Methanex Corp (MX.TO)

Biggest methanol producer globally. The feedstock for methanol is natural gas, which is at a very low price. Stock went down in the spring because of an Egyptian plant that they have to relocate. Yield of 1.59%.

Methanol prices have fallen. This company had some long-term contracts for natural gas when prices were low and methanol prices where high. Gas prices are starting to creep up and methanol prices are starting to fall, which means the spread has come in. The question is what is going to happen next? You have to ask if the dividend is going to be sustainable going forward.

Had such a tremendous run in the last couple of years. It got way ahead of itself.

Had a very strong run through 2013 on the back of very strong methanol prices which increased dramatically through that period of time. China, rather than importing the higher priced methanol, decided to manufacture more of their own because of cheaper coal prices. Thinks this will bottom out here and feels the outlook for the company is still reasonable. Growth in free cash flow looks pretty tremendous, growing from about $4 to almost $9 in 2016.

Has not been buying this out of fear of an oversupply of methanol globally. Had a pretty decent cost advantage in natural gas, being in Alberta and some of that has given up a little bit. There are a couple of years of potential of oversupply. Company is very well run and very well respected.

This was a huge performer last year. Fundamentals are very reasonable and they are benefiting from low natural gas prices. Smart management. Just recently raised the dividend. Thinks wonderful things can happen as they expand methanol production in North America. Methanol production will grow 3%-5% a year. There are catalysts that are possible, such as stock buyback, dividend going higher and unlocking some of the plants once they get started in North America.

Some of these chemical companies have seen higher feedstock costs. As natural gas has risen this company falls in that category. Very good company, but going to be very cyclical so you have to sit back and take on the volatility for the longer-term growth and the growth and the dividend over time. Roughly 10X next year’s earnings. Earnings and cash flow growth are in the mid-teen range so it is still worth considering. This would be for a 5-10 year time horizon.

You get paid to own equities at this point. Likes chemicals within the industrials sector. He likes this one. North American producers of chemicals benefit from lower Nat Gas prices. You don’t want to see it lower than $60. Prefers LYB-N, however.

There has been profit taking. It’s an upward chart. Looks like it is consolidating gains. There is a potential sensitivity in that their main input cost is Natural Gas. You have to watch it.

Has had quite a run. There were periods of consolidation in 2011 and 2012 followed by a breakout. Early 2013 was where you would want to buy these things. It is still going up; however he is worried about natural gas prices cutting into the company’s profits. Use a semi-long scale and draw a trend line and as long as it stays above the trend line, you are fine as it could work higher.

The main input for methanol is natural gas, which is in ample supply globally. The main use for methanol is industrial chemicals. Demand for industrial chemicals is driven in part by the auto industry, for plastics, etc. Perfect conditions for them, high demand and low input costs. P/E for this company is not outrageous. He sees continued demand for industrial chemicals. Thinks this can stay in the sweet spot for another couple of years. 1.1% yield and he thinks there is now room for a dividend increase and a share buyback.

Broke out. He is a value investor so he is not good at breakouts. If it comes back into the range, that is bad news.

Very, very nice chart. He likes to use moving averages a lot, especially 100 day, for deciding whether to get in or get out. Chart shows a very steady rally with consolidation starting in November. It hit a peak and broke out of consolidation very recently on very large volume. This is a very positive sign. Selling off a little bit, but that is quite natural in this market. It could go back down to about $64.50. Wait for it to start going back up. On this one you could use the 50 day moving average as your new exit point.

A 100% pure play on methanol. They were smart enough to move plants from Chile over to the US. One plant is going to be in service by the end of next year and another in 2016. Input costs are cheap and they have already secured the supply. Methanol is a pure play on the economy as it goes into everything. As the economy improves, demand will increase. Supply of methanol is limited right now and is very, very tight. Up 103% over the last year and he feels that, in some respects, it is just getting started.

The backdrop for this company is positive. Stock has run like crazy. Long-term, she feels it is still a good story, but short-term it has run a lot and there have been a whole bunch of analysts that have downgraded it. It went into the MSCI index, which created a lot of buying, which is now coming off. There is no real catalysts short term. Moving their methanol plants from South America to North America in order to gain security of energy, so this is long-term.