The basic material sector has done fairly well over the recent bull market.
Industries such as oil, gold, and mining are all trading near the respective 52-week highs, but still many of these companies are undervalued.
One industry in specific, chemical manufacturing, has a cornucopia of equities which would be a great asset to any portfolio.
With large-cap holdings such as BASF AG, Monsanto, and Air Products and Chemicals, investors may have a hard time trying to find the company that will yield the highest gain.
However, one company in particular, Praxair Inc (PX) has a great strategic plan and fundamental background to provide investors a great opportunity to improve these individual's portfolios.
Before looking at the numbers, it is important to first examine what the company actually does.
According Reuters, Praxair, "is an industrial gases supplier in North and South America, Asia, and has businesses in Europe.
" The company focuses on two types of specific products attributed to, "atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene).
" Probably what is most interesting about this company is, "Praxair serves approximately 25 industries, including healthcare and petroleum refining; computer-chip manufacturing and beverage carbonation; fiber optics and steel making, and aerospace, chemicals and water treatment.
" With such a variety of products, geography, and consumers, investors should realize that this company hedges its business--calling for solid growth overall.
For example, currently most nations and most industries are performing quite well compared to many other years.
As a result, because of this bullish market, analysts are predicting average long term growth for this company at 11.
40%.
Of course companies surprise Wall Street all the time, but since 2000, only one year has Praxair failed to show a year-to-year share price increase, and that was only a 15% drop in 2000 to 2001: the year the recession began.
Therefore, as long as no severe aberration occurs with respect to Praxair, investors should feel optimistic on how Praxair and its hedged strategy will perform in both the short and long term.
While the provided information is enticing to begin purchasing shares, some investors may soon realize that all companies in this industry have similar business plans and share price appreciation.
While this empirical judgment is true to an extent, what separates Praxair from its competitors is its fundamentals.
And fundamental analysis always begins with revenue figures.
Last fiscal year, Praxair reported a revenue number of $8.
47 billion according to Capital IQ.
This number translated to, according to Reuters, gross margins at 40.
48%, operating margins at 18.
53%, and net profit margins at 12.
37%.
These figures were above the company's five year average and also above the industry's respective three numbers as well.
What is even better about this information is that Praxair's fiercest competitor Air Products and Chemicals, which reported an annual revenue only slightly above Praxair at $9.
51 billion, only saw gross margins at 26.
28%, operating margins at 12.
43%, and net profit margins at 9.
01%.
Not only are these figures significantly below Praxair's numbers as well as the industry averages, but gross margins for Air Products and Chemicals are actually below the five year average for the past year.
Some investors may claim that all companies do have a bad year every so often, but looking at five year sales growth figures for Praxair (10.
04%) versus Air Products and Chemicals (8.
60%) and five year EPS growth figures of 17.
83% versus 9.
15% respectively, Praxair absolutely has the upper hand in this rivalry and the industry as well in terms of EPS growth.
What should also help investors is that capital spending for Praxair at 13.
08% (above the industry average at 10.
25%) is also above the sales growth rate which means a lot of money is being reinvested into the company for further economics of scale.
Already growing quite nicely, such capital switching will lead to more cost-cutting ventures and an overall higher EPS.
Now while the numbers from the balance and incomes sheets look excellent, how do these numbers transcend into share price value? It is evident that Praxair is growing, but could this stock be undervalued as well? According to Capital IQ, Praxair is currently trading 17.
55 times projected earnings.
This number is below the industry average and the company's trailing multiple as well.
This number is also quite low when compared to competitor Monsanto, which is trading over 30 times expected earnings.
However, compared to other rivals such as Air Products and Chemicals and BASF AG, Praxair's aforementioned ratio is only average.
In addition, the company's price to sales (2.
56), enterprise value to revenue (3.
00), and enterprise value to EBITDA (10.
967) are also slightly above rival performances.
While it is true that considering future performance, Praxair should see a price to sales ratio of 2.
44 and an enterprise value to revenue of 2.
78 for fiscal year 2007, companies like Air Products and Chemicals will see similar drops if analyst predictions withhold.
So unfortunately, there is not much evidence to support the notion that Praxair is undervalued.
Nevertheless, there is still more good news relative to bad news when considering Praxair.
The company has, according to Reuters, an ROE (23.
93%), ROA (9.
37%), and ROI (11.
65%) which are all significantly above industry performance and also above this corporation's five year average.
These numbers also are above each of the three aforementioned competitors named in previous sections, which mean CEO Stephen F.
Angel, his board members, and his near 28,000 employees are doing a great job with the shares bought by retail and institutional buyers.
Praxair also is fairly solvent with a current ratio of 1.
19 and less total debt than equity at a ratio of 0.
84 as of its most recent quarter.
The company also supports a dividend yield of 1.
76%, a number above industries standards and expected to further grow as the company has a five year growth rate of 24.
08% for this figure.
Overall, while the company is not completely undervalued relative to the industry, its basic fundamentals, business strategy, and intangibles are excellent.
It is true that the company is currently trading above both its 50 and 200 day SMA, but growth means higher EPS figures, lower multiples, and still great opportunities for investors to make capital.
The basic material sector has a great run in 2007, and since economic news has not been foreshadowing an imminent recession, there is great potential for many of these companies, including Praxair, which should be a great asset to any investor's portfolio.
