As a value expert, John Buckingham sees opportunities that others might miss; the editor of The Prudent Speculator highlights a chemicals firm with electric vehicle exposure and a cardboard maker that can benefit from e-commerce.
Albemarle (ALB) is a global specialty chemicals company with leading positions in lithium, bromine and refining catalysts. It has top-tier lithium assets through its brine operations in Chile and spodumene operations in Western Australia, which are among the lowest-cost globally.
We think the company has attractive long-term upside via lithium batteries as electric vehicle adoption continues to increase and the world’s leading car companies race to get desirable EVs to the market and make steady progress towards the autonomous vehicles of the future.
While ALB recently announced that some of its lithium volume would shift from Q1 to later in the year because of weather delays, the company expects to grow its capacity from 65,000 metric tons in 2018 to 225,000 over the next decade.
Albemarle also generates healthy profits from bromine, which is primarily used in flame retardants. While demand for bromine has slipped in TVs and computers, it has gained demand in servers and automobile electronics.
Further, ALB generates steady cash flows from its refining catalyst business. Q4 results saw better-than-expected adjusted EPS of $1.53 on revenue of almost $922 million, and management projected full-year 2019 EPS in the range of $6.10 to $6.50. ALB shares are trading at 13.4 times the guidance midpoint and yield 1.8%.
One of North America’s containerboard giants, WestRock (WRK) — formerly Rock-Tenn — produces packaging for food, hardware, apparel and other consumer goods.
With approximately 12.3 million tons of mill capacity, the company’s lineup includes recycled and bleached paperboard, containerboard, consumer and corrugated packaging, and point-of-purchase displays.
We are attracted to WRK as a high-yielding and reasonably priced e-commerce play (via shipping boxes) and are bullish on the company’s $3.5 billion acquisition last year of KapStone Paper, which was immediately cash flow and EPS accretive, allowing WestRock to return more than $1.8 billion to shareholders via dividends plus repurchases.
Despite some headwinds on inputs and cost of delivering products, we like that WRK has improved pricing. Scoring very well in our quantitative framework, WRK trades for less than 10 times earnings and yields 4.7%.
