Wood Chips And Coal Fuel Basic Materials October Furnace

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Includes: AHGP, BAK, CF, CNXC, DDC, EVA, FBR, FELP, MERC, NRP, NSU, RIO, SXCP, TNH, UAN, UFS
by: Fredrik Arnold

Summary

Annual yields by ten Basic Materials leaders averaged 11.23% as they mixed up after September with Dow dogs.

Yield from EVA, AHGP, BAK; CWX.TO, TNH, CNXC, UAN; SXCP; FELP, & FBR ranged from 7.72% to 15.46% as of October 19 closing prices.

Analysts estimated top ten upsides at a 35.06% average with net gains of 40.76% for CF; CNXC; UFS; FELP; RIO; NSU.TO; MERC; UAN; DDC; FBR; with NRP a loser.

Thirty Basic Materials firms averaged 9.83% upsides and 16.21% net gains. Top ten gain predictions ranged from 8.56% to 177.47%.

Top ten Basic Materials sector stocks by yield were forecast by analysts to gain 77.6% more from $5k invested in the lowest priced five than from $5k in all ten.

October Basic Materials SML Dogs

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of October 19, 2016 for Small, Mid, & Large cap Basic Materials sector stocks. Small cap firms were valued at $200M(illion) to $2B(illion); Mid cap firms were worth $2B to $10B; Large caps were valued above $10B. Those yield results led to the actionable conclusions discussed below.

The Dividend Dogs Rule

The "dog" moniker was earned in three steps: (1) any stock paying a reliable, repeating dividend (2) whose price fell to a point where its yield (dividend/price) (3) grew higher than its peers (such as this Industrials collection), is so tagged. Thus, the highest yielding stocks in any collection became known as "dogs."

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Fifty Dogs On The Money

Since late 2011 this report series has applied dog dividend methodology to uncover possible buy opportunities in each of eight major market sectors listed by Yahoo Finance: basic materials (BasMats), consumer goods (ConGo), financials (Fins), healthcare (Heal), industrial goods (IndiGo), services (Svcs), technology (Tec), and utilities (Utes). In the past few years the series expanded to report (1) dividend yield; (2) price upside; (3) net gain results based on analyst 1 yr. target projections.

The series was recently revised to report on 11 sectors as defined by Morningstar and tracked here: Basic Materials, Communication Services, Consumer Cyclical, Consumer Defensive, Energy, Financial Services, Healthcare,Industrials, Real Estate, Technology, and Utilities.

This article intended to reveal bargain stocks to buy and hold up to one year. See Dow 30 article for explanation of the term "dogs" for stocks reported based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991), now named Dogs of the Dow. O'Higgins system works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates expanded the stock universe to include popular growth equities, as desired.

Dog Metrics Graded Basic Materials Stocks by Yield

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Actionable Conclusion (1): Paper Covers Coal For Top Yields As Agricultural Inputs, Building Materials, Chemicals, & Wood Chips Trail

Paper, coal, chemicals, & agricultural input industry firms sourced eight of the top ten basic materials sector stocks showing the biggest dividend yields for October

Top yield dog was Fibria Celulose (NYSE:FBR) [1], the Brazilian pulp producer. Coal dogs followed in second, third, fifth, and ninth slots: Foresight Energy. (NYSE:FELP) [2], SunCoke Energy Partners (NYSE:SXCP) [3]; CNX Coal Resources (NYSE:CNXC) [5], as one more coal firm followed, Alliance Holdings (NASDAQ:AHGP) [9].

Two agricultural inputs firms claimed the fourth, and sixth positions, CVR Partners (NYSE:UAN) [4], and Terra Nitrogen Co., (NYSE:TNH) [6].

Seventh place was occupied by CanWel Building Materials (CWX.TO) [7], a building materials firm. A lone chemicals company placed eighth, Braskem S.A. (NYSE:BAK) [8].

The southern forest wood chipper, Enviva Partners, (NYSE:EVA) placed tenth [10] to complete the top ten Basic Materials sector dogs by yield list as of October 19. Gold was nowhere to be seen near the top ten.

Basic Materials Top Ten Price vs. Dividend Compared To Dow Dog Results

Relative strengths of the top ten Basic Materials sector dogs graphed below by yield were plotted as of market close 10/19/2016 and compared to those of the Dow. Projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks and the total single share prices of those ten stocks created the data points shown in green for price and blue for dividend.

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Actionable Conclusions: (2) Basic Materials Top Ten Mixed Up, As (3) Dow Dogs Did Too

Dividend from $10k invested as $1k in each of the basic materials top ten dogs soared higher after September, and so did the aggregate single share price of those top ten. Dividend popped at a rate of 48% while total single share price jumped 70%.

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Dow dogs mixed up, too after September. Projected annual dividend from $10k invested as $1K in each of the top ten stepped up 0.7%. At the same time, aggregate single share price popped nearly 12% to make that mix up.

