Opinions
Peter Hodson
Methanex Corp
MX-T
PAST TOP PICK
Dec 15, 2017
Stock price when the opinion was issued
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Premium contentWe reiterate MX, the largest supplier of methanol to international markets, as a TOP PICK. The company just released earnings, beating analyst expectations by 20%. Production in the quarter was slowed due to extended turnaround times in several key regions, but this should be resolved shortly. It trades at 13x earnings and 1.5x book value. It has used some cash reserves to prudently retire debt and buy back shares. We recommend maintaining a stop-loss at $51, looking to achieve $78 — upside potential over 30%. Yield 1.0%
(Analysts’ price target is $78.17)Premium contentPremium contentWorld's largest producer of Methanol (used in Gasoline blending/industrial applications). Canadian company with capacity to produce 10 million tones across the globe. Cyclical commodity that varies with China demand. Earnings $7/shrae in 2018, lost $1.62 in 2020, will earn ~$6.50/share in 2024. Would be a good trade, or something to buy on the dip. Hard to predict outlook of the business. ~1.5% dividend rate, which isn't high - can also be a risky dividend with cyclical business. Would not recommend investing for the long term.
Premium contentOur PAST TOP PICK with MX has triggered its stop at $64. To remain disciplined, we recommend covering the position at this time. Combined with our previous recommendations, this will result in a net investment gain of 3%.
MX has been hit hard with economic and tariff concerns, and now trades at only 8X earnings, with a 2.05% dividend. It is somewhat leveraged, but consensus still calls for earnings growth in the next two years. We think it has good bounce potential over the next few years. We would be OK slowly accumulating this. We would see no rush, and it is going to take a better market for it to perform, but we do think this happens over time.
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Doesn't use physical stop losses because traders can head-fake the retail investors, push them out of a stock, and then swoop in. Instead, he uses a "mental stop loss" and it's always based on support. For high-beta stocks, you have to give it a bit more room because things can whip around.
He bought this a few days ago, as it was pretty washed out. Bouncing off the old support of 2022. His mental stop is just below $45 or so. Hold as long as it goes up, get rid if it fails.
(A Top Pick March 27/17. Up 26%.) The key with this company is that they have such a dominant global market share, they can actually influence methanol prices. You have a situation now where natural gas is the feedstock and you have low feedstock prices and a surging global demand. The situation is starting to look really, really quite good. They continue to buy back stock, and the earnings level is really, really spectacular. When methanol prices rise they make a ton of money, buy back stock, and have more leverage on their per share earnings. Has had a really, really good run in the last 2 weeks. If his theme and some sort of resource shift happens, this is going to have a good year. He would stick with this.