The basic materials industry has been recovering from the COVID-19 pandemic-related supply chain disruptions since last year with increasing demand as manufacturing and industrial activities resumed. In addition, the passage of a trillion-dollar infrastructure bill last year, spending from which will be directed to public works projects, including highway, bridge, freight, port, and public transit expansions and repairs, should drive demand for basic materials in the coming months. Also, rising commodity prices should benefit basic materials companies.
Earnings for companies in the basic materials industry have grown 15% per year over the last three years, while revenues have grown at 9.6% per year, indicating higher sales and subsequently increasing profits.
Given this backdrop, we think basic material stocks The Mosaic Company (MOS), United States Steel Corporation (X), and CVR Partners, LP (UAN), which have each gained more than 50% in price so far this year, could continue advancing in the near term.
The Mosaic Company (MOS)
MOS in Plymouth, Minn., produces and markets concentrated phosphate and potash crop nutrients in North America and internationally. It operates through the three segments of Phosphates; Potash; and Mosaic Fertilizantes.
MOS announced on February 24 that it has entered an accelerated share repurchase program to repurchase $400 million of its common stock with Goldman Sachs & Co. LLC. MOS is expected to receive 7.1 million shares of its common stock in return for the payment. The share repurchase might increase shareholder returns.
MOS’s net sales increased 56.3% year-over-year to $3.84 billion in its fiscal fourth quarter, ended Dec. 31, 2021. Its operating earnings grew 228.9% from its year-ago value to $969.70 million. The company’s net cash provided by operating activities increased 80.5% year-over-year to $430.40 million. And its cash, cash equivalents, and restricted cash balance stood at $786.30 million, up 32.3% from the prior-year quarter.
The $2.26 consensus EPS estimate for its fiscal first quarter, ending March 31, 2022, represents a 297.1% improvement year-over-year. The $4.12 billion consensus revenue estimate for the same quarter represents a 79.5% increase from the same period last year.
Over the past year, MOS stock has gained 118.2% and 73% in price year-to-date, respectively, to close its last trading session at $67.97.
MOS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which translates to Buy in our POWR Rating system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MOS has an A grade in Growth. It is ranked #8 among the 28 stocks in the Agriculture industry.
Beyond what is stated above, we have also rated MOS for Quality, Value, Momentum, Stability, and Sentiment. Get all the MOS ratings here.
United States Steel Corporation (X)
X produces and sells flat-rolled and tubular steel products primarily in North America and Europe. It operates through four segments: North American Flat-Rolled (Flat-Rolled); Mini Mill; U. S. Steel Europe (USSE); and Tubular Products (Tubular). The Pittsburgh, Pa.-based company also engages in the real estate business.
On Feb. 28, 2022, X announced that it is advancing its metallics strategy by insourcing pig iron capabilities at Gary Works, which is expected to produce up to 0.50 million tons of pig iron annually. It is a critical raw material input used for its electric arc furnaces (EAF). Thus, this capability expansion is expected to provide a strategic advantage to the company, helping it translate low-cost iron ore to support its EAF footprint and boost efficiency at Gary Works.
In February, the company broke ground in Osceola, Arkansas, for its $3 billion steel making facility. X expects the facility to be the most advanced project in North America and the largest one in the history of Arkansas. The development might prove beneficial for the company because it would bring together the most advanced technologies and provide profitable and sustainable solutions for its customers.
X’s net sales increased 119.4% from the prior-year quarter to $5.62 billion in its fiscal fourth quarter, ended Dec. 31, 2022. Its net earnings attributable to X for the quarter came in at $1.07 billion, reflecting a 2,081.6% increase year-over-year, while net earnings per share attributable to X stood at $3.75, up 1,604.5% year-over-year. Its cash, cash equivalents, and restricted cash balance stood at $2.60 billion, reflecting a 22.8% year-over-year increase for its fiscal year ended Dec. 31, 2021.
X’s revenue for the current quarter (ending March 31, 2022) is expected to come in at $5.29 billion, indicating 44.3% year-over-year growth. The company’s EPS is expected to increase 179.2% year-over-year to $3.02 for the same quarter.
X’s stock has gained 65.5% over the past year and 58.1% year-to-date to close its last trading session at $37.65.
X’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our POWR Ratings system.
The company has an A grade in Growth, Value, and Momentum and a B in Quality. It is ranked #14 of 33 stocks in the A-rated Steel industry.
To get X’s ratings for Stability, and Sentiment, click here.
CVR Partners, LP (UAN)
UAN, with its subsidiaries, is engaged in the production and sale of nitrogen fertilizer products to agricultural and industrial customers, retailers, and distributors in the United States. The Sugar Land, Tex.-based company’s offerings include ammonia, urea, and ammonium nitrate products.
On February 7, UAN announced that its subsidiary CVR Nitrogen Finance Corporation had issued a notice declaring the full redemption of the remaining balance of its outstanding 9.250% senior secured notes due 2023. The notes redemption might reduce the company's debt burden.
For its fiscal fourth quarter, ended Dec. 31, 2020, UAN’s net sales increased 109.2% year-over-year to $188.92 million. Its operating income grew 6,936.7% from its year-ago value to $71.85 million. Its net income for the quarter stood at $61.49 million, reflecting a 464.2% year-over-year increase. Its earnings per common unit were $5.76, up 476.5% year-over-year for the same quarter.
The stock has gained 305% over the past year and 69.3% year-to-date to close its trading session at $140.02.
It is no surprise that UAN has an overall B rating, which equates to Buy in our POWR Ratings system.
UAN has an A grade in Growth and a B in Quality. Among the 11 stocks in the A-rated MLPs – Other industry, UAN is ranked #5.
In addition to the POWR Rating grades I have just highlighted, you can see the UAN’s ratings for Value, Sentiment, Momentum, and Stability here.
MOS shares fell $0.43 (-0.67%) in after-hours trading Tuesday. Year-to-date, MOS has gained 64.39%, versus a -2.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
3 Basic Materials Stocks Up More Than 50% YTD With More Room to Run StockNews.com
