The highly cyclical materials industry has benefited producers in times of economic growth and seen many players out of business during a downturn. Hence an eye toward macroeconomic factors, such as demand for commodities, is necessary when investing in the materials sector. MACA and Sandfire Resources are materials industry stocks on my list that are potentially undervalued, which means their current share prices are trading well-below what the companies are actually worth. There’s a few ways you can measure the value of a cyclical company – you can forecast how much money it will make in the future and base your valuation off of this, or you can look around at its peers of similar size and industry to roughly estimate what it should be worth. Below, I’ve created a list of companies that compare favourably in all criteria based on their most recent financial data, making them potentially good investments.
MACA Limited (ASX:MLD)
MACA Limited operates as a mining, civil construction, and road infrastructure company in Australia and Brazil. Established in 2002, and now led by CEO Christopher Tuckwell, the company size now stands at 1,300 people and has a market cap of AUD A$375.21M, putting it in the small-cap stocks category.
MLD’s shares are now hovering at around -35% beneath its actual level of $2.17, at a price tag of AU$1.40, according to my discounted cash flow model. signalling an opportunity to buy the stock at a low price. In addition to this, MLD’s PE ratio is trading at 12.44x compared to its Metals and Mining peer level of, 13.51x suggesting that relative to its comparable set of companies, MLD can be bought at a cheaper price right now. MLD is also strong in terms of its financial health, with current assets covering liabilities in the near term and over the long run. The stock’s debt-to-equity ratio of 14.33% has been falling for the last couple of years signalling MLD’s capability to reduce its debt obligations year on year. Dig deeper into MACA here.
Sandfire Resources NL (ASX:SFR)
Sandfire Resources NL engages in the exploration and evaluation of the mineral tenements in Australia and internationally. Sandfire Resources is currently run by Karl Simich. With the company’s market capitalisation at AUD A$1.27B, we can put it in the small-cap category
SFR’s shares are now floating at around -60% below its actual worth of $20.07, at a price tag of AU$8.04, based on my discounted cash flow model. This difference in price and value gives us a chance to buy low. Also, SFR’s PE ratio stands at 12.47x compared to its Metals and Mining peer level of, 13.51x suggesting that relative to its competitors, SFR’s shares can be purchased for a lower price. SFR is also in good financial health, with current assets covering liabilities in the near term and over the long run. SFR also has a miniscule amount of debt on its balance sheet, which gives it headroom to grow and financial flexibility. More on Sandfire Resources here.