The highly cyclical materials industry has benefited producers in times of economic growth and seen many players out of business during a downturn. Therefore, this industry is a macroeconomic play with the opportunity of riding the wave in times of robust demand for commodities. Currently, Westlake Chemical Partners and Graphic Packaging Holding are materials industry companies I’ve identified as potentially undervalued, meaning their share price is below what these companies are actually worth. There’s a few ways you can measure the value of a cyclical company – you can forecast how much money it will make in the future and base your valuation off of this, or you can look around at its peers of similar size and industry to roughly anticipate what it should be worth. Below, I’ve created a list of companies that compare favourably in all criteria based on their most recent financial data, making them potentially good investments.
Westlake Chemical Partners LP (NYSE:WLKP)
Westlake Chemical Partners LP operates, acquires, and develops ethylene production facilities and related assets in the United States. Westlake Chemical Partners is run by CEO Albert Chao. It currently has a market cap of USD $720.50M placing it in the small-cap category
WLKP’s shares are currently floating at around -76% beneath its actual value of $94.79, at a price of US$22.35, based on my discounted cash flow model. This discrepancy gives us a chance to invest in WLKP at a discount. What’s even more appeal is that WLKP’s PE ratio is around 14.54x against its its Chemicals peer level of, 18x meaning that relative to other stocks in the industry, WLKP’s stock can be bought at a cheaper price. WLKP is also a financially robust company, as current assets can cover liabilities in the near term and over the long run. Finally, its debt relative to equity is 48.97%, which has been reducing over time, showing its capacity to pay down its debt. Continue research on Westlake Chemical Partners here.
Graphic Packaging Holding Company (NYSE:GPK)
Graphic Packaging Holding Company, together with its subsidiaries, provides paper-based packaging solutions to food, beverage, and other consumer products companies. Established in 1992, and currently lead by Michael Doss, the company size now stands at 13,000 people and with the company’s market cap sitting at USD $4.38B, it falls under the mid-cap stocks category.
GPK’s shares are currently floating at around -14% lower than its actual level of $16.43, at the market price of US$14.13, according to my discounted cash flow model. This mismatch indicates a chance to invest in GPK at a discounted price. Moreover, GPK’s PE ratio is currently around 14.97x relative to its Packaging peer level of, 18.12x suggesting that relative to its peers, you can purchase GPK’s stock for a lower price right now. GPK is also in good financial health, with short-term assets covering liabilities in the near future as well as in the long run. Finally, its debt relative to equity is 126.86%, which has been declining for the past few years indicating its capability to reduce its debt obligations year on year. More detail on Graphic Packaging Holding here.
Olin Corporation (NYSE:OLN)
Olin Corporation manufactures and distributes chemical products in the United States and internationally. Formed in 1892, and now run by John Fischer, the company provides employment to 6,400 people and with the stock’s market cap sitting at USD $5.29B, it comes under the mid-cap category.
OLN’s stock is now trading at -30% lower than its actual value of $45.22, at a price of US$31.64, according to my discounted cash flow model. This discrepancy signals a potential opportunity to buy OLN shares at a low price. In terms of relative valuation, OLN’s PE ratio is around 9.46x while its Chemicals peer level trades at, 18x suggesting that relative to its comparable set of companies, we can purchase OLN’s shares for cheaper. OLN also has a healthy balance sheet, with short-term assets covering liabilities in the near future as well as in the long run. More on Olin here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.