As the U.S.’ recovery from its COVID-19-pandemic-led recession gains momentum, ultra-loose monetary policy and several rounds of fiscal stimulus have been creating inflationary pressures. In response to this, investors are betting on commodities as a hedging strategy.
Since raw materials are the building blocks of many economic activities, the demand for commodities is rising from several industries. Furthermore, a supply-demand imbalance is driving the prices of several commodities higher.
Since the environment for investing in commodities looks promising, we think one should consider buying the dip in stocks such as POSCO (PKX) and Impala Platinum Holdings Limited (IMPUY). These companies have dominant commodity businesses and therefore are well positioned to deliver solid returns in the near to midterm.
Founded in 1968, PKX sells steel rolled products and plates in South Korea and internationally. It operates through four segments: Steel, Construction, Trading, and Others. The company offers hot and cold rolled steel, stainless steel, plates, wire rods, and silicon steel sheets. It also engages in industrial plant development, civil engineering projects, and commercial and residential building.
In March, PKX signed an agreement with KIST (Korea Institute of Science & Technology), and RIST (Research Institute of Industrial Science & Technology), regarding the advancement of technology for ammonia hydrogen extraction. With this advancement, the company will supply overseas green hydrogen as a raw material and energy source for the industry and power plants in the future. This should ultimately lead to higher revenue.
In terms of forward EV/EBIT, the stock is currently trading at 7.60x, which is 43.2% lower than the 13.38x industry average. Its 0.60x trailing-12-month EV/sales is 72.9% lower than the 2.22x industry average.
In the first quarter ended, April 30, PKX’s revenue has increased 11.9% year-over-year to KRW7800 billion ($6.98 billion), while its gross profit increased 80.3% from its year-ago value to KRW1334 billion ($1.19 billion). The company reported an operating profit of KRW1073 billion ($0.96 million), representing a 134.3% increase year-over-year. The company’s net profit increased 110.2% year-over-year to KRW952 billion ($0.85 billion).
Analysts expect PKX’s revenue for the fiscal period ending December 31, 2021 to be $58.14 billion, representing 26.1% year-over-year growth. The company’s EPS is likely to increase 159.6% year-over-year to $8.49 over the same period.
PKX’s stock has gained 122.1% over the past year and closed yesterday’s trading session at $78.77. It is currently trading 14.6% below its 52-week high of $92.19.
It is no surprise that PKX has an overall A rating, which translates to Strong Buy in our POWR Ratings system. It also has an A grade for Momentum, Value and Growth. In the A-rated Steel industry, it is ranked #3 of 33 stocks.
In total, we rate PKX on eight different levels. Beyond what we’ve stated above, we have also given PKX grades for Value, Sentiment and Stability. Get all the PKX ratings here.
Impala Platinum Holdings Limited (IMPUY)
Headquartered in Illovo, South Africa, IMPUY operates platinum group metals (PGMs) in South Africa and Zimbabwe. The company produces platinum, palladium, and rhodium, as well as chrome and nickel ores. It has operations on the PGM-bearing ore bodies, including the Bushveld Complex located in South Africa, and the Great Dyke situated in Zimbabwe.
In February, IMPUY received an “A” performance score for its 2020 CDP Water Disclosure Project submission, making it one of only 106 companies globally to have made the CDP’s 2020 water security A-list. This places it in the leadership band with a select group of companies and will benefit their brand image.
The company’s forward P/E Non-GAAP is currently trading at 4.24x, which is 74.1% lower than the 16.37x industry average, while its 2.89x forward EV/EBIT is 78.4% lower than the 13.38x industry average 13.38x.
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PKX shares were trading at $80.89 per share on Thursday afternoon, up $2.12 (+2.69%). Year-to-date, PKX has gained 29.82%, versus a 12.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...
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