Ternium: 'Peter Lynch-style' steel play
This Latin American steel maker gets a top ranking on a Peter Lynch-based investing screen.
Our strategy is to select stocks based on the investing criteria of legendary investors. In this case, Ternium SA (TX) earns a 100% score based on our Peter Lynch methodology.
Ternium is a company in Latin America that makes steel products for the construction, home appliances, capital goods, container, food, energy and automotive industries. About 57% of sales were generated in North America and 41% in South and Central America.
Under this strategy, the investor should examine the price-to-earnings ratio (9.66) relative to the growth rate (29.91%), based on the average of the three and four year historical earnings per share growth rates, for a company.
This is a quick way of determining the fairness of the price. In this particular case, the price-to-earnings-to-growth ratio for TX (0.32) is very favorable. In addition, its price-to-earnings ratio of 9.66 is considered acceptable.
When inventories increase faster than sales, it is a red flag. However, an increase of up to 5% is considered bearable if all other ratios appear attractive. Since inventory-to-sales has decreased from last year by -0.77%, TX passes this test.
This methodology also favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years.
This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The earnings per share growth rate for TX is 29.9%, based on the average of the three and four year historical earnings per share growth rates, which is acceptable.
A bonus for a company in the Lynch strategy is having a net cash-to-price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt.
According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The net cash-to-price ratio for TX (39.92%) is high enough to add to the attractiveness of this company.
Copyright © 2014 Microsoft. All rights reserved.
4 analysts downgrade the stock the day after a disappointing quarterly report.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.