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The highly cyclical materials industry has benefited producers in times of economic growth and seen many players out of business during a downturn. Thus, there is ample opportunity to take advantage of improving economic conditions which has led to strong demand for commodities. Currently, Southern Gold and Capral are materials industry companies I’ve identified as potentially undervalued, meaning their share price is below what these companies are actually worth. Investors can benefit from buying these cyclical companies while they are discounted, because they gain when the market prices move towards the stocks’ true values. Below is a list of stocks I’ve compiled that are deemed undervalued based on the latest financial data.
Southern Gold Limited (ASX:SAU)
Southern Gold Limited engages in the exploration and production of various mineral properties in Australia and South Korea. Southern Gold was formed in 2004 and with the company’s market capitalisation at AUD A$12.53M, we can put it in the small-cap group.
SAU’s stock is currently floating at around -86% under its true level of $1.87, at a price tag of AU$0.26, according to my discounted cash flow model. This price and value mismatch indicates a potential opportunity to buy the stock at a low price. Furthermore, SAU’s PE ratio is currently around 5.6x relative to its Metals and Mining peer level of, 13.88x meaning that relative to its competitors, you can buy SAU’s shares at a cheaper price. SAU also has a healthy balance sheet, with near-term assets able to cover upcoming and long-term liabilities. SAU also has no debt on its balance sheet, which gives it headroom to grow and financial flexibility. Interested in Southern Gold? Find out more here.
Capral Limited (ASX:CAA)
Capral Limited manufactures, markets, and distributes fabricated and semi-fabricated aluminum related products in Australia. Established in 1936, and now led by CEO Anthony Dragicevich, the company currently employs 900 people and has a market cap of AUD A$69.64M, putting it in the small-cap group.
CAA’s stock is currently hovering at around -27% under its intrinsic value of $0.2, at a price tag of AU$0.15, based on its expected future cash flows. This difference in price and value gives us a chance to buy low. Also, CAA’s PE ratio is around 5.92x against its its Metals and Mining peer level of, 13.88x implying that relative to its peers, CAA’s shares can be purchased for a lower price. CAA is also a financially healthy company, as short-term assets amply cover upcoming and long-term liabilities. CAA has zero debt on its books as well, meaning it has no long term debt obligations to worry about. Dig deeper into Capral here.