Sociedad Quimica y Minera de Chile (NYSE:SQM) stock is a value play, a dividend play and a growth play, all at the same time.
It’s not as if some market participants haven’t caught onto this unique dynamic. Thanks to exposure to two separate commodities booms, SQM has surged in price over the past year. Even so, shares continue to trade at a price that fails to fully appreciate the company’s current performance and future potential.
This largely is the result of macro uncertainties that have been a drag on SQM’s performance in recent months. However, this works to your advantage, if you have yet to enter a position. Let’s dive in, and find out why.
SQM Stock at a Glance
SQM is involved in many industries within the basic material sector, but its involvement in the lithium and fertilizer industries has moved the needle over the past twelve months in terms of operating results as well as performance. As I mentioned recently, during the second quarter of 2022, SQM’s revenue and earnings were up by high triple-digits year-over-year.
This strong operating performance was driven by the boom in lithium prices, and to a lesser extent, by the spike in fertilizer prices stemming from Russia’s invasion of Ukraine.
Even before reporting these blockbuster numbers, shares zoomed higher in anticipation. Between January and May, SQM stock more than doubled, hitting a 52-week high of $115.76 per share.
With concerns about a global recession and a possible “lithium correction,” rising since the summer, the stock has pulled back. However, while investor enthusiasm has cooled off, this stock’s bona fides as a value, income, and growth play have not gone away.
A Perfect Fit for All Investors
Even after its massive move higher so far this year, SQM stock continues to trade at a relatively low valuation. At current prices, the stock sports a forward earnings multiple of only 7.4x.
By comparison, Livent (NYSE:LTHM), another established (and very promising) lithium play, trades for 21.9 times forward earnings. This valuation discrepancy makes it a great opportunity for investors searching for high-quality undervalued stocks.
If dividends are a greater priority in your portfolio objectives, SQM has you covered too. Over the past year, the company has paid out a total of $5.95 per share in dividends, giving it a trailing yield of around 6.3%.
However, SQM’s dividends vary by profitability. If current lithium trends continue, this stock’s future dividend yield could be significantly higher.
That covers SQM’s merits as a value and income play, but how about as a growth play? If you’re assuming the recent jump in profitability is a one-and-done event, think otherwise.
With electric vehicles (or EVs) en route to reaching critical mass, demand for lithium (essential in the production of EV batteries) stands to keep rising. High lithium prices and lithium production ramp-ups will keep this company in growth mode.
The Verdict
While delivering middling returns as of late, there are several ways shares could get back onto an upwards trajectory.
More investors could catch onto the massive valuation discrepancy, resulting in a re-rating for shares. Although factors like jurisdictional risk may prevent SQM from fully shaking off a valuation discount to peers like LTHM, a partial re-rating would still mean a big move for the stock.
If strong earnings continue, the company could keep paying high dividends each quarter. This could spark a move higher, driven by an influx of dividend investors.
Finally, with much to suggest the lithium boom is far from over, SQM’s earnings could continue to soar, fueling a further move in line with growth.
Given its many positives, now may be the perfect time to lock down a long-term position in SQM stock.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place