Many materials stocks are on a nice run here in 2016, with strong gains seen in many business segments. Yet, with possible Fed action coming, questions are
starting to appear regarding a variety of commodity plays.
This is especially true in the fertilizer and broad commodity markets, as this industry has a rank in the bottom 10% of all that we cover right now. In fact, not a single stock
in the group has a rank above hold, suggesting broad based weakness for this market. Today though, I wanted to take a quick look at one you need to avoid
in particular, Sociedad Quimica y Minera (SQM - Snapshot Report) , a Santiago, Chile-based giant that may
be poised for a drop soon.
Why SQM May Be in Trouble
SQM has been on a tear so far in 2016, as the stock has added close to 50% in the time frame. While the bulk of the gains came in February and March, SQM
is actually on a nice run over the past few weeks, and the stock is back at fresh 52 week highs.
This may turn out to be a great time for investors to sell though, as recent trends have actually been moving decidedly against the stock. In particular,
the fundamental picture is pretty poor for SQM, as the stock has a VGM score of F.
This includes some pretty poor grades for its value and growth component scores too. SQM actually has a grade of F for value, thanks to its PE of 25
which is higher than the industry average, and a P/S ratio that is double the industry average. Additionally, SQM has a grade of D for growth thanks to a
projected double digit percentage decline in current cash flow growth, and a ROE that is below the industry average.
But the weak fundamentals arent the only reasons to avoid SQM stock, as the company also has been seeing sluggish earnings estimates. In fact, the current
consensus is roughly 8.5% lower than it was 60 days ago, while we see a similar negative trend for the following year as well. And even worse for SQM is
that the most recent earnings estimates have been even lower, with the Most Accurate Estimate about 4.6% lower than the consensus.
While this is obviously poor news, it also doesnt help that SQM has a pretty bad track record of living up to earnings expectations. The company has
missed estimates in three of the last four quarters and its average miss in the past year is approaching 17%.
Clearly, SQM has seen trouble in past earnings seasons and estimates are also moving in the wrong direction. No wonder SQM has a Zacks Rank #5 (Strong
Sell) and why a turn back lower may be coming for the stock soon.
The sector SQM is in has an awful rank, so it might be best to look elsewhere for strong companies. One area to look at in the broader materials segment is
the silver mining space, as the industry rank here is in the top 10% overall.
A few strong names to take a look at here include (BVN - Snapshot Report) and (SSRI - Snapshot Report) . Both of these companies have Zacks Rank #1s (Strong Buys), while they were both recently
upgraded to this top echelon as well. So make sure to consider these names over SQM, at least until the Chilean company can improve its earnings picture
and its sluggish track record in earnings season.
More Stocks to Sell. Now.
Beyond our Bear Stock of the Day, today's list of 220 Zacks Rank #5 Strong Sells demand even more urgent attention. If any are lurking in your portfolio or
Watch List, they should be removed immediately. Many appear to be sound investments but, since 1988, such stocks have actually performed more than 11X
worse than the S&P 500.
See today's Zacks "Strong Sells" absolutely free >>.