When it comes to predicting the future growth of stocks, it would be nice if crystal balls really worked. The best we can do is to pay attention to trends, fluctuations, and use analytical tools. The EPS rate is one measurement that is helpful in finding companies that are slated for growth. With this is mind we searched the industrial metals and minerals category to find stocks that have strong growth projections. We then screened for companies that look undervalued according to their fundamentals. We arrived at a short list of stocks that warrant more research.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. The 1-Year Expected EPS Growth Rate is an annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.
The PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share [EPS], and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is 'better' (cheaper) and a higher ratio is 'worse' (expensive) - a PEG ratio of 1 means the company is fairly priced.
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric is the more the firm is relying on debt to finance its assets.
We first looked for industrial metals & minerals stocks. We then screened for businesses with projected high growth, measured by 1-year projected EPS growth above 25%. Next, we then screened for businesses that are undervalued when company growth rate is taken into account (PEG Ratio < 1)(forward P/E<10). We did not screen out any market caps.
Do you think these stocks will trade at a higher valuation? Use this list as a starting-off point for your own analysis.
1) U.S. Silica Holdings, Inc. (SLCA)
| Sector: | Basic Materials |
| Industry: | Industrial Metals & Minerals |
| Market Cap: | $560.95M |
| Beta: | - |
U.S. Silica Holdings, Inc. has a 1-Year Projected Earnings Per Share Growth Rate of 35.56%, a Price/Earnings to Growth Ratio of 0.23, and a Forward Price/Earnings Ratio of 5.79. The short interest was 11.72% as of 08/06/2012. U.S. Silica Holdings, Inc. produces and sells various commercial silica and industrial mineral products. The company offers whole grain commercial silica products to be used as fracturing sand in connection with oil and natural gas recovery; the manufacturers of architectural and solar glass; and foundry and building products industry. It also provides ground commercial silica products for use in plastics, rubber, polishes, cleansers, paints, ceramic frits and glazes, textile fiberglass, and precision castings; and fine ground silica for use in premium paints, specialty coatings, sealants, silicone rubber, and epoxies.
2) Thompson Creek Metals Company Inc. (TC)
| Sector: | Basic Materials |
| Industry: | Industrial Metals & Minerals |
| Market Cap: | $431.46M |
| Beta: | 2.74 |
Thompson Creek Metals Company Inc. has a 1-Year Projected Earnings Per Share Growth Rate of 633.30%, a Price/Earnings to Growth Ratio of 0.05, and a Forward Price/Earnings Ratio of 5.33. The short interest was 12.11% as of 08/06/2012. Thompson Creek Metals Company Inc. engages in mining, milling, processing, and marketing of molybdenum products in the United States and Canada. Its principal properties include the Thompson Creek Mine, an open-pit molybdenum mine and concentrator located in Idaho; the Endako Mine, an open-pit molybdenum mine, concentrator, and roaster in British Columbia; and the Langeloth metallurgical facility in Pennsylvania. The company also holds interests in exploration properties comprising the Berg property, a copper, molybdenum, and silver exploration project located in British Columbia; the Davidson property, an underground molybdenum exploration project in British Columbia; the Howard's Pass property, a lead and zinc project situated in the Yukon territory-northwest territories border; and the Maze Lake property, a gold project located in the Kivalliq district of Nunavut.
3) Peabody Energy Corp. (BTU)
| Sector: | Basic Materials |
| Industry: | Industrial Metals & Minerals |
| Market Cap: | $5.80B |
| Beta: | 1.45 |
Peabody Energy Corp. has a 1-Year Projected Earnings Per Share Growth Rate of 25.60%, a Price/Earnings to Growth Ratio of 0.33, and a Forward Price/Earnings Ratio of 8.19. The short interest was 4.06% as of 08/06/2012. Peabody Energy Corporation engages in the mining of coal. It mines, prepares, and sells thermal coal to electric utilities and metallurgical coal to industrial customers. The company owns interests in 30 coal mining operations located in the United States and Australia, as well as owns joint venture interest in a Venezuela mine. It is also involved in marketing, brokering, and trading coal.
4) Walter Energy, Inc. (WLT)
| Sector: | Basic Materials |
| Industry: | Industrial Metals & Minerals |
| Market Cap: | $2.28B |
| Beta: | 1.79 |
Walter Energy, Inc. has a 1-Year Projected Earnings Per Share Growth Rate of 80.54%, a Price/Earnings to Growth Ratio of 0.73, and a Forward Price/Earnings Ratio of 6.77. The short interest was 5.55% as of 08/06/2012. Walter Energy, Inc. produces and exports metallurgical coal for the steel industry primarily in the United States. The company also produces thermal and industrial coal, anthracite, metallurgical coke, coal bed methane gas, and other related products. It principally serves electric utility and industrial customers.
*Company profiles were sourced from Google Finance and Yahoo Finance. 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.
