Best-In-Class Undervalued Materials Stocks
A favourable economic condition has been a large driver of growth for companies in the materials industry. Thus, there is ample opportunity to take advantage of improving economic conditions which has led to strong demand for commodities. Southern Gold and Capral are materials industry companies that are currently trading below what they’re actually worth. There’s a few ways you can measure the value of a cyclical company – you can forecast how much money it will make in the future and base your valuation off of this, or you can look around at its peers of similar size and industry to roughly estimate what it should be worth. Below, I’ve created a list of companies that compare favourably in all criteria based on their most recent financial data, making them potentially good investments.
Southern Gold Limited (ASX:SAU)
Southern Gold Limited engages in the exploration and production of various mineral properties in Australia and South Korea. Southern Gold was founded in 2004 and has a market cap of AUD A$13.02M, putting it in the small-cap stocks category.
SAU’s stock is now floating at around -86% below its real value of $1.86, at the market price of AU$0.27, based on my discounted cash flow model. This mismatch signals an opportunity to buy SAU shares at a discount. In terms of relative valuation, SAU’s PE ratio is around 5.81x against its its Metals and Mining peer level of, 13.31x suggesting that relative to its comparable set of companies, you can purchase SAU’s stock for a lower price right now. SAU is also in good financial health, with short-term assets covering liabilities in the near future as well as in the long run. SAU has zero debt on its books as well, meaning it has no long term debt obligations to worry about. More detail on Southern Gold here.
Capral Limited (ASX:CAA)
Capral Limited manufactures, markets, and distributes fabricated and semi-fabricated aluminum related products in Australia. Started in 1936, and headed by CEO Anthony Dragicevich, the company now has 900 employees and with the stock’s market cap sitting at AUD A$69.64M, it comes under the small-cap stocks category.
CAA’s stock is currently floating at around -28% less than its intrinsic level of $0.2, at a price tag of AU$0.14, according to my discounted cash flow model. signalling an opportunity to buy the stock at a low price. Also, CAA’s PE ratio stands at around 5.72x against its its Metals and Mining peer level of, 13.31x suggesting that relative to its comparable company group, you can purchase CAA’s stock for a lower price right now. CAA is also robust in terms of financial health, as near-term assets sufficiently cover liabilities in the near future as well as in the long run. CAA also has no debt on its balance sheet, which gives it headroom to grow and financial flexibility. Dig deeper into Capral here.
Mineral Commodities Ltd (ASX:MRC)
Mineral Commodities Ltd explores for and develops mineral sand resources in South Africa. Mineral Commodities is headed by CEO Mark Caruso. With a current market cap of AUD A$123.44M, we can put MRC in the small-cap group
MRC’s stock is now hovering at around -55% under its true value of $0.66, at a price tag of AU$0.29, based on its expected future cash flows. This mismatch indicates a chance to invest in MRC at a discounted price. In terms of relative valuation, MRC’s PE ratio is currently around 9.12x against its its Metals and Mining peer level of, 13.31x suggesting that relative to its competitors, you can buy MRC’s shares at a cheaper price. MRC is also a financially robust company, as current assets can cover liabilities in the near term and over the long run.
Dig deeper into Mineral Commodities here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
