Small-cap stocks tend to offer investors greater growth opportunities than large-cap alternatives, although this comes with its fair share of added risk. We are focusing on small cap stocks in the basic materials sector. These companies have gained analyst confidence, and therefore, merit more research. We then looked for stocks that appear undervalued from a price-multiple perspective, meaning now might be the time to invest. The list we came up is a bit diverse, but we think you'll find it interesting.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it lets an investor know how much the investment community is willing to pay for every dollars worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap, because investors are paying $1 or less for every dollar's worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community, not hard rules. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
We first looked for small cap basic materials stocks. Next, we then screened for businesses that analysts rate as "Buy" (2 < mean recommendation < 3). We then looked for businesses that are trading at a discount (P/S<1)(P/E<10).
Do you think these small-cap stocks have a positive future in store? Use our screened list as a starting point for your own analysis.
1) Newpark Resources Inc. (NR)
|Industry:||Oil & Gas Equipment & Services|
Newpark Resources Inc. has a Analysts' Rating of 1.90 and Price/Sales Ratio of 0.51 and Price/Earnings Ratio of 7.33. The short interest was 11.29% as of 06/01/2012. Newpark Resources, Inc. provides various products and services primarily to the oil and gas exploration industry. It operates in three segments: Fluids Systems and Engineering, Mats and Integrated Services and Environmental Services. The Fluids Systems and Engineering segment provides drilling fluids products and technical services for technical drilling projects involving complex subsurface conditions, such as horizontal directional, geologically deep, or deep water drilling.
2) Kronos Worldwide Inc. (KRO)
Kronos Worldwide Inc. has a Analysts' Rating of 2.50 and Price/Sales Ratio of 0.94 and Price/Earnings Ratio of 4.92. The short interest was 21.65% as of 06/01/2012. Kronos Worldwide, Inc. engages in the production and marketing of titanium dioxide pigments under the Kronos brand name primarily in North America and Europe. It produces titanium dioxide pigments in two crystalline forms, rutile and anatase to impart whiteness, brightness, opacity, and durability for products, such as coatings, plastics, papers fibers, and ceramics, as well as for various specialty products, including inks, food, and cosmetics. The company also offers ilmenite, a raw material used directly as a feedstock by sulfate-process titanium dioxide pigment plants; iron-based chemicals, which are co-products and processed co-products of the titanium dioxide pigment production process and used as treatment and conditioning agents for industrial effluents and municipal wastewater, as well as in the manufacture of iron pigments, cement, and agricultural products; and titanium oxychloride and titanyl sulfate, which are side-stream products from the production of titanium dioxide pigments.
3) Kraton Performance Polymers Inc. (KRA)
Kraton Performance Polymers Inc. has a Analysts' Rating of 2.30 and Price/Sales Ratio of 0.41 and Price/Earnings Ratio of 7.29. The short interest was 6.54% as of 06/01/2012. Kraton Performance Polymers, Inc., through its subsidiary, Kraton Polymers LLC, engages in the development, production, and marketing of styrenic block copolymers (SBCs) and non-SBC products worldwide. The company offers approximately 250 core commercial grades of SBCs. Its products include unhydrogenated SBCs that are primarily used in paving and roofing, adhesives, sealants, coatings, and footwear applications; hydrogenated SBCs that are primarily used in soft touch and flexible materials, personal hygiene products, medical products, automotive components, adhesives, and sealants; and isoprene rubber products for use in the production of medical products, adhesives, tackifiers, paints, coatings, and photo-resistors.
4) Noranda Aluminum Holding Corp. (NOR)
Noranda Aluminum Holding Corp. has a Analysts' Rating of 2.10 and Price/Sales Ratio of 0.34 and Price/Earnings Ratio of 4.42. The short interest was 1.87% as of 06/01/2012. Noranda Aluminum Holding Corporation engages in the production and sale of primary aluminum products and rolled aluminum coils in the United States. It mines, produces, and sells bauxite used for alumina production. The company refines and converts bauxite into alumina; and smelts and produces primary aluminum products in various forms, including billet, rod, high purity sow, and foundry ingot, as well as commodity grade sow. These products are used in building construction, architectural, transportation, electrical, and steel de-oxidation applications.
5) Key Energy Services Inc. (KEG)
|Industry:||Oil & Gas Drilling & Exploration|
Key Energy Services Inc. has a Analysts' Rating of 1.80 and Price/Sales Ratio of 0.78 and Price/Earnings Ratio of 9.44. The short interest was 6.15% as of 06/01/2012. Key Energy Services, Inc. operates as an onshore rig-based well servicing contractor in the United States and internationally. The company offers rig-based services, including the maintenance, workover, and recompletion of existing oil and gas wells; completion of newly-drilled wells; and plugging and abandonment of wells at the end of their lives, as well as specialty drilling services to oil and natural gas producers. It also provides fluid management services, such as vacuum truck services, fluid transportation services, and disposal services for operators, whose wells produce saltwater or other non-hydrocarbon fluids; and equipment trucks that are used to move large equipment from one well site to the next, as well as supplies frac tanks, which are used for temporary storage of fluids associated with fluid hauling operations.
6) Basic Energy Services, Inc. (BAS)
|Industry:||Oil & Gas Equipment & Services|
Basic Energy Services, Inc. has a Analysts' Rating of 2.10 and Price/Sales Ratio of 0.36 and Price/Earnings Ratio of 5.50. The short interest was 8.94% as of 06/01/2012. Basic Energy Services, Inc. provides various well site services to oil and natural gas drilling and producing companies in the United States. Its Completion and Remedial Services segment provides pressure pumping services, such as cementing, acidizing, fracturing, coiled tubing, nitrogen, and pressure testing; rental and fishing tools; coiled tubing; snubbing services; thru-tubing; cased-hole wireline services; and underbalanced drilling in low pressure and fluid sensitive reservoirs. This segment operates 222 pressure pumping units.
7) Delek US Holdings Inc. (DK)
|Industry:||Oil & Gas Refining & Marketing|
Delek US Holdings Inc. has a Analysts' Rating of 2.30 and Price/Sales Ratio of 0.11 and Price/Earnings Ratio of 5.00. The short interest was 9.03% as of 06/01/2012. Delek US Holdings, Inc., an integrated energy company, engages in refining, marketing, supplying, and retailing petroleum products. The company operates through three segments: Refining, Marketing, and Retail. The Refining segment operates independent refineries in Tyler, Texas and El Dorado, Arkansas.
8) Cloud Peak Energy Inc. (CLD)
|Industry:||Industrial Metals & Minerals|
Cloud Peak Energy Inc. has a Analysts' Rating of 2.40 and Price/Sales Ratio of 0.60 and Price/Earnings Ratio of 4.95. The short interest was 8.86% as of 06/01/2012. Cloud Peak Energy Inc., through its subsidiaries, engages in the coal mining operations in the Powder River Basin and the United States. It produces and sells sub-bituminous thermal coal with low sulfur content primarily to electric utilities. The company owns and operates the Antelope mine located to the south of Gillette, Wyoming; the Cordero Rojo mine located to the south of Gillette, Wyoming; and the Spring Creek mine located in Montana.
*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.