Industries such as oil, gold, and mining are all trading near the respective 52-week highs, but still many of these companies are undervalued.
One industry in specific, chemical manufacturing, has a cornucopia of equities which would be a great asset to any portfolio.
With large-cap holdings such as BASF AG, Monsanto, and Air Products and Chemicals, investors may have a hard time trying to find the company that will yield the highest gain.
However, one company in particular, Praxair Inc (PX) has a great strategic plan and fundamental background to provide investors a great opportunity to improve these individual's portfolios.
Before looking at the numbers, it is important to first examine what the company actually does.
According Reuters, Praxair, "is an industrial gases supplier in North and South America, Asia, and has businesses in Europe.
" The company focuses on two types of specific products attributed to, "atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene).
" Probably what is most interesting about this company is, "Praxair serves approximately 25 industries, including healthcare and petroleum refining; computer-chip manufacturing and beverage carbonation; fiber optics and steel making, and aerospace, chemicals and water treatment.
" With such a variety of products, geography, and consumers, investors should realize that this company hedges its business--calling for solid growth overall.
For example, currently most nations and most industries are performing quite well compared to many other years.
As a result, because of this bullish market, analysts are predicting average long term growth for this company at 11.
40%.
Of course companies surprise Wall Street all the time, but since 2000, only one year has Praxair failed to show a year-to-year share price increase, and that was only a 15% drop in 2000 to 2001: the year the recession began.
Therefore, as long as no severe aberration occurs with respect to Praxair, investors should feel optimistic on how Praxair and its hedged strategy will perform in both the short and long term.
While the provided information is enticing to begin purchasing shares, some investors may soon realize that all companies in this industry have similar business plans and share price appreciation.
While this empirical judgment is true to an extent, what separates Praxair from its competitors is its fundamentals.
And fundamental analysis always begins with revenue figures.
Last fiscal year, Praxair reported a revenue number of $8.
47 billion according to Capital IQ.
This number translated to, according to Reuters, gross margins at 40.
48%, operating margins at 18.
53%, and net profit margins at 12.
37%.
These figures were above the company's five year average and also above the industry's respective three numbers as well.
What is even better about this information is that Praxair's fiercest competitor Air Products and Chemicals, which reported an annual revenue only slightly above Praxair at $9.
51 billion, only saw gross margins at 26.
28%, operating margins at 12.
43%, and net profit margins at 9.
01%.
Not only are these figures significantly below Praxair's numbers as well as the industry averages, but gross margins for Air Products and Chemicals are actually below the five year average for the past year.
Some investors may claim that all companies do have a bad year every so often, but looking at five year sales growth figures for Praxair (10.
04%) versus Air Products and Chemicals (8.
60%) and five year EPS growth figures of 17.
83% versus 9.
15% respectively, Praxair absolutely has the upper hand in this rivalry and the industry as well in terms of EPS growth.
What should also help investors is that capital spending for Praxair at 13.
08% (above the industry average at 10.
25%) is also above the sales growth rate which means a lot of money is being reinvested into the company for further economics of scale.
Already growing quite nicely, such capital switching will lead to more cost-cutting ventures and an overall higher EPS.
Now while the numbers from the balance and incomes sheets look excellent, how do these numbers transcend into share price value? It is evident that Praxair is growing, but could this stock be undervalued as well? According to Capital IQ, Praxair is currently trading 17.
55 times projected earnings.
This number is below the industry average and the company's trailing multiple as well.
This number is also quite low when compared to competitor Monsanto, which is trading over 30 times expected earnings.
However, compared to other rivals such as Air Products and Chemicals and BASF AG, Praxair's aforementioned ratio is only average.
In addition, the company's price to sales (2.
56), enterprise value to revenue (3.
00), and enterprise value to EBITDA (10.
967) are also slightly above rival performances.
While it is true that considering future performance, Praxair should see a price to sales ratio of 2.
44 and an enterprise value to revenue of 2.
78 for fiscal year 2007, companies like Air Products and Chemicals will see similar drops if analyst predictions withhold.
So unfortunately, there is not much evidence to support the notion that Praxair is undervalued.
Nevertheless, there is still more good news relative to bad news when considering Praxair.
The company has, according to Reuters, an ROE (23.
93%), ROA (9.
37%), and ROI (11.
65%) which are all significantly above industry performance and also above this corporation's five year average.
These numbers also are above each of the three aforementioned competitors named in previous sections, which mean CEO Stephen F.
Angel, his board members, and his near 28,000 employees are doing a great job with the shares bought by retail and institutional buyers.
Praxair also is fairly solvent with a current ratio of 1.
19 and less total debt than equity at a ratio of 0.
84 as of its most recent quarter.
The company also supports a dividend yield of 1.
76%, a number above industries standards and expected to further grow as the company has a five year growth rate of 24.
08% for this figure.
Overall, while the company is not completely undervalued relative to the industry, its basic fundamentals, business strategy, and intangibles are excellent.
It is true that the company is currently trading above both its 50 and 200 day SMA, but growth means higher EPS figures, lower multiples, and still great opportunities for investors to make capital.
The basic material sector has a great run in 2007, and since economic news has not been foreshadowing an imminent recession, there is great potential for many of these companies, including Praxair, which should be a great asset to any investor's portfolio.
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