A favourable economic condition has been a large driver of growth for companies in the materials industry. Therefore, this industry is a macroeconomic play with the opportunity of riding the wave in times of robust demand for commodities. Westlake Chemical Partners and Olin are materials industry stocks on my list that are potentially undervalued, which means their current share prices are trading well-below what the companies are actually worth. There’s a few ways you can value a cyclical company. The most popular methods include discounting the company’s cash flows it is expected to create in the future, or comparing its price to its peers or the value of its assets. Analysing the most recent financial data, I’ve created a list of companies that compare favourably in all criteria, making them potentially good investments.
Westlake Chemical Partners LP (NYSE:WLKP)
Westlake Chemical Partners LP operates, acquires, and develops ethylene production facilities and related assets in the United States. Westlake Chemical Partners is currently led by CEO Albert Chao. With the stock’s market cap sitting at USD $791.42M, it comes under the small-cap group
WLKP’s shares are currently hovering at around -77% below its intrinsic level of $108.74, at a price tag of US$24.55, based on my discounted cash flow model. The divergence signals an opportunity to buy WLKP shares at a low price. In terms of relative valuation, WLKP’s PE ratio stands at around 11.71x while its Chemicals peer level trades at, 17.65x implying that relative to other stocks in the industry, WLKP’s shares can be purchased for a lower price. WLKP is also a financially robust company, with current assets covering liabilities in the near term and over the long run. The stock’s debt-to-equity ratio of 48.97% has been falling for the last couple of years demonstrating WLKP’s capacity to reduce its debt obligations year on year. Interested in Westlake Chemical Partners? Find out more here.
Olin Corporation (NYSE:OLN)
Olin Corporation manufactures and distributes chemical products in the United States and internationally. Started in 1892, and currently headed by CEO John Fischer, the company size now stands at 6,400 people and with the market cap of USD $5.50B, it falls under the mid-cap category.
OLN’s stock is currently hovering at around -37% lower than its actual level of $52.47, at the market price of US$32.87, based on its expected future cash flows. This mismatch indicates a chance to invest in OLN at a discounted price. What’s even more appeal is that OLN’s PE ratio is trading at 9.83x while its Chemicals peer level trades at, 17.65x implying that relative to other stocks in the industry, you can buy OLN’s shares at a cheaper price. OLN is also a financially robust company, as short-term assets amply cover upcoming and long-term liabilities.
Dig deeper into Olin here.
Ternium S.A. (NYSE:TX)
Ternium S.A., through its subsidiaries, manufactures and processes various steel products in Mexico, Argentina, Paraguay, Chile, Bolivia, Uruguay, Brazil, the United States, Colombia, Guatemala, Costa Rica, Honduras, El Salvador, and Nicaragua. Founded in 1961, and now led by CEO Maximo Vedoya, the company employs 21,335 people and has a market cap of USD $7.18B, putting it in the mid-cap stocks category.
TX’s shares are now hovering at around -35% below its real value of $56.43, at a price tag of US$36.56, according to my discounted cash flow model. This discrepancy gives us a chance to invest in TX at a discount. Also, TX’s PE ratio is trading at around 7.24x against its its Metals and Mining peer level of, 13.1x indicating that relative to its competitors, TX’s shares can be purchased for a lower price. TX is also in good financial health, as near-term assets sufficiently cover liabilities in the near future as well as in the long run.
More detail on Ternium 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.