The basic materials sector, which supports a wide range of industries and companies, faced challenges amid the worst of the COVID-19 pandemic due to supply chain bottlenecks and high inflation. However, the construction of roads, bridges, and buildings, and the rise in the sale of electric vehicles (EVs), should help the basic materials sector rebound this year.
The basic materials sector experienced average revenue growth of 27.2% year-over-year in the fourth quarter of 2021. An improving global economy, clean-energy drive, and infrastructure spending should support the sector’s growth.
Given this backdrop, we think it could be wise to bet on quality basic materials stocks LyondellBasell Industries N.V. (LYB), ArcelorMittal (MT), and Sibanye Stillwater Limited (SBSW), which look undervalued at their current price levels.
LyondellBasell Industries N.V. (LYB)
LYB is a plastic, chemicals, and refining company that is based in Rotterdam, the Netherlands, and operates in the United States, Germany, Italy, France, Japan, China, and internationally. The company operates in the Olefins and Intermediates and Derivatives; Advanced Polymer Solutions; Refining; and three other segments. LYB’s revenues increased 61.6% year-over-year to $12.83 billion for the fourth quarter, ended Dec. 31, 2021. Its net income was $726 million. Its EPS amounted to 2.18 during the period. Also, the company’s EBITDA came in at $1.4 billion.
LYB's consensus revenue is estimated to increase 28.1% year-over-year to $11.63 billion for its fiscal period, ending March 31, 2022. Its EPS is expected to grow 1.1% next year. The stock has gained 12.9% in price over the past year.
In terms of forward EV/Sales, LYB is currently trading at 1x, which is 42.5% lower than the 1.74x industry average. Also, in terms of its forward non-GAAP P/E, the stock is currently trading at 6.62x, which is 54% lower than the 14.4x industry average.
LYB's strong fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Value. We have also graded LYB for Sentiment, Growth, Stability, Momentum, and Stability. Click here to access all LYB's ratings.
LYB is ranked #52 of 90 stocks in the A-rated Chemicals industry.
ArcelorMittal (MT)
Luxembourg-based MT is a global steel manufacturer in North America, South America, and Europe and manufactures steel in 17 countries. The company's steel products include semi-finished and finished flat products, semi-finished and finished long products, and seamless and welded pipes and tubes. NAFTA; Brazil; Europe; Africa and the Commonwealth of Independent States (ACIS); and Mining are MT’s segments.
Last December, MT invested $30 million in LanzaTech, a carbon recycling company, through its XCarb innovation fund. MT also extended its relationship with LanzaTech. Through this investment, MT will be using LanzaTech’s gas fermentation technology to reduce its carbon emissions by 125,000 tonnes per year and produce 80 million liters of bio-ethanol
During its third quarter, ended Sept. 30, 2021, MT’s sales increased 52.5% year-over-year to $20.23 billion. The company’s operating income grew 644.4% from its year-ago value to $5.35 billion. Its EPS came in at $4.17, compared to a $0.21 loss per share in the prior-year quarter. Also, the company’s EBITDA increased 572.4% year-over-year to $6.06 billion.
MT’s consensus revenue is estimated to increase 24.4% year-over-year to $20.14 billion for its fiscal period ending March 31, 2022. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in three of the trailing four quarters. MT’s EPS is expected to increase by 1,794.8% in the current year. The stock has soared 46% in price over the past year.
In terms of forward EV/EBITDA, MT is currently trading at 1.78x, which is 77.1% lower than the 7.76x industry average. In addition, its 2.02x forward EV/EBIT is 83.4% lower than the 12.14x industry average.
MT's POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. Also, the stock has an A grade for Value.
In addition to the POWR Rating grades I've just highlighted, one can see MT's ratings for Stability, Momentum, Growth, Quality, and Sentiment here. The stock is ranked #5 of 35 stocks in the A-rated Steel industry.
Note that MT is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
Sibanye Stillwater Limited (SBSW)
Based in Weltevreden Park, South Africa, SBSW is a multinational mining and metals processing group with a diverse portfolio of mining and processing operations and projects and investments across five continents. The company produces gold; platinum group metals (PGMs), and by-products, such as iridium, ruthenium, nickel, copper, and chrome.
SBSW’s profit increased 19.7% year-over-year to R14.02 billion ($919.86 million) in the third quarter, ended Sept. 30, 2021. The company’s adjusted EBITDA came in at R14.88 billion ($976.1 million) during the period. MT’s projects are grouped by Southern Africa and Americas regions.
SBSW’s EPS is expected to increase at a 4% rate over the next five years. The stock has surged 17.1% in price over the past month.
In terms of forward EV/Sales, SBSW is currently trading at 0.91x, which is 47.7% lower than the 1.74x industry average. Also, in terms of its forward Price/Sales, the stock is currently trading at 0.95x, which is 37.7% lower than the 1.53x industry average.
It is no surprise that SBSW has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has an A grade for Value and a B grade for Sentiment.
Click here to see the additional POWR Ratings for SBSW (Momentum, Stability, Quality, and Growth). The stock is ranked #11 of 40 stocks in the Miners – Diversified industry.
LYB shares were trading at $100.01 per share on Friday morning, down $0.00 (0.00%). Year-to-date, LYB has gained 8.44%, versus a -6.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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