The Dow dogs' overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend) swelled toward their August record girth.

Actionable Conclusion (4): Dow Dogs Kept Their Overbought Status

The January 2016, Dow overbought gap went down to $215 or 53%. February market moves put the gap at $208 or 48%.

March saw the chasm at $293 or 73%. April widened the gap to $394 or 102%. May shrank it to $357 or 93%. June expanded the distance between price over dividend back to $408 or 112%, and July expanded the new 2016 record to $438 or 122%. August put the gap at $479 or 131%, for another record spread! September sensibly shrank it to $368 or 98% but October got most of the gap back to $455 or nearly 121%.

This gap between high share price and low dividend per $1k invested defines the Dow over-bought condition. Meaning these are low risk and low opportunity Dow dog stocks. The Dow top ten September average price per dollar of annual dividend was $26.85.

Compared to the Dow dogs, the Basic Materials top ten, while volatile, are far from overbought, maintaining a "normal" pattern of dividends greater than price.

In contrast to the Dow, Basic Materials Dog top ten average price per dollar of annual dividend came in at $10.06 as of October 19, which is 37% of the price of an annual dollar of Dow dividends.

Wall Street Wizards Stacked Upside And Downside Dogs In October

One-year median target price set by brokerage analysts, multiplied by the number of shares in a $1k investment were used to compare ten stocks showing the highest upside price potential into 2017 out of 30 selected by yield. The number of analysts providing price estimates was noted after the name for each stock on the second chart below. Three to nine analysts were considered best for the most accurate mean target price estimate.

Actionable Conclusions: (4) Ten Basic Materials Sector Dividend Dogs Showed 4.28% to 164.01% Upsides per Analyst 1 yr. Targets & (5) Five Revealed 3.16% To 32.52% Downsides

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Dog Metrics Marked Basic Materials Stocks By Yield

To quantify top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metrics, analyst mean price target estimates are another tool to dig out bargains.

Actionable Conclusions: Wall St. Brokers Projected (6) Average 9.83% Upsides; & (7) 16.21% Net Gains from Top 30 Basic Materials Dogs By October, 2017

Top thirty sector dogs graphed below per October 19, 2016 closing prices were compared to those projected by analyst mean price target estimates to the same date in 2017.

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A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by projected annual per share dividend amounts to find the dividend return. Thereafter the analyst mean target price was used to gauge the stock upsides to 2017.

Historic prices and actual dividends paid from $1000 invested in each of the thirty highest yielding stocks and the aggregate single share prices of those thirty stocks divided by 3 created the data points for 2016. Projections based on estimated increases in dividend amounts from $1000 invested in the thirty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 3 created the 2017 data points green for price and blue for dividends.

Analysts as reported by Yahoo Finance projected a 6% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 3.1% in the coming year (October to October).

Notice the dividend over price pattern of the vectors in the graph for the coming year. Analysts assert Basic Materials dogs will NOT join the Dow dogs in an overbought situation (as this graph once showed in May).

The number of analysts contributing to the mean target price estimate for each stock was noted in the next to the last column on the charts. Three to nine analysts was considered optimal for a valid projection estimate. Estimates provided by one analyst were not applied (n/a).

A beta (risk) ranking for each analyst rated stock was provided in the far right column on the above chart. A beta of 1 meant the stock's price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement. A negative beta number indicated the degree of a stocks movement opposite of market direction.

Actionable Conclusion (8): Analysts Alleged 10 Basic Materials Dogs Would Net 8.56% to 177.47% By October, 2017

Four of ten top yielding Basic Materials sector dogs were verified as being among the top gainers for the coming year based on analyst 1 year target prices. So this month analysts graded the dog strategy as 40% accurate.

Ten probable profit generating trades were revealed by Thomson/First Call as reported in Yahoo Finance for 2017:

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Fibria Celulose, the Brazilian pulp supplier to the world, was projected to net $1,774.66 based on dividends plus the lowest annual price estimate from one of ten analysts less broker fees. The Beta number showed this estimate subject to volatility 12% opposite the market as a whole.

Dominion Diamond (NYSE:DDC) was projected to net $569.40 based on the median of estimates from seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 42% less than the market as a whole.

CVR Partners was projected to net $451.26 based on estimated dividends plus mean target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 30% more than the market as a whole.

Mercer International (NASDAQ:MERC) was projected to net $412.50, based on dividend plus median target price estimates from seven analysts less broker fees. The Beta number showed this estimate was subject to volatility 55% more than the market as a whole.

Nevsun Resources (NYSEMKT:NSU) was projected to net $197.39 based on a median target price estimate from five analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 21% less than the market as a whole.

Rio Tinto (NYSE:RIO) was projected to net $191.49 based on the median target price estimate from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 28% more than the market as a whole.

Foresight Energy was projected to net $132.13 based on estimated dividends alone with no mean target price estimate from four analysts less broker fees. A Beta number was not available for FELP.

