Dealmaker’s Diary: This Chemicals Producer Has the Momentum to Double

Alpesh Patel|April 25, 2024

This may sound odd… but I’ve got a soft spot for the chemicals industry.

When I was younger, my father floated a chemicals company on the Mumbai Stock Exchange.

It’s in the family, you could say…

Now, I know a chemicals company might not sound as exciting as the latest AI darling.

But if you’ve been following along… you know that what a company does is less important to me than how well it does it.

In today’s Dealmaker’s Diary… we’re diving into a billion-dollar chemicals company that’s been growing revenue close to 10% a year.

It scores a 7 on my proprietary GVI rating system – the algorithm I created to help me quickly narrow down promising stocks based on growth, value and income…

Plus it’s undervalued… and momentum suggests the stock could head back to its highs from a year ago.

That’s nearly a double from here!

Get all the details on the company – including the ticker – in my latest video.

This is the kind of analysis my hedge fund clients pay thousands for… but you get it for free.

Click on the image below to check it out.

TRANSCRIPT

Hello, friends. Well, as we’ve discovered recently, it’s not all about tech, and that’s why we also want to look at things beyond just obviously technology.

What I want to show you this week in the Stock of the Week and the Dealmaker’s Diary is Ingevity (NGVT).

Now, my father floated a company on the Mumbai Stock Exchange, the oldest stock exchange in Asia, which was in dye manufacturing, a chemicals company. So I have a soft spot for chemical companies.

Ingevity is a specialty chemicals and materials company that focuses on products and technologies designed to purify, protect and enhance the world around it. So lots of applications, basically. Coatings, lubricants, performance materials, including bioplastics as well.

Now, in the Dealmaker’s Diary, I try to pick companies which, whilst they don’t tick every single box the likes of which I’d need ticked for GVI Investor, they give you a flavor of what we’re looking for. Companies, nevertheless, which are worth examining.

The market cap of this company is $1.6 billion.

Revenues have been growing year on year, which is good, albeit there was a bit of a dip last year, but they have announced cost-cutting measures. Always good for management to be kept on its toes and not to think it’s easy making lots of money. So cost cutting due to that revenue dip is good.

Value growth income – or my GVI rating – of 7. Remember, it’s my proprietary algorithm which looks at valuation of a company, looks at its revenue growth, looks at its dividend yields, all of those factors. This company is a 7 out of 10, which means it meets my minimum threshold criteria.

You’re paying $13.7 for every expected dollar of profit. Not expensive, but not cheap. It’s somewhere in the middle, but there is another measure of valuation I’m going to come to in a second.

CROCI – cash return on capital invested – we have a CROCI of 4%. Now, I’d want that to be higher for GVI Investor, but it gives you an idea. If you want to know why CROCI is important, follow this link.

Sortino ratio, I’d want that normally to have been positive. Volatility below 20%. That’s good. I don’t want too much volatility in the market at the moment as things stand. And, Alpha, unfortunately, recently, it’s not been outperforming the markets, but I’m anticipating that to turn around.

And, really, the reason for me saying that is I’m looking at momentum. It’s a factor which is sometimes overlooked. I am expecting the monthly MACD to move in this direction. That’s not by any means guaranteed.

And as I said, the company on its historic P/E ratio is neither cheap as it was down here nor is it expensive, which is what it would be if it was just a bit higher up here.

Now that’s the momentum. It could easily do that and then drop off. What I’m anticipating happening is a repeat of this. By no means guaranteed. Of course, in the markets, we know things are not guaranteed.

The company on a discount cash flow basis is, however, 40% undervalued.

So that $81 valuation would get us back to around here, which is levels it has seen before.

Actually, saw them last year. And at a rate of growth, which is achieved before that angle of inclination, a rate of share price growth it’s seen before.

So that’s the thinking. Hope you found that insightful.

Thank you very much.