Some chemical stocks trade at high P/E ratios based on their 2020 earnings. But they look reasonably-priced based on their expected 2021 earnings.
We regularly follow 10 chemical stocks. Since July, nine of the 10 stocks have advanced but some of them remain reasonably-priced buys based on their expected earnings in 2021.
One example is Saskatoon-based Nutrien Ltd. (TSX—NTR) It trades at a hefty P/E (price-to-earnings) ratio of 24.1 times the C$2.29 a share that it’s expected to earn this year. But in 2021, the company’s earnings are expected to jump by 25.3 per cent, to C$2.87 a share. Based on this estimate, its forward P/E ratio is a reasonable 19.2 times. Also, the price rise of 22.2 per cent gives the shares upwards price momentum.
Nutrien’s two segments fit well together
Nutrien writes: “We produce and distribute 25 million tonnes of potash, nitrogen and phosphate products world-wide. With this capability and our leading agriculture network, we are well positioned to supply the needs of our customers. . . . The scale and diversity of our integrated portfolio provides a stable earnings base, multiple avenues for growth and the opportunity to return capital to shareholders.”
Nutrien remains a buy for further long-term share price gains and growing dividends.
Mosaic’s 2021 earnings should triple
Another example is Florida-based The Mosaic Company (NYSE—MOS). It trades at an excessive 46.2 times the 39 cents a share that it’s expected to earn this year. Next year, however, Mosaic’s earnings are expected to triple, to $1.17 a share. Based on this estimate, it trades at a reasonable forward P/E ratio of 15.4 times.
Mosaic’s shares have jumped by 49.2 per cent since July. This gives them upwards price momentum. In addition, the shares trade 22.1 per cent below their book value of $23.12. And the stock’s price-to-cash-flow ratio is a relatively-low 7.8 times. This should improve as its earnings and cash flow grow next year. It looks like the shares trade at bargain levels.
Mosaic, too, operates globally
Mosaic produces, blends and distributes crop nutrient and animal-feed products. It produces phosphate and potash, among others, from facilities in the United States and Canada. It also has operations in Asia and South America.
Mosaic remains a buy for further long-term share price gains and growing dividends that yield a modest 1.1 per cent.
This is an edited version of an article that was originally published for subscribers in the November 27, 2020, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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