Mid cap companies present an interesting opportunity: they offer some of the growth potential of smaller cap companies, yet they can lack some of the stability of larger cap alternatives. Today we focused on mid cap companies in the basic materials space that have records of reliably returning profits to shareholders, and that have garnered analyst recommendations. We arrived at a short list of companies that merit more analysis and research.
Return on Equity [ROE] is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.
Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.
We first looked for mid cap basic materials stocks. From here, we then looked for companies that have been able to maintain a sound level of profitability for shareholders (ROE [TTM]>30%)(ROA > 10%). We then looked for companies that analysts rate as "Buy" (2 < mean recommendation < 3).
Do you think these mid-cap stocks will perform well? Please use our list to assist with your own analysis.
1) HollyFrontier Corporation (NYSE:HFC)
|Industry:||Oil & Gas Refining & Marketing|
HollyFrontier Corporation has a Return on Equity of 39.76%, a Return on Assets of 17.65%, and a Analysts' Rating of 2.20. The short interest was 4.05% as of 06/22/2012. HollyFrontier Corporation operates as an independent petroleum refiner and marketer in the United States. It produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, liquefied petroleum gas, fuel oil, and specialty and modified asphalt. The company operates refineries in El Dorado, Kansas; Tulsa, Oklahoma; Artesia, New Mexico; Cheyenne, Wyoming; and Woods Cross, Utah.
2) Eastman Chemical Co. (NYSE:EMN)
|Industry:||Chemicals - Major Diversified|
Eastman Chemical Co. has a Return on Equity of 33.00%, a Return on Assets of 10.39%, and a Analysts' Rating of 1.90. The short interest was 4.92% as of 06/22/2012. Eastman Chemical Company, a chemical company, engages in the manufacture and sale of chemicals, plastics, and fibers in the United States and internationally. The company operates in four segments: Coatings, Adhesives, Specialty Polymers, and Inks (CASPI); Fibers; Performance Chemicals and Intermediates (NYSE:PCI); and Specialty Plastics. The CASPI segment manufactures resins, specialty polymers, and solvents that are used in the production of paints and coatings, inks, adhesives, and other formulated products. The Fibers segment offers Estron acetate tow and Estrobond triacetin plasticizers used in cigarette filters; Estron natural and Chromspun solution-dyed acetate yarns for use in apparel, home furnishings, and industrial fabrics; and cellulose acetate flake and acetyl raw materials for acetate fiber producers.
3) FMC Corp. (NYSE:FMC)
|Industry:||Chemicals - Major Diversified|
FMC Corp. has a Return on Equity of 33.64%, a Return on Assets of 12.12%, and a Analysts' Rating of 2.00. The short interest was 1.98% as of 06/22/2012. FMC Corporation, a chemical company, provides solutions, applications, and products for agricultural, consumer, and industrial markets. The company operates in three segments: Agricultural Products, Specialty Chemicals, and Industrial Chemicals. The Agricultural Products segment develops, markets, and sells a portfolio of crop protection, pest control, and lawn and garden products. It produces insecticides, herbicides, and fungicides to protect crops, including cotton, sugarcane, rice, corn, soybeans, cereals, fruits, and vegetables from insects and weed growth; and for non-agricultural applications, including pest control for home, garden, and other specialty markets, as well as for turf and roadside applications.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.