Two Basic-Materials Stocks on Sale
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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.
- 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.
- 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.
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