Germany being a Euro zone member means that BASF is bound to benefit from a strong dollar. The mega cap chemicals manufacturer seems to offer the best buying opportunity compared to its U.S. rivals in terms of outlook. However, the company’s low margins compared to its rivals explain why the stock continues to tumble in the market.
Performance and valuation
BASF’s most recent quarter revenues grew by 5%, compared to Mosaic’s 2% while Potash reported the biggest growth rate of 19%. In terms of gross margins, the company trails its U.S rivals with 26%, compared to Mosaic’s 28% and Potash’s 46%.
Potash’s operating margins are the best among the trio at 40%, while Mosaic’s stand at 23%. BASF, on the other hand, has an operating margin of 12%. However, BASF’s EPS of $6.51 trumps Potash’s $2.44 and Mosaic’s $4.47.
Potash seems to be the most expensive stock amongst its rivals with a price to earnings ratio of 15.65 times. However, this could also indicate that investors are willing to pay a huge premium on the stock compared to Mosaic, which trades at 12.01 times earnings, and BASF at 13.36 times earnings.
The bottom line
Potash is down 7.58% year-to-date, or YTD, while BASF despite being up more than 25% from 12 months ago, is down 8.34% already this year. Mosaic on the other hand is down 6.61% YTD. BASF may seem to have a better outlook going forward, with its plan to intensify its focus on emerging markets, but its fundamentals are wanting.
On the other hand, the two U.S companies will have to rely on the performance of the dollar and the recovery of their major markets. The companies have fluctuated too much over this year, which makes them very speculative, and hence, dangerous.
Nicholas Kitonyi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article You Don’t Want to Buy These Stocks originally appeared on Fool.com and is written by Nicholas Kitonyi.
Nicholas is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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