3 Undervalued Industrial Metals & Minerals Stocks Favored By Analysts

Includes: BTU, SBGL, WLT
by: ZetaKap

Savvy investors know that you can make money by looking where other investors aren't, and that can mean looking deep into a company's fundamentals. Doing just that, today we identified industrial stocks that look undervalued from a price-multiple perspective and that are backed by firm analyst ratings. We came up with a short, but interesting list of industrial stocks definitely worth more consideration.

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 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 industrial metals & minerals stocks. We next screened for businesses that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). From here, we then looked for companies that are trading at a discount when considering the company growth rate (PEG Ratio < 1)(P/E<10). We did not screen out any market caps.

Do you think these stocks have strong enough fundamentals to move higher? Use our list to help with your own analysis.

1) Walter Energy, Inc. (NYSE:WLT)

Sector: Basic Materials
Industry: Industrial Metals & Minerals
Market Cap: $2.89B
Beta: 1.85

Walter Energy, Inc. has a Analysts' Rating of 2.10, a Price/Earnings to Growth Ratio of 0.83, and a Price/Earnings Ratio of 9.43. The short interest was 5.28% as of 06/18/2012. 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.

2) Stillwater Mining Co. (SWC)

Sector: Basic Materials
Industry: Industrial Metals & Minerals
Market Cap: $1.08B
Beta: 2.36

Stillwater Mining Co. has a Analysts' Rating of 2.40, a Price/Earnings to Growth Ratio of 0.75, and a Price/Earnings Ratio of 9.39. The short interest was 11.18% as of 06/18/2012. Stillwater Mining Company engages in developing, extracting, processing, smelting, refining, and marketing palladium, platinum, and platinum group metals (PGMs). The company conducts its mining operations at the Stillwater mine, which is located near Nye, Montana; and at the East Boulder mine located near Big Timber, Montana. It is also involved in developing Marathon, a PGM/copper property, which is located in Ontario, Canada; and exploring Altar, a copper/gold property located in San Juan, Argentina. In addition, the company operates a smelter and base metal refinery located in Columbus, Montana.

3) Peabody Energy Corp. (NYSE:BTU)

Sector: Basic Materials
Industry: Industrial Metals & Minerals
Market Cap: $6.49B
Beta: 1.47

Peabody Energy Corp. has a Analysts' Rating of 1.80, a Price/Earnings to Growth Ratio of 0.42, and a Price/Earnings Ratio of 6.32. The short interest was 2.77% as of 06/18/2012. 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.

*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Yahoo Finance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.