean of four $3 to $9 ranging estimates, is $5.25 per share.

Disclosure: I have no positions in any securities mentioned.

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About the author:

Alberto Abaterusso
If somebody asks what being a Value Investor means, Alberto Abaterusso would answer: “the Value Investor is not the possessor of a security that represents the company, but he is the owner of that company. As an owner of the company the Value Investor is actively involved in the dynamics of that company and his first aim is how to have sales progressively growing.”

Alberto Abaterusso would add: “probably the Value Investor is one of the least patient persons in the world concerning sales.”

Alberto Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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