Domtar (NYSE:UFS) was projected to net $116.99, based on dividends plus a median target price estimate from fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 68% more than the market as a whole.

CNX Coal Resources (CNXC) was projected to net $103.56 based on the low target price estimate from six analysts combined with projected annual dividend less broker fees. A Beta number was not available for CNXC.

CF Industries Holdings (NYSE:CF) was projected to net $85.59 based on dividends plus the median target price estimate from eighteen analysts less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.

Average net gain in dividend and price was estimated by analyst targets plus dividends less broker fees at 40.76%. The average Beta number showed these estimates subject to volatility 1% less than the market as a whole.

Actionable Conclusion (9): (Bear Alert) Analysts Predicted One Basic Materials Dog To Have A October, 2017

The probable losing trade revealed by Thomson/First Call in Yahoo Finance in 2017 was:

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Natural Resources (NYSE:NRP) was projected to lose $285.96 based on dividend and a median target price estimate from two analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 9% opposed to the market as a whole.

Broker Projections For High and Low Basic Materials Upside Dogs Appear Contrary to Year to Date Price Histories

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Highly 136% positive year to date price performance of Natural Resources, the basic materials sector "big loser" red lined by analysts, contrasts severely with the marked -42% negative annual price history for analyst tagged upside leader, Fibria Celulose S.A.. Momentum is not in line with these broker forecasts.

Dog Metrics Detected 77.6% More Gain From Five Lowest Priced Highest Yield Basic Materials Sector Dogs

Ten small, mid, and large cap basic materials equities were culled by yield from 50 common stock choices from here. Yield (dividend / price) results verified by Yahoo Finance did the ranking.

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Actionable Conclusions: (10) Analysts Project 5 Lowest Priced of Ten Highest Yield To Fetch 49.39% VS. (11) 27.81% Net Gains From All Ten Basic Materials Dogs as of October 19, 2017

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$5000 invested as $1k in each of the five Lowest priced stocks in the top ten basic materials dividend kennel by yield were predicted by analyst 1 year targets to deliver 77.6% more net gain than $5,000 invested as $500 in each of the top ten. The fourth lowest priced basic materials dividend dog, Fibria Celulose , was projected to deliver the best net gain of 177.47%.

Lowest priced five basic materials dividend dogs for October 19 were: Foresight Energy; CVR Partners; CanWel Building Materials; Fibria Celulose; SunCoke Energy Partners, whose prices ranged from $4.47 to $16.45.

Higher priced five basic materials dividend dogs for October 19 were: CNX Coal Resources; Braskem S.A.; Enviva Partners; Alliance Holdings; Terra Nitrogen Co whose prices ranged from $17.40 to $106.91.

This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed for beating the Dow. It works here too, this time.

The added scale of projected gains based on analyst targets contributed a unique element of "market sentiment" gauging upside potential. It provided a here and now equivalent of waiting a year to find out what might happen in the market. Its also the work analysts got paid big bucks to do.

A caution is advised, however, as analysts are historically 20% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of the change. (See contrarian graph above).

Annual Analyst Accuracy

You see below the one year result of ten analyst target estimates for Dow stocks per Yahoo from this article from October 10, 2015. These were applied to the "basic method" Michael B. O'Higgins employed for beating the Dow. The key shows: losses in a reddish tint; poor results tinted yellow; gains tinted green; no tint means no difference.

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The "basic method" analyst accuracy score for top ten Basic Materials stocks by yield between October 10, 2015 and October 19, 2016 was eight losses with two gains. This group of nine-sector basic material dogs showed a 20% positive result since 2015. Aren't you glad the eleven sector standard now used for these articles does not include energy with the basic materials equities?

Stocks listed above were suggested only as decent starting points for a small, mid, and large cap Basic Materials equities dog dividend stock investment research process in mid-October, 2016. These were not recommendations.

See my instablog for specific instructions about how to best use the dividend dog data featured in this article.

Gains/declines as reported did not factor-in any tax problems resulting from dividend, profit, or return of capital distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

Five of these basic materials sector dividend pups qualify as valuable catches! Find them as five of the now 52 Dogs of the Week found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.

Root for the Underdog and celebrate the top dividend net gainers for the past year at the free for all first annual dividend dog of the year award webinar on shindig. November 16 at 11AM to Noon EST. Go here to reserve your seat: http://events.shindig.com/event/dogofyearaward.

For a free copy of the 12 monthly top dogs list, including updates on the Q1, Q2, and the Q3 picks, send your e-mail address, ticker symbol for your favorite dividend stock, and name of your favorite team of any sport or activity to: fredrika120@gmail.com. Remember: E-mail, ticker, team!

Disclaimer: This article is for informational and educational purposes only and should not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security. Prices and returns on equities in this article except as noted are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from ycharts.com; dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. DogPhoto: museumsyndicate.com

Disclosure: I am/we are long GE, CSCO, PFE, INTC, VZ.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.