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If, like me, you are presently looking for defensive plays within the Basic Materials sector - stocks with strong upward momentum (trend), and generating robust 'Free-Cash-Flow to Enterprise-Value' metrics, the following may provide an interesting starting point for further analysis...
To compile the list, I have applied the following screening criteria...
1: Stocks should be within the Basic Materials sector.
2: Each company must have a minimum market capitalization of $50m plus.
3: Each stock must be trading above 60% of the 52 week range.
4: The 'Free-Cash-Flow To Enterprise Value' must be above 10%.
Note, the 'free cash flow' (FCF) metric is a more accurate measure of a companies 'earnings', as it reflects the true operational performance (generation of actual cash profits) of a business. This eliminates any potential misrepresented accounting, or dubious 'non-operational' entries into the profit/loss statements.
The 'enterprise value' (EV) metric is a more accurate representation of what a company is 'worth'. Many investors simply take the 'market cap' as a determination of a companies value. This is flawed, as it does not account for debt and cash the company may hold. A potential buyer would only pay the true worth of a business, which is the market capitalization PLUS debt (the acquirer would have to buy the debt), MINUS cash (the acquirer, once the company is purchased, also gains the cash reserves).
Hence, unlike the commonly observed P/E ratio (which is based on the very basic, and questionable 'market cap' and 'earnings' metrics), the FCF/EV ratio more accurately represents the amount of true earnings a company produces as a ratio (or percentage) of the true worth of the business.
Given this information, I have listed the 7 stocks I have found to provide the most favorable FCF/EV metrics. Each company produces a minimum 10% of free cash flow (FCF) relative to its overall worth (EV)...
CF Industries Holdings (CF)
This basic materials stock operates within the agricultural chemicals industry, with a market capitalization of $10.9B. The stock is presently trading at 156.04% above its 52 week low. Leveraged Free Cash Flow is $1.54B, and Enterprise Value is $11.39B, implying an FCF/EV ratio of 0.1352 (or 13.52%).
Valero Energy Corporation (VLO)
This basic materials stock operates within the oil & gas refining and marketing industry, with a market capitalization of $14.23B. The stock is presently trading at 62.14% above its 52 week low. Leveraged Free Cash Flow is $1.87B, and Enterprise Value is $17.93B, implying an FCF/EV ratio of 0.1043 (or 10.43%).
Noranda Aluminum Holding Corp. (NOR)
This basic materials stock operates within the aluminum industry, with a market capitalization of $913.5m. The stock is presently trading at 132.88% above its 52 week low. Leveraged Free Cash Flow is $210.46m, and Enterprise Value is $1.29B, implying an FCF/EV ratio of 0.1631 (or 16.31%).
Gulf Island Fabrication Inc. (GIFI)
This basic materials stock operates within the oil & gas drilling and exploration industry, with a market capitalization of $413.7m. The stock is presently trading at 100.04% above its 52 week low. Leveraged Free Cash Flow is $41.11m, and Enterprise Value is $351.49m, implying an FCF/EV ratio of 0.1169 (or 11.69%).
Ferro Corp. (FOE)
This basic materials stock operates within the specialty chemicals industry, with a market capitalization of $1.07B. The stock is presently trading at 84.88% above its 52 week low. Leveraged Free Cash Flow is $164.8m, and Enterprise Value is $1.39B, implying an FCF/EV ratio of 0.1185 (or 11.85%).
Innophos Holdings Inc. (IPHS)
This basic materials stock operates within the chemicals (major diversified) industry, with a market capitalization of $922.03m. The stock is presently trading at 79.51% above its 52 week low. Leveraged Free Cash Flow is $117.46m, and Enterprise Value is $984.45m, implying an FCF/EV ratio of 0.1193 (or 11.93%).
Hecla Mining Co. (HL)
This basic materials stock operates within the silver industry, with a market capitalization of $2.06B. The stock is presently trading at 63.27% above its 52 week low. Leveraged Free Cash Flow is $208.5m, and Enterprise Value is $1.75B, implying an FCF/EV ratio of 0.1191 (or 11.91%).
Wishing you every success in your trading... and good spirit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: 7 Basic Materials Stocks With Strong Upward Momentum