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What are we looking for?

U.S.-listed basic materials stocks offering attractive valuations and above-average dividend yields.

For any homeowner doing renovations, the high cost of basic materials has been a source of frustration. But it’s been a banner year for the materials sector. The Materials Select Sector SPDR Fund (XLB) is trading near all-time highs with an impressive gain of 64 per cent over the past 12 months. Over the past six months, it has been the top performing sector, leading both financials and energy, with a gain of about 15 per cent.

The screen

This week, we used Trading Central Strategy Builder to help us identify U.S.-listed basic materials stocks that are indicating positive price momentum, attractive valuations and above-average yields.

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We started by setting a minimum market capitalization threshold of US$1-billion. Next, we looked for companies with a price-to-earnings ratio not exceeding 29.6 (the materials sector average), and a price-to-sales ratio below the sector average of 2.8.

Finally, because we wish to get paid to wait while our investments appreciate, we will also filter for companies offering a dividend yield of 1.5 per cent or greater in order to beat the sector average.

We also require year-to-date and 52-week stock price returns to be positive.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities.

What we found

U.S. dividend stocks in red-hot materials sector

RankCompanyTickerMkt. Cap. (US$ Bil.)P/EPrice/Sales Div. Yld. (%)YTD Perf. (%)1Y Perf. (%)
1Ternium SA (ADR)TX-N7.55.30.85.5312.1160.6
2Sibanye Stillwater (ADR)SBSW-N13.51.60.45.3157.6109.2
3Vedanta Ltd. (ADR)VEDL-N14.48.91.24.8731.2221.4
4Vale SA (ADR)VALE-N108.310.72.45.6262.6127.7
5Gerdau SA (ADR)GGB-N10.813.11.22.2439.4219.0
6Posco (ADR)PKX-N25.818.80.52.1323.2128.7
7LyondellBasell Ind.LYB-N36.915.71.33.8206.082.8
8Dow Inc.DOW-N51.226.01.34.1237.489.5
9Chemours Co.CC-N5.526.01.13.0343.4158.7
10MDU Resources GroupMDU-N6.716.11.22.5275.759.9
11Huntsman Corp.HUN-N6.415.51.02.6151.567.7
12Loma Negra Cia. (ADR)*LOMA-N1.39.31.64.063.647.3
13Schweitzer-Mauduit Int'lSWM-N1.417.61.33.8148.552.9

Source: Trading Central.

* Loma Negra Compania Industrial Argentina SA

Our screener ranks the list based on all performance and valuation criteria. The 13 companies shown represent the best holdings on this basis. Seven of the 13 stocks are American depositary receipts; denominated in U.S. dollars, ADRs are a good way to invest into overseas companies without the high costs associated with international trading.

Topping our list is Ternium SA, which makes steel products in the United States, Argentina, Brazil, Colombia, Guatemala and Mexico. The company, which has its headquarters in Luxembourg, has the second-highest dividend yield on our list at 5.5 per cent. Ternium has a low P/E of 5.3 and a price-to-sales ratio of just 0.8, well below the industry average.

Diversified mining giant Vale SA, headquartered in Rio de Janeiro, has the largest market cap on our list at US$108.3-billion, and the highest dividend yield at 5.6 per cent. Its stock recently hit a new 52-week high.

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Chemical manufacturer Dow Inc. has the second-largest market cap on our list at US$51.2-billion. The company is indicating a current yield of 4.1 per cent, a P/E of 26 and price-to-sales of 1.3. The stock price hit a new record high on Tuesday.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central in Ottawa.

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