the Nasdaq selling the technology has become a borderline capitulation for many once-hot names like DocuSign.
Investors probably don’t want to worry about volatility as they can’t wait to relax this holiday season. Do not be afraid. caterpillar (NYSE: CAT), Huntsman Corporation (NYSE: HUN), and The Chemours Company (NYSE: CC) are three value stocks that can add stability to your portfolio. Here’s what makes everyone a great buy now.
Poor results, but still great value
Daniel Foelber (caterpillar): The stage was set for Caterpillar to soar in 2021: Widespread vaccinations, an economic recovery, low interest rates and an industrial sector struggling to get back on its feet all worsened into a tightly helical spring. Yet supply chain issues, rising raw material costs and a pandemic that will not go away weighed on Caterpillar’s actual results.
Caterpillar recognizes that economic expansion has yet to reach its full potential. His results were good but did not live up to expectations. Despite this backdrop, Caterpillar continues to make a lot of money, but its stock price is underperforming the market. This momentum has brought Caterpillar’s price-to-earnings (P / E) ratio down to 21. Granted, it’s still above historical Caterpillar levels, and all the more impressive given the company’s somewhat weak results. But it’s much lower than the market average.
The good news is that many of the factors that helped Caterpillar have a great year still largely come into play. The oil and gas industry came as a pleasant surprise for Caterpillar, strengthening its energy and transportation business. The mining segment of the company has directly benefited from customer demand to increase supply. Forecasts suggest that Free Cash Flow (FCF) and revenue growth are heading in the right direction.
As a cyclical business, Caterpillar’s results depend heavily on the economy at large. Yet through it all, the company has increased its dividend for 27 straight years, making it one of the few cyclical dividend aristocrats. With a current dividend yield of 2.3% and a reasonable valuation, Caterpillar looks like a good stock to buy now.
In Search of Value with Huntsman
Lee Samaha (Huntsman Corporation): In a market that has seemed expensive for a while, it’s somewhat surprising that investors can find stocks that are trading less than 9 times estimated 2021 earnings, but the chemicals company and of Huntsman materials.
Of course, there is usually a pattern why companies have such low valuations. For Huntsman, this is likely a combination of two factors: its recent history of underperforming margins relative to its peers, and fears that its current earnings strength will not be sustainable.
On the last point, the recent earnings season has been full of corporate warnings about soaring material cost inflation. Huntsman makes a lot of these materials. The fear is that these price increases will not be sustainable, and when the market cools so will Huntsman’s earnings.
For example, management reported a whopping 41% increase in revenue in the first nine months of 2021 compared to the same period in 2020. Growth was driven by higher average selling prices; Huntsman’s largest segment, polyurethanes (used in insulation, automotive, construction, spray foam, etc.), saw a 31% increase in average selling prices in the first nine months .
The market is right to be cautious about the sustainability of Huntsman’s pricing, but it may be too harsh. After all, it’s hard to predict where prices will go in the future. Moreover, it is not just about favorable end markets. The company has made significant progress in eliminating its more commodity-oriented business in favor of higher margin downstream businesses.
There is also a real opportunity for Huntsman to improve its profit margin in line with its peers:
It all adds up to an exciting value proposition, one that bargain hunters might find impossible to pass up.
A stock of materials to pack for budget-conscious investors
Scott Levine (The Chemours Company): Now that the turkey and the stuffing are behind us, it’s time to buy some holiday gifts. To help stretch budgets a bit more – perhaps allowing us to buy an extra freebie or two – investors are looking for offers in the stock market. With the S&P 500 Frequently flirting with historic highs, the choices of value investors can seem limited. However, there is one top chemical stockpile worth taking a close look at: Chemours.
The company is a leading producer of titanium dioxide, a compound supplied to customers in the clothing, agricultural and packaging industries. Chemours also offers an assortment of other specialty chemicals such as Freon for refrigeration and Teflon for the military. Because its customer base spans such a diverse range of industries, Chemours mitigates the risk associated with an industry in precipitous decline, which impacts Chemours’ business.
Like so many other companies in recent months, Chemours has suffered from supply chain issues – an issue management alluded to repeatedly during the company’s third quarter conference call. This is probably the factor that drove investors out of their positions. However, the sale appears to have been premature: Chemours predicts a solid end for 2021. In fact, it has raised its FCF forecast to around $ 500 million from around $ 450 million.
But it’s not just the 2021 forecast that suggests Chemours is a smart investment choice. The industry’s leadership position and track record of success suggests that it will be able to withstand headwinds today and thrive in the future.
Currently, Chemours shares are changing hands about 23% lower than their 52-week high of $ 29.82, but there is better indication of the stock’s current value. On the one hand, Chemours is trading at around 5.2 times operating cash flow, which is a discount from the stock’s five-year average multiple of 7.6. And investors who favor the price / earnings criterion will find another demonstration of its low-priced valuation: Chemours is trading at 12.8 times trailing earnings – a notable reduction from the S&P 500’s P / E ratio of 28, 8.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.