Two Basic-Materials Stocks on Sale

 | Jun 28, 2012 | 11:30 AM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

kro

,

slca

Quarter-end is one of my favorite times. It is when fund managers are forced to dump their holdings in sectors that have sold off during the quarter, in a ritual called "window dressing." It is a great time for patient investors to pick up some deep bargains as managers throw out the baby with bathwater in order to avoid reporting their "clunkers" to their shareholders.

I have found that picking up these temporarily unloved stocks in poorly performing sectors and then waiting for them to bounce back is one of the key ways to outperform the market in the long term.

The materials sector has had a rough 90 days in the aggregate, as it is down some 10% on the whole in the quarter, and many individual stocks have suffered losses that are multiples of the average. Most of the pullback was caused by concerns about slowing worldwide economic growth and reduced demand from end users.

Here are two dirt-cheap companies in the sector that have taken a licking in the last three months but should rebound in the quarters ahead. Also, both have had recent insider buying at levels higher than their current stock prices.

Kronos Worldwide (KRO) produces titanium dioxide pigments primarily in North America and Europe.

Here are five reasons Kronos is a deep long-term bargain at $16:

  • Insiders have stepped up and bought more than a million new shares since the first of the year, a majority of which were purchased at higher prices.
  • The company pays a robust dividend yield of 3.8%. This should put a major floor under the stock, and it is easily sustainable, given that the dividend payout ratio is just a tad over 20%.
  • The company has crushed earnings estimates each of the last two quarters, and consensus earnings estimates have risen for both fiscal 2012 and fiscal 2013 over the last two months, even as the stock has fallen by about one-third during that same time span.
  • The market is ignoring the company's growth prospects. Sales are expected to rise more than 25% this year and more than 10% in fiscal 2013, and the stock has a five-year projected price-to-earnings-to-growth ratio (PEG) of under 1 (it's at 0.78).
  • Kronos sells for just over 5x forward earnings, and the stock is selling at the very bottom of its five-year valuation range, on the basis of price to earnings and price to cash flow.

U.S. Silica Holdings (SLCA) produces and sells various commercial silica and industrial mineral products.

Here are four reasons U.S. Silica will reward shareholders who buy it under $11 a share:

  • Several insiders purchased new shares at higher prices in May.
  • In its first two quarters as a public company, U.S. Silica has blown by earnings estimates, and it trades at just 5x forward earnings.
  • Investors are not pricing in the company's growth prospects. Sales are expected to grow north of 25% for both fiscal 2012 and fiscal 2013. It also has a minuscule five-year projected PEG (0.19).
  • The stock is ridiculously under analysts' price targets. Only four analysts cover the stock, and their targets range from a low of $24 to a high of $28 a share, all significantly above the current stock price.

Columnist Conversations

Impressive and very broad based rally as tone has changed in market since middle of last week. Airlines conti...
Conclusion TWTR is growing revenue faster than any other peer. TWTR has worse net income margins than any othe...
THE FIBOCALL SPX-cash: Sometimes the choices are easy and sometimes they are quite hard. The upper end of the...
I had recommended packaged food manufacturer ConAgra (CAG) back on Feb. 12, 2014, when the shares were trading...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.