Last year, in the wake of the war between Ukraine and Russia, the supply of materials got severely affected, causing the prices of even basic materials to rise considerably. However, while industrial production was unchanged in February, the manufacturing output rose 0.1%.
As more investments are made in building and improving infrastructure and with the return of industrial activities and manufacturing to pre-pandemic levels, the demand for materials is expected to rise. Amid this backdrop, it could be wise for investors to buy fundamentally strong material stocks Linde plc (LIN), L'Air Liquide S.A. (AIQUY), and Southern Copper Corporation (SCCO).
Before delving deeper into the fundamentals of these stocks, let’s discuss why the demand for materials is expected to rise.
To manufacture any commodity, materials are used as feedstock by various industries. Companies from the materials space produce core materials, such as metal, concrete, chemicals, industrial gases, etc. The demand for basic materials remains steady when the economy is expanding.
The $1.2 trillion bipartisan Infrastructure Investment and Jobs Act (IIJA), signed into law by President Biden, will focus on investing in building new infrastructure and improving the existing infrastructure. This is expected to boost the demand for materials.
Investors’ interest in material stocks is evident from the Invesco DWA Basic Materials Momentum ETF’s (PYZ) 18.8% returns over the past nine months.
Given these factors, investors could look to buy fundamentally strong stocks LIN, AIQUY, and SCCO.
Linde plc (LIN)
Based in Woking, the United Kingdom, LIN is an industrial gas company worldwide. It offers atmospheric gases and process gases. It serves a range of industries, including healthcare, chemicals and energy, manufacturing, metals and mining, food and beverage, and electronics.
On April 4, LIN announced that it had signed a long-term agreement with Exxon Mobil Corporation (XOM). LIN’s Senior Vice President Americas, Dan Yankowski, believes that working with XOM as the carbon dioxide off-taker at LIN’s Beaumont project supports the company’s strategy to decarbonize customer processes while safely and reliably supplying low-carbon hydrogen at scale.
In terms of the trailing-12-month EBIT margin, LIN’s 19.95% is 58.3% higher than the 12.60% industry average. Its 14.75% levered FCF margin is 218.7% higher than the 4.63% industry average. Likewise, its 9.51% trailing-12-month Capex/Sales is 63% higher than the industry average of 5.84%.
For the fiscal fourth quarter that ended December 31, 2022, LIN’s adjusted operating profit increased 8.7% year-over-year to $2 billion. The company’s adjusted income from continuing operations increased 10% year-over-year to $1.57 billion. Its adjusted EBITDA from continuing operations increased 4.9% year-over-year to $2.73 billion.
In addition, its adjusted EPS from continuing operations came in at $3.16, representing an increase of 14.1% from the year-ago quarter.
LIN’s EPS and revenue for the quarter that ended March 31, 2023, are expected to increase 6.7% and 0.4% year-over-year to $3.13 and $8.24 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 32.2% to close the last trading session at $358.25.
LIN’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #14 out of 86 stocks in the B-rated Chemicals industry. In addition, it has a B grade for Stability, Sentiment, and Quality. To see the other ratings of LIN for Growth, Value, and Momentum, click here.
L'Air Liquide S.A. (AIQUY)
Headquartered in Paris, France, AIQUY provides gases, technologies, and services for the industrial and health sectors worldwide. It operates in three segments, Gas & Services; Engineering & Construction; and Global Markets & Technologies.
On February 21, AIQUY and Sasol signed two Power Purchase Agreements (PPA) with TotalEnergies and its partner Mulilo. Vice President and Executive Committee Member of AIQUY, Ronnie Chalmers, stated that these renewable energy capacities significantly contribute to decarbonizing the company’s operations and actively support the development of renewable energies in South Africa.
He also believes that these PPAs demonstrate the group’s capacity to collaborate with its customers to provide solutions that contribute to the decarbonization of its assets as well as of its clients.
In terms of the trailing-12-month gross profit margin, AIQUY’s 53.86% is 86.7% higher than the 28.85% industry average. Its 9.22% net income margin is 19.8% higher than the 7.69% industry average. Likewise, its 10.93% trailing-12-month Capex/Sales is 87.4% higher than the industry average of 5.84%.
AIQUY’s total revenue for the fiscal year that ended December 31, 2022, increased 28.3% year-over-year to €29.93 billion ($32.63 billion). Its net profit increased 7.3% year-over-year to €2.76 billion ($3.01 billion). Additionally, its net EPS increased 6.9% year-over-year to €5.28.
AIQUY’s EPS for the fiscal year 2023 is expected to increase 7.1% year-over-year to $1.43. Its revenue for the quarter that ended March 31, 2023, is expected to increase 2.3% year-over-year to $7.44 billion. Over the past six months, the stock has gained 52.7% to close the last trading session at $34.60.
AIQUY’s strong fundamentals are reflected in POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
It is ranked #23 in the same industry. It has a B grade for Stability and Quality. We have also given AIQUY grades for Growth, Value, Momentum, and Sentiment. Get all AIQUY ratings here.
Southern Copper Corporation (SCCO)
SCCO engages in mining, exploring, smelting, and refining copper and other minerals in Peru, Mexico, Argentina, Ecuador, and Chile. The company is involved in the mining, milling, and flotation of copper ore, smelting of copper concentrates, refining of anode copper, production of molybdenum concentrate and sulfuric acid, and production of refined silver, gold, and other materials.
In terms of the trailing-12-month EBIT margin, SCCO’s 44.15% is 250.3% higher than the 12.60% industry average. Its 26.26% net income margin is 241.3% higher than the 7.69% industry average. Likewise, its 15.27% trailing-12-month Return on Total Assets is 186.2% higher than the industry average of 5.34%.
For the fourth quarter that ended December 31, 2022, SCCO’s net sales were flat year-over-year at $2.82 billion. Its net income rose 8.3% year-over-year to $902.40 million.
Analysts expect SCCO’s EPS and revenue for the quarter ending June 30, 2023, to increase 64.3% and 14.9% year-over-year to $0.92 and $2.65 billion, respectively. Over the past six months, the stock has gained 64% to close the last trading session at $77.53.
SCCO’s POWR Ratings reflect this positive outlook. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
It is ranked #6 out of 35 stocks in the Industrial - Metals industry. In addition, it has an A grade for Quality and a B for Stability. To see the other ratings of SCCO for Growth, Value, Momentum, and Sentiment, click here.
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LIN shares were trading at $361.24 per share on Wednesday afternoon, up $2.99 (+0.83%). Year-to-date, LIN has gained 11.16%, versus a 7.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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