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One way to spot potentially undervalued or overvalued stocks is by reviewing their price to multiple valuations. The lower the number, the lower the “value” the company may be offering, and it could be an indication that it the company is currently out of favor with the investment community.

The Forward P/E Ratio is a price-multiple valuation that illustrates how much investors are willing to pay for a company's expected future earnings. Given that these numbers are estimates, they are not as reliable as trailing numbers. If the firm’s future earnings are expected to grow, the Forward P/E Ratio will be lower than the current P/E.

We ran a screen for Basic Material’s companies that appear undervalued relative to their Forward PE (X<10). From this narrowed pool, we then screened for firms that had solid top line growth over the last fiscal year (X>10). All the companies listed have a bullish analyst sentiment.

The list is ranked from lowest to highest by the Forward PE Ratio.

1. Arch Coal Inc (ACI)

Sector

Basic Materials

Industry

Coal

Market Cap

$3712M

Beta

1.83

Analyst Sentiment

15/23-List Buy/Outperform (Bullish)

The company produces and sells of steam and metallurgical coal through underground and surface mines in the US. The firm’s Forward PE Ratiois 4.57. ACI’s Fiscal 1- Year Revenue Growth rate is 23.69%. The short interest for the firm is 5.00% as of 8/15/2011.

2. Mechel OAO (MTL)

Sector

Basic Materials

Industry

Steel

Market Cap

$7185B

Beta

2.77

Analyst Sentiment

15/20-List Buy/Outperform (Bullish)

The company does mining and steel production within the Russian Federation and beyond. The firm’s Forward PE Ratio is 4.85. MTL’s Fiscal 1-Year Revenue Growth rate is 69.37%. The short interest for the firm is N/A as of 8/15/2011.

3. ArcelorMittal SA (MT)

Sector

Basic Materials

Industry

Steel

Market Cap

$30298M

Beta

2.16

Analyst Sentiment

25/34-List Buy/Outperform (Bullish)

The company has mining and steel production facilities worldwide. The firm’s Forward PE Ratio is 4.99. MT’s Fiscal 1-Year Revenue Growth rate is 27.87%. The short interest for the firm is 1.70% as of 8/15/2011.

4. Vale S.A. (VALE)

Sector

Basic Materials

Industry

Industrial Metals & Minerals

Market Cap

$133744M

Beta

1.49

Analyst Sentiment

19/23-List Buy/Outperform (Bullish)

The company produces and sells metals in Brazil and beyond. The firm’s Forward PE Ratio is 5.09. VALE’s Fiscal 1-Year Revenue Growth rate is 94.3%. The short interest for the firm is N/A as of 8/15/2011.

5. AK Steel Holding Corporation (AKS)

Sector

Basic Materials

Industry

Steel

Market Cap

$859M

Beta

2.86

Analyst Sentiment

10/16-List Buy/Outperform (Bullish)

The company produces flat-rolled carbon, stainless, and electrical steels, and tubular products primarily in the US. AKS’s Forward PE Ratio is 5.16. The firm’s Fiscal 1-Year Revenue Growth rate is 46.4%. The short interest for the firm is 15% as of 8/15/2011.

6. Walter Energy (WLT)

Sector

Basic Materials

Industry

Coal

Market Cap

$4628M

Beta

2.09

Analyst Sentiment

9/16-List Buy/Outperform (Bullish)

The company produces and sells metallurgical coal for the US steel industry. The firm’s Forward PE Ratio is 5.58. WLT’s Fiscal 1-Year Revenue Growth rate is 64.22%. The short interest for the firm is 5.10% as of 8/15/2011.

7. Steel Dynamics Inc (STLD)

Sector

Basic Materials

Industry

Steel

Market Cap

$2497M

Beta

1.92

Analyst Sentiment

11/14-List Buy/Outperform (Bullish)

Steel Dynamics, Inc. engages in the manufacture and sale of steel products in the United States. The firm’s Forward PE Ratio is 5.76. STLD’s Fiscal 1-Year Revenue Growth rate is 59.16%. The short interest for the firm is 4% as of 8/15/2011.

8. Solutia, Inc. (SOA)

Sector

Basic MaterialsBasic Matls

Industry

Chemicals

Market Cap

1832

Beta

2.18

Analyst Sentiment

6/6-List Buy/Outperform (Bullish)

The company produces and sells performance materials and specialty chemicals for a variety of different industries. SOA’s Forward PE Ratio is 5.85. The firm’s Fiscal 1-Year Revenue Growth rate is 20.52%. The short interest for the firm is 2% as of 8/15/2011.

9. United States Steel Corporation (X)

Sector

Basic Materials

Industry

Steel

Market Cap

$3796M

Beta

2.65

Analyst Sentiment

9/16-List Buy/Outperform (Bullish)

The company produces and sells steel produces in the North America and Europe. The firm’s Forward PE Ratio is 5.85. X’s Fiscal 1-Year Revenue Growth rate is 57.26%. The short interest for the firm is N/A as of 8/15/2011.

We hope this helps investors as they do their own due diligence on materials companies that appear undervalued by their Forward PE Ratio.

Disclosure: I am long MT.
Source: 9 Discounted, Profitable Basic Materials Stocks That Carry Bullish Analyst Ratings