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Basic Materials Stocks: Freeport, NewMarket

Freeport McMoRan, NewMarket and CF Industries trade at discounts to peers and the overall stock market.
Author:

BOSTON (TheStreet) -- Basic materials is the cheapest industry in the stock market, with a median price-to-projected-earnings ratio of 12, 19% less than oil-and-gas' 15.

The

Dow Jones U.S. Basic Materials Index

is down 10% in three months. But the industry has rebounded in the past two days on a report that China's exports are still booming and comments from Federal Reserve Chairman Ben S. Bernanke, who said the U.S. economy strengthened across all regions.

Here are three basic materials stocks trading at forward-earnings multiples of less than 9.

Freeport-McMoRan

(FCX) - Get Report

explores and mines for copper, gold, silver and cobalt. During the past three years, it has grown sales 34% annually, on average, and boosted net income 29% a year. Its stock fell 7% a year over the same span, in line with indices.

Quarter

: First-quarter profit rose from $103 million, or 11 cents, to $945 million, or $2, as revenue surged 68%. The operating margin climbed from 27% to 47%. Freeport has $3.8 billion of cash and $6.1 billion of debt, equal to a debt-to-equity ratio of 0.6.

Stock

: Freeport has risen 6% during the past year, trailing indices. It sells for a price-to-projected-earnings ratio of 6.7, 52% less than its peer average. Its PEG ratio, a measure of value relative to growth, of 0.2 signals an 80% discount to estimated fair value.

Consensus

: Of researchers following Freeport, 13, or 65%, rate its stock "buy," six rate it "hold" and one ranks it "sell."

Barclays

(BCS) - Get Report

offers a target of $120, leaving a potential return of 93%.

JPMorgan

(JPM) - Get Report

forecasts that the stock will hit $111.

NewMarket

(NEU) - Get Report

sells chemicals that enhance the performance of petroleum products. Since 2007, it has increased revenue 7.7% annually, on average, and boosted net income 43% a year. Its stock delivered annualized gains of 27% over the same span.

Quarter

: First-quarter profit increased 47% to $42 million, or $2.78 a share, as revenue gained 17%. The operating margin rose from 14% to 17%. NewMarket has $88 million of cash and $219 million of debt, converting to a debt-to-equity ratio of 0.5.

Stock

: NewMarket has risen 28% during the past year, outperforming U.S. stock-market indices. It trades at a price-to-projected-earnings ratio of 7.8 and a price-to-cash-flow ratio of 8.4, 50% and 55% discounts to its specialty chemicals peer average.

Consensus

TST Recommends

: Of analysts covering NewMarket, four, or 80%, advise purchasing its shares and one suggests holding them.

Northcoast Research

offers a price target of $130, leaving a potential return of 33%.

KeyBank

(KEY) - Get Report

expects the stock to hit $124.

CF Industries

(CF) - Get Report

sells nitrogen and phosphate fertilizers. It recently acquired

Terra Industries

. Since 2007, CF has increased revenue 5% annually, on average, and expanded earnings per share 43% a year. Its stock rose 7% a year over the same span.

Quarter

: CF swung to a first-quarter loss of $4.4 million, or 9 cents, as revenue fell 26% to $502 million. The operating margin inched up from 21% to 22%. CF currently has $1 billion of net cash, but will absorb debt through the Terra acquisition.

Stock

: CF Industries has fallen 25% during the past 12 months, underperforming U.S. benchmarks. It sells for a price-to-projected-earnings ratio of 7 and a price-to-cash-flow ratio of 6.5, reflecting 55% and 65% discounts to chemical industry averages.

Consensus

: Of firms rating CF, seven, or 78%, advocate purchasing its shares and two recommend holding them. None advise selling.

Thomas Weisel

(TWPG)

predicts that the stock will advance 83% to $110.

Credit Agricole

expects it to hit $100.

-- Reported by Jake Lynch in Boston.

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