The materials group as a whole is not a place that value investors mine too deeply. Perhaps it's because of the traditionally low dividend yields (and higher P/E ratios) associated with the group, or perhaps it's the lack of price predictability in some of the underlying commodities. Either way, most stock buyers who dig through share tables in search of better fundamentals manage to skip over this broad swath of the market.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
But is it justified? Perhaps not. Below, we highlight five stocks from the basic materials group with rock-solid valuations by any sector's standard.
Encore Wire Corp. (Nasdaq:WIRE) manufactures copper wiring for the building trades and for cable. The company's shares trade slightly over book value, with a price to book (P/B) of 1.54. Price to sales is a very competitive 0.60. It's no wonder that approximately 74% of the company's shares are held by institutions. (Big-money sponsorship might make a company look good, but it's not always a reliable gauge of stock quality. To learn more, see Institutional Investors And Fundamentals: What's The Link?)
Fresher Cheeses And Meats
Sealed Air Corp. (NYSE:SEE) develops materials for efficient packaging and shipping of fresh and processed meats and cheeses. The company pays a 2.6% annual dividend and trades with an 24.9 P/E. Institutional holdings of Sealed Air currently stand at 56.3% of the outstanding float.
PH Glatfelter (NYSE:GLT) stock is up approximately 19.62% over the past six months and pays a very reasonable 2.3% dividend yield. The P/E ratio is coming in at 16.6 times last year's earnings. GLT stock is also 93% institutionally held and trades at 1.36 times book value and just 0.41 times sales. Glatfelter manufactures a wide variety of paper products, from book covers to tea bag paper, and everything in between.
Reliance Steel and Aluminum (NYSE:RS) operates a metals service business with over 100,000 products and 125,000 customers globally. The stock's dividend yield is approximately 1.00%. Looking closer at the fundamental ratios, P/B is 1.38, forward P/E is 8.84 and price to sales of 0.53, which suggests that this stock has room to grow.
The Valspar Corp. (NYSE:VAL) is a paint manufacturer with a 1.7% dividend yield. Institutions control 74.6% of the common stock.
The Bottom Line
The basic materials, like every other group, have to be sifted carefully to uncover value. Institutions have managed to do so regardless of the lower yields and higher earnings multiples.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!