Methanex Corp (MX.TO)

The real challenge is going to be the old highs. Going back to 2014, $80 was a point of resistance. From that time, it has been dropping, and testing under $80. Now there are stronger earnings, and it could break through its current high of about $78. If it breaks the 2014 high of $80, that would be extremely bullish.

This has had a significant climb. What would be the exit point? You don't need anything technical, you can use a non-technical decision. If a stock becomes something like 8% or 20% of your portfolio, you can piece it away. Technically, this got through $74, and the chart shows a nice upward trend line from mid-2016. He doesn't see any more resistance until it gets to around $77. All indicators are still pointing up and there is no reason to get off.

The methanol market is relatively tight at the moment. The valuation for this company is sort of in the middle, and it has done relatively well. He just can't figure out the valuation for this company. There is a whole methanol market coming up in China that sort of competes with this. It was too complicated for him to figure out.

(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.

They are doing a buyback. Has a strong balance sheet with 1.2X net debt to EBITDA. He models them growing earnings at 14%. Has a 31% payout ratio, so they can easily grow the dividend if they want. Trading at 13X PE. This is not bad, but he sees methanol prices staying pretty flat through 2018. This is a proxy on the global growth, so feels there is more life in this.

Take some profits or is there more room to run? The commodity is methanol and this is the leading producer. It is somewhat cyclical. The stock has done well. In a market pullback, concerns about economic growth, etc. the stock will likely pull back. She wouldn’t see any problems in taking some money off the table now.

It is a volatile stock. It could be said to have a head and shoulders pattern. It is a harder chart to read. There is no clearly defined trend. At this moment, the technical resistance it is at the last peak and it may get back down to the last support level. He would not play it because it is hard to decide where to buy and sell it.

He does not know the seasonality on this one but chemicals do well from October to January and February until May. Technically, there is mild encouragement. It is forming support and is in a trading range. It has been going sideways. If it moved above the trading range, you could get a nice move up.

(A Top Pick Sept 21/16. Up 67%.) Had a tremendous return, and he would continue to own it. The outlook for methanol is excellent, particularly for this company which is on a large expansion program for the next number of years. Their CapX is behind them and they can increase capacity by bringing back one of their Chilean plants on stream, at a very reasonable cost. Generating a tremendous free cash flow and are buying back a lot of stock.

The world’s largest producer of methanol, but it tends to track energy prices broadly. Feels there is excellent demand growth over the next number of years, which this company will participate in. They’ve done all of their greenfield expansion over the last number of years, so will be generating a lot of free cash flow in an environment where he expects methanol prices to be between $350 and $400 over the next 5 years. Dividend yield of 2.3%. (Analysts’ price target is $57.)

A business that generates cash. An activist is getting involved, and hopefully some good things can come for shareholders. It has had a pretty good run from $33 to about $70, pulling back from there. He really likes material companies in some areas. Prefers materials in the area of building and construction right now as he thinks there is going to be a lot of infrastructure build. This one is behaving well.

She does not like buying back shares. It is not a good use of capital. In the short run the stock will percolate on that. But it has had a huge run from the bottom. It is not cheap here. The commodity is not looking like it has topped. Use this opportunity to sell.

A 19.5% shareholder is calling for dividend increases and share buybacks. They spent about $3.5 billion on facilities over the last 3 years. They control the world market in terms of pricing. It is very solid. 10 times earnings. (Analysts’ target: $57.00).

This usually runs counter cyclical to oil and gas, but they are actually at a cyclical low. ROC is just barely positive, and the valuation looks a little rich.

An excellent company, but unfortunately like any commodity company, it is going to move around a lot with the commodity. Doesn’t see much upside, so wouldn’t add any money to this, and perhaps even take some off.