- Both of these companies currently trades for less than 1 times price to sales.
- The earnings payout ratio of each of these companies is less than 45%.
- Each of these company’s price to earnings is less than the S&P 500’s.
I am always on the hunt for attractive, undervalued investment opportunities like the ones I introduced in The 7 Best Electric Utilities Americans Can Own, while continually trying to avoid purchasing overvalued companies like those in 5 Dividend Aristocrats To Avoid Buying Right Now.
This article identifies the 2 chemical companies that appeared most often among the top 20% of chemical companies when looking individually at:
- percent above 52-week low;
- dividend yield;
- earnings payout ratio;
- price to earnings;
- price to sales; and
- price to book.
Bloomberg was used to obtain the list of companies classified as a chemical company (agricultural chemicals, chemicals-diversified, chemicals-fibers, chemicals-other, chemicals-plastics, chemicals-specialty, coatings/paint, industrial gases, petrochemicals and rubber and vinyl), which resulted in a list of 268 companies currently traded on an American exchange. To quickly eliminate irrelevant companies, I removed companies that had:
- a share price less than $0.01;
- no 52-week high/low data;
- no price to earnings, price to book or price to sales data;
- no dividend yield; and
- an average trading volume of less than 10,000 shares.
Applying these quick filters distilled the original list of one hundred companies down to the list of 53 companies analyzed in this article. These 53 chemical companies were compared against each other using the six metrics listed above. All metric and trading data was obtained from Yahoo Finance.
For each metric the companies were sorted by their respective metric value from least to greatest, except for dividend yield, which was sorted from greatest to least. Each company was assigned an initial point value of zero. A point was then assigned to each of the top ten companies for each metric and a point was subtracted from each company in the bottom ten for each metric. This means a maximum of 6 points and a minimum of -6 points was possible. The distribution of cumulative points for all six metrics can be seen below in Chart 1 and a complete list of the 53 companies analyzed is available in Table 1.
Chart 1. Cumulative Point Distribution
Table 1. The 53 Chemical Companies Analyzed
Air Products & Chemical Inc.
American Vanguard Corp.
CF Industries Holdings, Inc.
Cytec Industries Inc.
E. I. du Pont de Nemours and Company
The Dow Chemical Company
Eastman Chemical Co.
HB Fuller Co.
International Flavors & Fragrances Inc.
Innophos Holdings Inc
KMG Chemical Inc.
Quaker Chemical Corporation
LyondellBasell Industries NV
The Mosaic Company
Minerals Technologies Inc.
Oil-Dri Corp. of America
OM Group Inc.
Potash Corp. of Saskatchewan, Inc.
PPG Industries Inc.
Rockwood Holdings, Inc.
RPM International Inc.
Sinopec Shanghai Petrochemical Co. Ltd.
A. Schulman, Inc.
The Sherwin-Williams Company
Chemical & Mining Co. of Chile Inc.
Sensient Technologies Corporation
Ultrapar Holdings Inc.
The Valspar Corporation
Westlake Chemical Corp.
METRIC 1. PERCENT ABOVE 52-WEEK LOW
Percent above 52-week low values were sorted from least to greatest. The median percent above 52-week low of all companies was approximately 31.3%, while the median percent above 52-week low of the top companies was approximately 11.5%. This implies the companies in Chart 2 have up to 20% upside potential should they converge to the overall median. Additionally, all of the companies in Chart 2 (except ALB, ARG and PX) each currently trades below the midpoint between their respective 52-week high and low.
Chart 2. Top Companies By Percent Above 52-Week Low
METRIC 2. DIVIDEND YIELD
Dividend yield values were sorted from greatest to least. The median dividend yield of all companies was approximately 1.5%, while the median dividend yield of the top companies was approximately 2.8%. This means the companies in Chart 3 yield approximately twice as much as the median company, which would result in an additional $13,000 in dividends over a ten year period assuming an initial investment of $100,000.
Chart 3. Top Companies By Dividend Yield
METRIC 3. EARNINGS PAYOUT RATIO
Earnings payout ratio values were sorted from least to greatest. The median earnings payout ratio of all companies was approximately 30.1%, while the median earnings payout ratio of the top ten was approximately 11.6%. While both median earnings payout ratios are considerably low, the companies in Chart 4 could nearly triple their earnings payout ratio before converging to the overall median which could results in thousands of dollars in additional dividends down the road.
Chart 4. Top Companies By Earnings Payout Ratio
METRIC 4. PRICE TO EARNINGS
Price to earnings values were sorted from least to greatest. The median price to earnings of all companies was approximately 21, while the median price to earnings of the top companies was approximately 12.6. This means the median company is approximately 1.7 times more expensive by price to earnings than the companies in Chart 5.
Chart 5. Top Companies By Price To Earnings
METRIC 5. PRICE TO SALES
Price to sales values were sorted from least to greatest. The median price to sales of all companies was approximately 1.5, while the median price to sales of the top companies was approximately 0.6. This means the companies in Chart 6 are more than half as expensive by price to sales than the median company.
Chart 6. Top Companies By Price To Sales
METRIC 6. PRICE TO BOOK
Price to book values were sorted from least to greatest. The median price to book of all companies was approximately 2.9, while the median price to book value of the top companies was approximately 1.8. This means the median company is approximately 1.6 times as expensive by price to book than the companies in Chart 7.
Chart 7. Top Companies By Price To Book
Only 19 of the 53 companies managed to survive this analysis with at least one total cumulative point. The distribution of cumulative points for all six metrics can be seen in Chart 1 above and Table 2 below.
Table 2. Cumulative Point Distribution
The 2 chemical companies that cumulatively outranked the other 51 with 4 points are as follows:
- ODC - Oil-Dri Corp. of America; and
- SHI - Sinopec Shanghai Petrochemical Co. Ltd.
Additionally, the following two companies managed to accumulate 3 cumulative points:
- IOSP - Innospec Inc.; and
- OLN - Olin Corp.
Comment below if you think my analysis is way off base or you agree with any of the companies identified as undervalued.