In a back-test to 1994 using S&P 1500 materials stocks, the Value score worked far better than any other category in our Quadrix rating system, observes Richard Moroney, quantitative expert and editor of the small and mid cap specialty service, Upside.
Materials stocks have unusually strong operating momentum, with 12-month earnings per share up an average of 11% and sales up 12%. The sector has averaged 12-month growth of 3% for both profits and sales over the past decade.
Huntsman (HUN) reported March-quarter earnings per share of $0.96 excluding special items, above the $0.45 earned in the year-ago quarter and the consensus of $0.80. Revenue climbed 19% to $2.30 billion, also ahead of analysts’ expectations. Growth benefited from higher prices, up about 6%, and volumes, up 9%.
Operating cash flow from continuing operations surged 59% to $111 million. A diversified-chemical maker, Huntsman expanded rapidly in the 1980s by acquiring low-margin petrochemical plants at deeply discounted prices.
Huntsman returned to its acquisitive roots in April by completing the $350 million acquisition of Demilec, a maker of spray polyurethane foam insulation systems with annual revenue of about $170 million. The all-cash deal was first announced in March. Yielding 2.2%, Huntsman is a Buy.
Louisiana-Pacific (LPX) shares have rallied 7% in 2018, lifted by continued growth in the U.S. homebuilding and remodeling markets. Better yet, upward revisions to the consensus 2018 profit estimate have outpaced the robust share-price momentum.
The consensus now targets per-share profits of $2.64 for the year, implying 13% growth and up from the $2.14 expected just three months ago.
Yet the stock still looks cheap, earning a Value score of 92. Shares trade at just 10 times estimated 2018 earnings, a 36% discount to the median materials stock in the S&P 1500 Index and lower than 86% of stocks in our research universe.
Set to announce March-quarter results on May 7, Louisiana-Pacific is expected to report that earnings per share doubled to $0.66 on revenue of $691 million, up 13%. Louisiana-Pacific makes oriented strand board, siding, and engineered wood products. The stock is rated Best Buy.
