One of the stock screens I use often, Benjamin Graham "Stocks for the Defensive Investor," continues to deliver interesting ideas. In late July, it revealed 13 qualifying names, but four -- Intel (INTC) , Commercial Metals (CMC) , Superior Group (SGC) and Mueller Industries (MLI) -- have fallen off for various reasons. Now there's a new kid on the block, and this one looks interesting.
Chemical company Huntsman Corp. (HUN) is one that I owned back in the 2011-2012 era. I recall that it became a sub-$10 stock in what was a difficult market environment. It seemed cheap at the time and I took a position, which ended up being well-rewarded. Fast forward to 2022 and Huntsman may be on the cheap side these days.
The stock is down 23% year to date and has done very little over the past five years. Indeed, it is trading at about the same price it did in September 2017. That does not make it cheap necessarily, but gives some perspective on Huntsman's plight.
In terms of valuations, Huntsman trades at just 6.5x 2023 earnings estimates, 5x trailing enterprise value (EV) to EBITDA, just under 5xforward EV/EBITDA, and yields around 3%. Interestingly, back in May 2012, one of the last time times I wrote about the company, it was trading at 9x trailing earnings, 5x EV/EBITDA and yielded 3%.
In terms of dividends, Huntsman quietly has become a mini-dividend champion, hiking payouts at about an 8% compounded annual growth rate over the past 10 years. It has not raised the dividend every year during that span but appears to be on that path now. In June 2021, HUN raised the quarterly dividend from 16.25 cents to 18.75 cents and less than a year later to the current 21.25 cents.
In this difficult and challenging market and economic environment, HUN could fall further, so I am inclined to be patient in terms of building a stake.
Screening criteria for my Ben Graham influenced "Stocks for the Defensive Investor" screen are below, and I've noted differences between Graham's original criteria and the modified version I utilize.
- Strong financial condition. A company must have a current ratio (current assets divided by current liabilities) of at least 2.0. It also must have less long-term debt than working capital.
- Earnings stability. A business must have had positive earnings for the past seven years. (Graham used a 10-year minimum.)
- Dividend record. The company must have paid a dividend for the past seven years. (Graham required 20 years.)
- Earnings growth. Earnings must have expanded by at least 3% compounded annually over the past seven years. (Graham mandated a one-third gain in earnings per share over the latest 10 years.)
- Moderate price-to-earnings (P/E) ratio. A stock must have had a 15 or lower average P/E over the past three years.
- Moderate ratio of price to assets. The price-to-earnings ratio times the price-to-book value ratio must be less than 22.5.
- No utilities or retailers
