Natural resource mining companies have not experienced the same fruitfulness as other industries, throughout the bull market. However, overlooked parts of the natural resource sector could be coming back in favor, as commodity spot prices seem to be nearing intermediate-to-long term bottoms.
Aside from natural gas, energy prices have been getting crushed over the past couple of months. Oil prices could see a short-term bounce, after a particularly brutal month for petroleum.
These three natural resource stocks are undervalued relative to their peers and should be on your list for further due diligence.
Global Partners LP (NYSE: GLP) is a midstream logistics company distributing gasoline and other fuels. The company has a current price-to-earnings ratio (P/E) of 13.03 is less than half the industry average of 18.33.
GLP also pays a hefty dividend of 10.66%. Furthermore, the company just recently raised its low-end guidance by $5 million, which gives Global Partners LP full-year 2018 EBITDA guidance between $195 million to $215 million. The company has a book value of $11.72 and recently traded at $17.83, pulling back from just over $21 in early August.
With the dividend in place, GLP has a great cushion which should bring in additional buyers if the stock falters. Picking up the stock on this pullback looks like a no brainer.
Natural Resource Partners LP (NYSE: NRP) also trades at a discounted P/E of only 8.86. The company owns, operates, manages and leases coal, soda ash, and construction aggregates.
NRP has a 5.06% dividend yield, paying out $1.80 per year. The stock traded in the $37 range earlier this year before pulling back to right around $36 now. During the third quarter 2018, Natural Resource Partners LP reported net income of $28.57 million. This compares to third quarter 2017 results of $26.5 million.
The company also has enough cash on hand, at $5.13 per share, to support any hiccups related to its dividend. Investors should be rewarded when the stock climbs out of its recent trading range and moves back into the high thirties.
Hi-Crush Partners LP (NYSE: HCLP) produces mono-crystalline sand for the oil drilling business. The company is in the interesting state of undergoing a change in its business structure.
In order to convert to a C corporation from a partnership, the company is required to pay out dividends for four consecutive quarter, of over $.715. So, last quarter the company began paying a $.75 per share dividend which it proposes to maintain for four quarters.
This brings the stock’s yield to 13.57%, while maintaining a 3.16 P/E ratio. After converting to a C corp. the company will likely cut the dividend, but it is unclear to what level that will occur.
For now, the stock is extremely undervalued due to the imprecise nature of the business conversion. For investors wishing to dig into the story the company may represent a huge buying opportunity. At the least, investors with a short term, three quarter outlook, can pick up a hefty dividend.
Global Partners LP, National Resource Partners LP, and Hi-Crush Partners LP represent three very compelling valuation cases in the natural resource industry. GLP and NRP are straightforward value plays, and Hi-Crush is a restructuring opportunity that should be closely examined. These undervalued companies likely won’t remain that way for the rest of 2018.
Disclaimer: The author and Spotlight Growth has no positions in any of the stocks mentioned in this article. Nor does either party currently have any relationship, or any other conflicts of interest, with any of the companies mentioned in this article. This content is meant for informational and entertainment purposes only and should not be meant as a recommendation to buy or sell any securities. Please visit a licensed financial representative to determine what investments are right for you.
Article By: Steven Adams