Looking for smaller and potentially undervalued companies to add to your portfolio? We ran a screen with this in mind.
We started by screening for small cap stocks in the basic materials sector. To find names that might still be undervalued, we took only the names with a P/E below 12.
Then, to analyze these companies' profitability, we ran DuPont analysis on the names. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.
For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research
Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis. List sorted by P/E ratio.
1. Calumet Specialty Products Partners LP (NASDAQ:CLMT): Produces and sells specialty hydrocarbon products in North America. Market cap at $1.71B, most recent closing price at $29.77. MRQ net profit margin at 3.6% vs. 2.52% y/y. MRQ sales/assets at 0.527 vs. 0.474 y/y. MRQ assets/equity at 2.64 vs. 2.991 y/y. P/E at 9.02.
2. Helmerich & Payne Inc. (NYSE:HP): Engages in the contract drilling of oil and gas wells in the United States and internationally. Market cap at $5.86B, most recent closing price at $55.38. MRQ net profit margin at 18.94% vs. 17.33% y/y. MRQ sales/assets at 0.145 vs. 0.14 y/y. MRQ assets/equity at 1.492 vs. 1.53 y/y. P/E at 10.49.
3. Sunoco Logistics Partners L.P. (NYSE:SXL): Engages in the transport, terminalling, and storage of refined products and crude oil, as well as the purchase and sale of crude oil in the United States. Market cap at $5.1B, most recent closing price at $49.25. MRQ net profit margin at 4.16% vs. 3.33% y/y. MRQ sales/assets at 0.594 vs. 0.515 y/y. MRQ assets/equity at 4.241 vs. 5.116 y/y. P/E at 13.2
4. Transmontaigne Partners L.P. (NYSE:TLP): Operates as a terminaling and transportation company. Market cap at $544.13M, most recent closing price at $37.63. MRQ net profit margin at 25.34% vs. 20.68% y/y. MRQ sales/assets at 0.079 vs. 0.072 y/y. MRQ assets/equity at 1.397 vs. 1.47 y/y. P/E at 14.7
* Accounting data sourced from Google Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.