Basic-materials companies with operations engaged in commodities provide the resources needed to build and maintain our society. Since these materials go into everything from homes to automobiles, the underlying stocks are tied to the health of the global economy — for better or for worse.
It probably goes without saying that over the past five years, companies in the basic materials industry have seen extremely volatile financial results as the global economy churned through the financial crisis.
One stock that gets high marks from much of the investing community is Air Products & Chemicals, Inc. (NYSE:APD) for its reliable business results and tremendous record of dividend increases. It hasn’t rallied to the extent of the broader market over the past few years. As a result, is the stock a buy?
Breathe easier with Air Products
Many companies engaged in basic materials are under pressure, as a result of continued sluggish global demand. For example, aluminum giant and Dow Jones Industrial Average component Alcoa Inc (NYSE:AA) has had its share of struggles in the wake of the 2008 recession.
As the financial crisis set in, global demand for aluminum quickly dried up. Since Alcoa Inc (NYSE:AA) is tied so closely to the health of the global economy, the recession took a huge bite out of its business — a setback from which the company is still recovering.
2012 itself was a tough year for Alcoa Inc (NYSE:AA). Sales fell 5% year over year, although 2012 was a year of difficult comparisons from 2011’s better results.
Meanwhile, Air Products & Chemicals, Inc. (NYSE:APD) has performed admirably in the years since the Great Recession ensued. Air Products & Chemicals, Inc. (NYSE:APD)’ sales were flat in 2012 versus the prior year, but are up 22% since 2009.
Diluted earnings per common share clocked in at $5.44 in fiscal 2012, and the company has shown resilience to start 2013. Sales and diluted earnings per share are up 8% and 5.5%, respectively, through the first six months of the year.
Better than its competitors
Airgas, Inc (NYSE:ARG) competes with Air Products & Chemicals, Inc. (NYSE:APD) but hasn’t performed quite as well in digging itself out of the hole caused by the recession. Airgas, Inc (NYSE:ARG) recently released its annual report which showed that sales increased 4% year over year, with diluted earnings per share growing nearly 9%. Airgas’s cost cuts have helped profitability, but it’s worth noting the company’s sales are up only 13% since 2009.
Moreover, Airgas, Inc (NYSE:ARG) current valuation makes it less attractive than Air Products & Chemicals, Inc. (NYSE:APD). Airgas trades for 23 times trailing earnings, whereas Air Products exchanges hands for 17 times earnings. Air Products holds a valuation much more in-line with where the broader market trades. The S&P 500 Index also trades for roughly 17 times trailing earnings.