With all of the talk about rising commodity prices, I've spent a lot of time looking for value stocks that can benefit from rising prices. With that in mind, I ran a screen looking for Russell 1000 stocks with above a 2% dividend yield in the materials or oil and gas sector. The following 11 companies made the cut (one stock that could be interesting, Freeport McMoRan (FCX), just missed the cut with a dividend yield of 1.92%):
|Ticker||Company Name||Dvd Yld||EV / EBITDA||P/E|
|(OGE) ||OGE ENERGY CORP||3.17||8.16||15.26|
|(NUE) ||NUCOR CORP||3.09||16.27||106.64|
|(CMC) ||COMMERCIAL METAL||2.90||31.52|
|(CVX) ||CHEVRON CORP||2.82||5.34||10.81|
|(IP)||INTL PAPER CO||2.72||5.77||14.12|
|(WMB) ||WILLIAMS COS INC||2.69||7.97||46.45|
|(SUG) ||SOUTHERN UNION||2.23||10.93||14.79|
|(MRO) ||MARATHON OIL||2.08||5.42||13.26|
|(XOM) ||EXXON MOBIL CORP||2.05||8.79||13.73|
(All numbers as of pre market Feb. 25)
Here are a couple of companies on this list that caught my eye:
Williams and Marathon Oil
Both companies have recently proposed spin offs of some of their divisions, which shows management is focused on maximizing shareholder value. Williams has proposed an IPO of 20% of its oil and gas business and will spin off the remainder of the shares to its current shareholders sometime next year. In contrast, Marathon will spin off its downstream business and focus on the exploration and production side. Combined with nice dividend yields and relatively low valuations, both stocks could be worth a second look, especially post spin.
Exxon Mobil, Chevron and Conoco
Three super major oil producers, all three sport low valuations, strong balance sheets (Chevron and Exxon have net cash positions, while Conoco has less than 1x Net Debt / EBITDA), and a history of strong ROE and ROIC. All can benefit from rising oil prices and take advantage of volatility in the Middle East to potentially buy assets on the cheap.
With copper prices soaring due to emerging markets demand, Southern Copper stands to benefit from huge increases in margins and revenue. In addition, the company owns gold, zinc and coal mines, all of which are in the sweet spot of rising commodity prices. It has a great balance sheet, with barely any net debt, and its trailing ROE of 40% (for reference, Freeport’s equals 43% and they have a bit more leverage ... Southern’s ROA is actually a bit better than Freeport) is phenomenal and should improve as prices continue to rise.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.