Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message|
( followers)  

Interested in gaining exposure to commodities? For a closer look at stocks of the basic materials sector, we ran a screen.

We began by screening the basic materials sector for stocks with strong liquidity, with current ratios above 3. The current ratio is current assets/current liabilities, so ratios above 3 indicate the company has at least 3 times the liquid assets to cover their short-term liabilities.

We then screened for those that also appear undervalued relative to the Graham Number. The Graham Number is a measure of maximum fair value created by the "godfather of value investing" Benjamin Graham.

It is based off of a stock's EPS and book value per share (BVPS).

Graham Number = SQRT(22.5 x TTM EPS x MRQ BVPS)

The equation assumes that P/E should not be higher than 15 and P/BV should not be higher than 1.5. Stocks trading well below their Graham Number may be undervalued.

(click to enlarge)

Tool provided by Kapitall.

Do you think these stocks are priced too low? Use this list as a starting point for your own analysis.

List sorted by potential upside implied by the Graham Number.

1. Northwest Pipe Co. (NASDAQ:NWPX): Manufactures and markets large-diameter, high-pressure steel pipeline systems for use in water infrastructure applications, primarily related to drinking water systems. Market cap at $196.77M, most recent closing price at $20.24. Current ratio at 3.9. Diluted TTM earnings per share at 1.54, and a MRQ book value per share value at 26.2, implies a Graham Number fair value = sqrt(22.5*1.54*26.2) = $30.13. Based on the stock's price at $21.9, this implies a potential upside of 37.58% from current levels.

2. Hecla Mining Co. (NYSE:HL): Engages in the discovery, acquisition, development, production, and marketing of silver, gold, lead, and zinc. Market cap at $1.24B, most recent closing price at $4.28. Current ratio at 3.63. Diluted TTM earnings per share at 0.4, and a MRQ book value per share value at 4.03, implies a Graham Number fair value = sqrt(22.5*0.4*4.03) = $6.02. Based on the stock's price at $4.54, this implies a potential upside of 32.65% from current levels.

3. OM Group Inc. (NYSE:OMG): Develops, produces, and markets specialty chemicals, advanced materials, and electrochemical energy storage products worldwide. Market cap at $605.69M, most recent closing price at $18.24. Current ratio at 3.23. Diluted TTM earnings per share at 0.6, and a MRQ book value per share value at 40.06, implies a Graham Number fair value = sqrt(22.5*0.6*40.06) = $23.26. Based on the stock's price at $18.52, this implies a potential upside of 25.57% from current levels.

4. FutureFuel Corp. (NYSE:FF): Engages in the manufacture and sale of specialty chemicals and bio-based products primarily in the United States. Market cap at $418.98M, most recent closing price at $9.87. Current ratio at 6.28. Diluted TTM earnings per share at 0.94, and a MRQ book value per share value at 7.08, implies a Graham Number fair value = sqrt(22.5*0.94*7.08) = $12.24. Based on the stock's price at $9.97, this implies a potential upside of 22.74% from current levels.

5. Chemtura Corporation (NYSE:CHMT): Engages in the manufacture and sale of specialty chemical solutions and consumer products worldwide. Market cap at $1.48B, most recent closing price at $14.71. Current ratio at 3.08. Diluted TTM earnings per share at 1.34, and a MRQ book value per share value at 11.01, implies a Graham Number fair value = sqrt(22.5*1.34*11.01) = $18.22. Based on the stock's price at $15.38, this implies a potential upside of 18.46% from current levels.

6. Dawson Geophysical Co. (NASDAQ:DWSN): Provides onshore seismic data acquisition services in the United States. Market cap at $186.12M, most recent closing price at $22.48. Current ratio at 3.16. Diluted TTM earnings per share at 1.53, and a MRQ book value per share value at 25.24, implies a Graham Number fair value = sqrt(22.5*1.53*25.24) = $29.48. Based on the stock's price at $24.95, this implies a potential upside of 18.14% from current levels.

7. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX): Engages in the exploration, mining, and production of mineral resources. Market cap at $30.76B, most recent closing price at $31.56. Current ratio at 3.51. Diluted TTM earnings per share at 4.01, and a MRQ book value per share value at 17, implies a Graham Number fair value = sqrt(22.5*4.01*17) = $39.16. Based on the stock's price at $33.23, this implies a potential upside of 17.86% from current levels.

8. Metals USA Holdings Corp. (NYSE:MUSA): Market cap at $540.12M, most recent closing price at $14.46. Current ratio at 4.35. Diluted TTM earnings per share at 1.84, and a MRQ book value per share value at 7.4, implies a Graham Number fair value = sqrt(22.5*1.84*7.4) = $17.50. Based on the stock's price at $14.95, this implies a potential upside of 17.08% from current levels.

9. Oil States International Inc. (NYSE:OIS): Provides specialty products and services to the oil and gas drilling and production companies worldwide. Market cap at $3.5B, most recent closing price at $65.46. Current ratio at 3.24. Diluted TTM earnings per share at 7.17, and a MRQ book value per share value at 41.36, implies a Graham Number fair value = sqrt(22.5*7.17*41.36) = $81.68. Based on the stock's price at $70.56, this implies a potential upside of 15.77% from current levels.

*BVPS and EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.

Source: 9 Highly Liquid Basic Materials Stocks Undervalued By The Graham Number