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3 Highly-Ranked Basic Materials Stocks With Attractive Earnings Growth

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·6 min read
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It’s been a battlefield within the market year-to-date. Investors have faced some of the harshest market conditions we’ve seen in some time as we find ourselves in a highly unique economic situation coming out of a once-in-a-lifetime pandemic.

Valuation slashes have occurred across the board, with tech stocks bearing the worst of it all. A hawkish Fed has forced these high-flying stocks to a screeching halt, putting dents in portfolios throughout the year.

Nonetheless, the market continues to roll on, and investors need to remain focused.

On a more positive note, the bears seem to have retreated slightly, as the S&P 500 put in its first weekly green candle last week – snapping a streak of seven straight weekly closes in the red.

It’s definitely something that investors can celebrate, as the majority of 2022 has been nothing but a sea of red. Below is a five-year chart of the S&P 500.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

As we can see, the S&P 500 has bounced off March 2021 levels, undoubtedly a positive. It seems that bears have lost some of their power, and buyers have finally stepped up.

Amidst all of the red, there have still been bright spots within the market. One such bright spot is the Zacks Basic Materials Sector, which has a positive year-to-date return of 5%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Three companies that operate within the sector include Allegheny Technologies ATI, Kronos Worldwide KRO, and WestRock Company WRK.

Let’s get into why these stocks would be solid bets for any portfolio that seeks a higher level of defense than tech and other high-growth companies provide.

WestRock Company  

WestRock WRK is a multinational paper and packaging solutions provider for consumer and corrugated packaging markets. Year-to-date, share performance has been stellar, penciling in nearly a 12% return and crushing the general market’s performance.

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Zacks Investment Research


Image Source: Zacks Investment Research

The company has consistently reported robust earnings results, exceeding EPS expectations in 14 of its last 15 quarterly reports. On average, WRK has beaten EPS estimates by 7.5% over its previous four quarterly reports, and in its latest quarter, the company exceeded the Zacks Consensus EPS Estimate by a sizable 16%.

Bottom-line growth looks solid, with analysts upping their earnings outlook across all timeframes. Earnings are forecasted to grow to $1.41 per share for the upcoming quarter – a sizable 50% expansion of the bottom line from the year-ago quarter. Additionally, the $5.11 EPS estimate for FY22 reflects earnings growing by a substantial 51% year-over-year.

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Zacks Investment Research


Image Source: Zacks Investment Research

For investors with an appetite for income, WRK has that covered with its 2.08% annual dividend yield with a payout ratio sitting sustainably at 25%. Over its last five years, the company has increased its dividend five times. Additionally, the annual dividend yield is higher than the S&P 500’s yield of 1.46%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

WRK’s forward earnings multiple sits nicely at 9.4X, well below 2017 highs of 24.1X and much lower than its median of 12.7X over the last five years. Furthermore, the value represents a steep 48% discount relative to the S&P 500’s value of 18.3X.

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Zacks Investment Research


Image Source: Zacks Investment Research

Allegheny Technologies

Allegheny Technologies ATI is a global manufacturer of technically advanced specialty materials and complex components. Shares have been on fire year-to-date, penciling in a massive 74% return.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

ATI has beat bottom-line estimates in ten consecutive quarters. The average EPS surprise over the last four quarters has been a massive 130%, and in its latest quarter, ATI beat estimates handily by 81%.

Analysts have been upping their earnings outlook with a 100% revision agreement percentage across all timeframes. The upcoming quarterly earnings estimate of $0.31 per share represents a substantial 360% growth in the bottom line from the year-ago quarter. Additionally, the $1.26 EPS estimate for FY22 shows a mind-boggling 870% expansion in the bottom line year-over-year.

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Zacks Investment Research


Image Source: Zacks Investment Research

ATI’s forward price-to-sales ratio sits nicely at 1.0X, well below highs of 1.3X but slightly above the median of 0.8X over the last five years. However, the value does represent a steep 73% discount relative to the S&P 500’s value of 4.1X.

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Zacks Investment Research


Image Source: Zacks Investment Research

Kronos Worldwide

Kronos Worldwide KRO is a leading producer and marketer of TiO2, a white pigment for providing whiteness, brightness, and opacity. Year-to-date, shares have shown robust strength, increasing nearly 30% in value.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The company boasts an average four-quarter EPS surprise of a strong 24%, and in its latest quarter, KRO smoked bottom-line estimates by nearly 80%.

Like ATI, analysts have been upping their earnings outlook with a 100% revision agreement across all timeframes. The Consensus Estimate Trend has soared 55% for the upcoming quarter, reflecting EPS of $0.51 and a sizable 131% growth in earnings from the year-ago quarter. Additionally, earnings in FY22 are forecasted to expand by a triple-digit 110%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Similar to WRK, Kronos provides investors with a stream of income via its 3.88% annual dividend yield with a payout ratio of 58%. Furthermore, the company boasts a five-year annualized dividend growth rate of 3.9%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

KRO has a forward P/E ratio on the lower side of 9.5X, which is well below the median of 14.4X over the last five years and nowhere near 2020 highs of 35.8X. Additionally, the value represents a deep 48% discount relative to the S&P 500’s value.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Bottom Line

While most stocks have suffered, ones within the Zacks Basic Materials sector have performed relatively well and have been a safe haven for investors’ cash. All three stocks above have been cruising, easily crushing the general market’s return.

These three stocks would be a great starting point for investors looking to add a layer of valuable defense to their portfolios.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Allegheny Technologies Incorporated (ATI) : Free Stock Analysis Report
 
Kronos Worldwide Inc (KRO) : Free Stock Analysis Report
 
WestRock Company (WRK) : Free Stock Analysis Report
 
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