In light of China’s announcement on Friday it will postpone tariffs on U.S. agricultural products, five basic materials companies on Joel Greenblatt (Trades, Portfolio)’s Magic Formula Screen with a GuruFocus business predictability rank of at least four stars are Jewett-Cameron Trading Co. Ltd. (JCTCF, Financial), WD-40 Co. (WDFC, Financial), H.B. Fuller Co. (FUL, Financial), Sherwin-Williams Co. (SHW, Financial) and Balchem Corp. (BCPC, Financial).
Dow nears all-time high as U.S.-China trade war optimism grows
The Dow Jones Industrial Average closed at 27,219.52, up 37.07 points from Thursday’s close of 27,182.45 and 422.06 points from last Friday’s close of 26,797.46.
CNBC columnists said China’s Ministry of Commerce announced it will postpone tariffs on U.S. farm products like soybeans and pork to September 2020 in response to President Trump’s decision to delay increased tariffs on $250 billion worth of Chinese imports from Oct. 1 to Oct. 15. Investors cheered on the news, sending the Dow close to the all-time high of 27,359.16 set on July 15.
Magic Formula screen overview
Greenblatt, founder of Gotham Asset Management, seeks companies that have value with a catalyst. More specifically, the inventor of “Magic Formula” investing seeks companies that have a high return on capital and earnings yield. The former is defined as earnings before interest and taxes divided by the average net fixed assets and working capital over the past two periods, while the latter is the inverse of the enterprise value to Ebit ratio.
The Magic Formula excludes financials and utility companies. Although the Magic Formula does not specifically require high business predictability, Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) co-managers Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) underscore the importance of predictable earnings when they find good companies.
Jewett-Cameron
Jewett-Cameron distributes wholesale wood products through several business segments, which include lawn products, garden products, pet products and seed processing products. GuruFocus ranks the North Plains, Oregon-based company’s financial strength 10 out of 10 on several positive signs, which include no long-term debt and a robust Altman Z-score of 13.39. Despite this, Jewett-Cameron’s profitability ranks just 8 out of 10 as its return on assets outperforms just 81.67% of global competitors, while its Greenblatt return on capital outperforms just 68.30% of global competitors.
WD-40
San Diego-based WD-40 manufactures and sells lubricants and cleaning products. GuruFocus ranks the company’s profitability 9 out of 10: Even though the three-year revenue growth rate underperforms 76.92% of global competitors, WD-40’s profit margins and Greenblatt return on capital are outperforming over 83% of global peers, with returns outperforming 95% of global specialty chemical companies.
Gurus with large holdings of WD-40 include 2019 GuruFocus Value Conference Speakers Chuck Royce (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).
H.B. Fuller
H.B. Fuller manufactures and sells adhesives, sealants and other chemical-based products. GuruFocus ranks the St. Paul, Minnesota-based company’s profitability 7 out of 10 on several positive signs, which include consistent revenue growth and a Greenblatt return on capital that outperforms 67.13% of global competitors.
Sherwin-Williams
Cleveland-based Sherwin-Williams sells premium paint and paint-related products in big-box stores. GuruFocus ranks the company’s profitability 8 out of 10 on several positive indicators, which include a strong Piotroski F-score of 7 and a Greenblatt return on capital that outperforms 90.54% of global competitors.
Balchem
New Hampton, New York-based Balchem manufactures ingredients, nutrients and chemicals for industries like human nutrition, animal nutrition and industrial applications. GuruFocus ranks the company’s profitability 7 out of 10: Even though the three-year revenue growth underperforms 76.92% of global competitors, Balchem’s profit margins outperform over 77% of global peers, while its Greenblatt return on capital outperforms 83.07% of global specialty chemical companies.
Disclosure: No positions.
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