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Summary

  • The median dividend yield of these companies is only 1%.
  • These companies have an implied downside of 35% should they converge to the median of their peers.
  • The price to earnings of these companies is nearly twice that of the S&P 500 and their peers.

I am blessed, much like Warren Buffett, to have been born in the decade I was, in the country I was, into the family I was, to have learned invaluable money lessons earlier in my life rather than later, to have the opportunity to be a Seeking Alpha Premium Contributor and to continually find myself in a position of needing to deploy additional capital in new and existing investments.

Dividend investing just makes sense to me and I am always looking for viable investment opportunities like the ones I highlighted in 3 Undervalued Metal Companies To Fuse Into Your Portfolio. This article is a continuation of my previous research and identifies the 8 wood and metal companies that appeared most often among the bottom 25% of 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.

METHODOLOGY

Bloomberg was used to obtain a list of companies I call wood and metal companies (meaning: forestry, paper and related products, metal-iron, steel-producers and steel-specialty companies), which resulted in a list of 189 companies currently traded on an American exchange. To quickly eliminate irrelevant companies I removed securities which 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 189 companies down to the list of 23 companies analyzed in this article. These 23 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 six companies for each metric and a point was subtracted from each company in the bottom six 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 23 companies analyzed is available in Table 1.

Chart 1. Cumulative Point Distribution

Table 1. The 23 Companies Analyzed

Symbol

Company

(NYSE:ATI)

Allegheny Technologies Inc.

(NYSE:CLF)

Cliffs Natural Resources Inc.

(NYSE:CMC)

Commercial Metals Company

(NYSE:CRS)

Carpenter Technology Corp.

(NYSE:DEL)

Deltic Timber Corporation

(NYSEMKT:FRD)

Friedman Industries, Incorporated

(NYSE:GGB)

Gerdau S.A.

(NYSE:GLT)

PH Glatfelter Co.

(NYSE:GNI)

Great Northern Iron Ore Properties

(NYSE:IP)

International Paper Company

(NYSE:MSB)

Mesabi Trust

(NYSE:MWV)

MeadWestvaco Corporation

(NYSE:NP)

Neenah Paper, Inc.

(NYSE:NUE)

Nucor Corporation

(NYSEMKT:ONP)

Orient Paper, Inc.

(NYSE:PKX)

POSCO

(NYSE:RS)

Reliance Steel & Aluminum Co.

(NYSE:SID)

Companhia Siderurgica Nacional

(NASDAQ:STLD)

Steel Dynamics Inc.

(NYSE:SWM)

Schweitzer-Mauduit International Inc.

(NYSEMKT:TIS)

Orchids Paper Products Company

(NYSE:TX)

Ternium S.A.

(NYSE:UFS)

Domtar Corporation

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 25.6%, while the median percent above 52-week low of the bottom companies was approximately 60%. This implies the companies in Chart 2 have an approximate 35% downside potential should they converge to the overall median.

Chart 2. Bottom 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 2.6%, while the median dividend yield of the bottom companies was approximately 1%. This means the companies in Chart 3 would yield approximately $16,000 less in dividends over a ten year period assuming an initial investment of $100,000 than the median company.

Chart 3. Bottom 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 49.6%, while the median earnings payout ratio of the bottom companies was approximately 92.3%. While the overall median earnings payout ratio is well below the range where most dividend investors start to worry, the bottom companies a flirting with dangerous payout levels that generally make investors uncomfortable.

Chart 4. Bottom 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 19.8, while the median price to earnings of the bottom companies was approximately 32.7. This means the companies in Chart 5 are approximately 1.6 times more expensive by price to earnings than the median company, which currently trades right around the S&P 500's price to earnings of 19.3.

Chart 5. Bottom 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 0.7, while the median price to sales of the bottom companies was approximately 1.9. This means the median company is 40% as expensive by price to sales than the companies in Chart 6.

Chart 6. Bottom Companies By Price To Sales

*MSB's price to sales of 12.9 was excluded from Chart 6 to preserve visual scale

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 1.7, while the median price to book value of the bottom companies was approximately 3. This means the companies in Chart 7 are approximately 1.8 times as expensive by price to book than the median company.

Chart 7. Bottom Companies By Price To Book

*MSB's price to book of 232.2 was excluded from Chart 7 to preserve visual scale

CONCLUSION

Only 9 of the 23 companies managed to survive this analysis with at least one total cumulative point, meaning 14 ended with zero or fewer cumulative points. 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

Points

Companies

5

1

3

2

2

3

1

3

0

3

-1

3

-2

7

-3

1

The 8 companies which cumulatively under ranked their other 15 peers are available in Table 3 below. Though not apparent from my strictly quantitative point system, I believe that MSB should be looked at extremely closely regarding an immediate divestiture, or prior to purchase.

Table 3. The 8 Companies To Scrap

Symbol

Company

Points

CRS

Carpenter Technology Corp.

-2

DEL

Deltic Timber Corporation

-2

GNI

Great Northern Iron Ore Properties

-2

MSB

Mesabi Trust

-2

NP

Neenah Paper, Inc.

-2

NUE

Nucor Corporation

-2

TIS

Orchids Paper Products Company

-2

ATI

Allegheny Technologies Inc.

-3

Think Allegheny Technologies Inc.'s recent acquisition of Hanard Machine, Inc. justifies its current overvaluation relative to its peers or Mesabi Trust is not all that bad after all? Comment below!

Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Scrap These 8 Wood And Metal Companies