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Validea's pick of the week provides a detailed report on a company that scores well in the stock-screening service's model portfolios. On Validea.ca, investors can analyze 1,000 Canadian stocks through 12 different guru-based models and get individual reports on each company. Globe Investor provides marketing and data services to Validea.ca and receives compensation. Try it.
Steel maker Ternium SA (TX-N) carries a rock bottom valuation, a dividend yield of 4.1 per cent and price momentum, and it scores highly through the lens of multiple guru-based investment models run by Validea.
It is a mid-cap stock in the basic materials sector. The company produces finished and semi-finished steel products and iron ore, which are sold either directly to steel manufacturers, steel processors or end users.
The stock's low valuation is one reason why it's favoured by so many of Validea's guru models. The stock gets an over-80-per-cent score from four different models, including the approaches based on Peter Lynch's method as outlined in the book One Up on Wall Street and the Ken Fisher-based approach, which he wrote about in Super Stocks.
Ternium's earnings growth of 18.6 per cent puts it in Lynch's "Stalwart" category. With Stalwarts, Lynch favoured firms whose stocks were cheap and yet had good earnings growth. He captured this concept in the PEG ratio, which is the P/E ratio divided by the growth rate. With a PE of 6.1, the stock's PEG ratio is below 0.5, which is very attractive.
The stock also gets very high scores from the price-to-sales models developed by Ken Fisher. The stock's value, using the price-to-sales ratio, is attractive. It also carries low debt, with a debt-to-equity ratio of 30 per cent.
TX-N also passes Validea's Contrarian Investor model, which is based on the value investing work of David Dreman. His approach seeks out companies with an improving financial picture and couples that with low valuations, indicating the market may be overlooking value stocks with improving fundamentals. The stock scores a 90 per cent on the Dreman model.
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