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According to the finviz.com screener, the basic materials sector has been the worst sector so far this year. The screener's database includes 6,610 companies, which are trading in the U.S. markets; the screener relates 603 of them to the basic materials sector. According to finviz.com, the total return of the basic materials sector in 2013 was only 0.6%%, while the appreciation of the Russell 3000 index in the same period was 22.9%. Nevertheless, it is possible to find promising candidates among the stocks in this sector.

Stock sectors' total returns, year to date, are shown in the chart below:

(click to enlarge)

Chart: finviz.com

I have searched for very profitable companies with very strong growth prospects among the basic materials sector. Those stocks would have to show a very low debt and very low PEG ratios.

I used the finviz.com Screener to perform the search. The screen's formula requires all stocks to comply with all following demands:

  • Sector - Basic Materials
  • P/E - Under 20
  • EPS growth next 5 years - Over 15%
  • Debt/Equity - Under 0.4

After running the screen, 11 stocks came out, as a result. In this article, I describe three of these stocks, which in my opinion can reward an investor a nice capital gain. I recommend readers use this list of stocks as a basis for further research. All the data for this article were taken from finviz.com, on September 22, 2013.

Aceto Corp. (NASDAQ:ACET)

Aceto Corporation, sources, markets, sells, and distributes pharmaceutical intermediates and active ingredients, finished dosage form generics, nutraceutical products, agricultural protection products, and specialty chemicals.

(click to enlarge)

Aceto Corporation has a very low debt (total debt to equity is only 0.16), and it has a trailing P/E of 18.32 and a very low forward P/E of 12.52. The price-to-cash ratio is at 11.49, and the price-to-sales ratio is very low at 0.81. The PEG ratio is very low at 0.83, and the average annual earnings growth estimates for the next five years is very high at 22%. The forward annual dividend yield is at 1.62%, and the payout ratio is only 26.5%. The annual rate of dividend growth over the past five years was at 1.92%.

The two analysts covering the stock rate it as a strong buy.

Aceto Corporation has recorded strong revenue and EPS growth, during the last year, the last three years and the last five years, as shown in the charts below.

Source: Portfolio123

(click to enlarge)

Source: company presentation

On August 28, Aceto Corporation reported its fiscal 2013 fourth quarter and year-end results. For the fourth quarter EPS came in at $0.20 in-line with expectations.

FISCAL 2013 FULL YEAR HIGHLIGHTS (Comparisons to FY 2012):

  • Net sales increased 12.4% to $499.7 million, a record level
  • Gross profit increased 19.8% to $98.3 million, a record level
  • Reported GAAP net income increased 31.5% to $22.3 million, a record level
  • Non-GAAP adjusted net income increased 39.3% to $24.3 million
  • Reported GAAP EPS increased 28.6% to $0.81, a record level
  • Non-GAAP adjusted EPS increased 36.9% to $0.89

Aceto Corporation has recorded strong revenue and EPS growth, and considering its compelling valuation metrics, and its strong earnings growth prospects, ACET stock can move higher.

(click to enlarge)

Chart: finviz.com

American Vanguard Corp. (NYSE:AVD)

American Vanguard Corporation, through its subsidiaries, engages in developing, manufacturing and marketing specialty chemical products primarily for agricultural and commercial uses.

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American Vanguard Corporation has a very low debt (total debt to equity is only 0.16), and it has a trailing P/E of 16.75 and a very low forward P/E of 12.74. The PEG ratio is very low at 0.67, and the average annual earnings growth estimates for the next five years is very high at 24.93%. The forward annual dividend yield is at 0.77%, and the payout ratio is only 16.4%. The annual rate of dividend growth over the past five years was quite high at 11.38%.

The AVD stock price is 0.88% above its 20-day simple moving average and 2.53% above its 50-day simple moving average. That indicates a short-term and mid-term uptrend.

American Vanguard Corporation has recorded strong revenue, EPS and dividend growth during the last year, the last three years and the last five years, as shown in the chart below.

Source: Portfolio123

On August 05, American Vanguard Corporation reported its second-quarter financial results, which missed EPS expectations by $0.04.

Fiscal 2013 First-Half Financial Highlights - versus Fiscal 2012 First Half

  • Net sales improved from $172.1 million to $208.3 million, an increase of 21%
  • Net income improved from $17.5 million to $25.3 million, an increase of 45%
  • Earnings per diluted share improved from $0.61 to $0.88, an increase of 44%

Fiscal 2013 Second-Quarter Financial Highlights - versus Fiscal 2012 Second Quarter:

  • Net sales improved from $84.8 million to $86.8 million, an increase of 2%
  • Net income declined slightly from $8.7 million to $8.4 million, a decrease of 4%
  • Earnings per diluted share declined from $0.30 to $0.29, a decrease of 3%

American Vanguard Corporation has recorded strong revenue and EPS growth, and considering its compelling valuation metrics, and its strong earnings growth prospects, AVD stock can move higher.

Risks to the expected capital gain include a downturn in the U.S. economy, and unfavorable U.S. weather conditions throughout the Midwest and South during the corn planting season.

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Chart: finviz.com

C&J Energy Services, Inc. (NYSE:CJES)

C&J Energy Services, Inc. provides hydraulic fracturing, coiled tubing, wireline and other complementary services to oil and gas exploration and production companies in the United States.

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C&J Energy Services has a very low debt (total debt to equity is only 0.24), and it has a very low trailing P/E of 9.23 and a very low forward P/E of 11.70. The price-to-sales ratio is very low at 0.99, and the price to free cash flow is at 15.24. The PEG ratio is extremely low at 0.46, and the average annual earnings growth estimates for the next five years is very high at 20%.

The CJES stock price is 0.26% above its 20-day simple moving average, 2.79% above its 50-day simple moving average and 1.27% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

C&J Energy Services has recorded very strong revenue and EPS growth during the last three years and the last five years, as shown in the charts below.

Source: Portfolio123

(click to enlarge)

Source: company presentation

On July 31, C&J Energy Services reported its second-quarter financial results, which beat EPS expectations by $0.02 and missed expectations on revenues. The company reported net income of $20.8 million, or $0.38 per diluted share, for the second quarter of 2013, inclusive of an after-tax charge of $0.6 million ($0.01 per diluted share) associated with a non-cash inventory write-down related to a decrease in the market value of certain spare parts. Net income was $25.1 million, or $0.46 per diluted share, in the first quarter of 2013 and $53.3 million, or $0.99 per diluted share, in the second quarter of 2012.

C&J Energy Services has compelling valuation metrics, and strong earnings growth prospects, and considering that the stock is in an uptrend, CJES stock can move higher.

Risks to the expected capital gain include a downturn in the U.S. economy, and a decline in the price of oil and natural gas, and new strict environmental regulations.

(click to enlarge)

Chart: finviz.com

Source: 3 High-Growth Basic Materials Stocks With Very Low PEG Ratio