These Companies Will Boom in Economic Recovery
Nikhil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A new year, a new beginning, a time of optimism, and a time for us to forget about a 2011 where the market, including dividends, increased by less than 3%. So if we're to be optimists, and believe in an improved economy where stocks will beat corporate bonds, the companies that will benefit most from this change would be the companies that are at the base of our economy: The Basic Materials Sector. Specifically, I'm looking at companies such as ArcelorMittal (NYSE: MT), Mosaic Co (NYSE: MOS), and Titan Machinery (NASDAQ: TITN).
ArcelorMittal is a huge steel producer whose stock price has been floundering since mid-2010 due to the lower production needs of a recessionary economy. Of course, to get our economy back on track, we need MORE production, more consumerism, and more spending. As such, Arcelor is set up for an economic rebound. According to CNN Money, we can expect ArcelorMittal to have 15% earnings growth for the next five years, and 19% revenue growth for the same time period. Clearly this is based on optimistic expectations for the economy going forward, but the importance of steel to the global economy cannot be overstated. So I believe that right now, Arcelor's stock is a sweet deal with a P/E of 15.53. A 3.53% dividend yield also makes thing even nicer for investors in the shorter term.
Mosaic Co has a much smaller dividend yield, yet its stock has a lot of potential to rise from its current cheap P/E of 11. Mosaic is a producer of crop nutrients for the agriculture industry. It has two main segments of production, phosphates and potash, and both segments take advantage of international markets. According the U.S. Department of Agriculture, in their "World Agricultural Supply and Demand Estimates," global rice production has increased to a record 461.4 million tons, and corn supplies are projected to increase going forward. This increase in supply will help Mosaic's bottom line going forward, leading me to a bullish view on Mosaic's business.
Titan Machinery operates agricultural and construction equipment stores in the U.S. Although small, with a market cap just above $500M, every aspect of Titan's business is perfectly poised for an economic bounce. Titan operates in two segments: agriculture and construction, which as I've probably shown above with Mosaic and ArcelorMittal, are areas of businesses that I expect to thrive. Both segments are involved in the sale of machinery, with the agriculture segment selling machinery for farming (large and small scale-home gardens), and the construction segment selling more tough stuff, such as equipment for the construction of roads and mine work.
With a recessionary economy, TITN is also priced cheaply at a P/E of 13. TITN also provides a bit of a 'special situation' outlook because of its immense cash load. Titan has about $8 per share in NCAV (Current Assets-Total Liabilities), giving Titan an ex-cash P/E of 8.51, extremely cheap for the steady earnings growth that the company has been creating.
I will be initiating a CAPScall on all of these tickers so you can track my picks as they perform against the market going forward. Note that all of these picks are dependent on my bullish view of the economy, which may not happen as I hope.
The Motley Fool owns shares of ArcelorMittal. shamapant has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.