Chilean ADR Stock Leads Ag Sector in EPS Rating
Among stocks in the No. 1 rated agriculture sector, Sociedad Quimica y Minera de Chile ( SQM ) is tops in EPS Rating.
The stock carries a 96, which means its in the fourth percentile vs. other stocks.
The company sells fertilizers and industrial chemicals in more than 100 countries. In 2011, almost half of sales revenue was tied to emerging markets. Only 13% of revenue was derived from Chile.
Sociedad’s products are used in farming, drugs, nutrition, LCD screens, batteries, solar energy and industrial applications. Products are mainly derived from mineral deposits in northern Chile.
The stock is rated No. 2 in its industry group in Stock Checkup at Investors.com. (The top stock isAgrium ( AGU ).) Generally, an investor should buy the stock that is rated first or second within its group, assuming the group is strong.
Chemicals-Agricultural was No. 28 among 197 industry groups, as of Thursday’s IBD. A strong sector and industry group can add a tail wind to a stock. Sociedad’s fundamentals are fairly strong.
Earnings increased 36% and 46% in the past two quarters. Revenue rose 10% and 24%. The three- and five-year EPS stability factors are 16 and 29. The stability scale runs from 0 (calm) to 99 (wild).
Pretax margin was 34% last year, near historical highs. Return on equity, a gauge of financial efficiency, was 32%, far above the minimum 17% associated with elite stocks.
Sociedad’s dividend has some built-in uncertainty. ADR dividends are converted from the Chilean peso to U.S. dollars. A strong peso increases the payout, while a strong dollar decreases it. The current estimated annual yield is 1.3%.
Cash dividends paid to non-Chilean shareholders are subject to a 35% withholding tax. If Sociedad has paid corporate income tax on the income from which the dividend is paid, a credit reduces the withholding tax.
The stock is working on a first-stage consolidation that dates to July 2011. A long pattern can wear out weak holders.
One concern is fund support. The number of funds and total stake dropped in the first half of this year.