If you are considering buying a few stocks with a spare $5,000 and forgetting about your investments for a while, it makes sense to look at companies with excellent long-term prospects, even if they face some near-term uncertainty.
That’s the case with chemicals company Celanese (CE -3.70%), specialty chemicals distributor Univar Solutions (UNVR 4.48%), and copper miner Freeport-McMoRan (FCX -2.58%). Admittedly, they are not the best-known of businesses, but that shouldn’t dissuade investors from considering three companies with exciting futures.
As the name suggests, Celanese’s polymers are supplied to manufacturers that use them to manufacture products across various industries — from food & beverage to building products, consumer products, and industrial adhesives.
As such, demand for Celanese’s products is highly exposed to the economy. Moreover, given that production and demand tend to be tight, any dropoff in demand can cause a slump in the price, and vice versa.
Indeed, chemical prices did slump over the summer as the market priced in slower growth, and they could fall further in 2023 — the near-term risk I alluded to earlier. Therefore, the market isn’t being irrational when it gives Celanese a price-to-earnings ratio of less than 7 times its estimated 2022 earnings.
While the company’s revenue and earnings will fluctuate through the cycle, management is driving long-term margin expansion by investing in low-cost plants, rationalizing less productive facilities, and generating growth through the integration of DuPont‘s mobility and materials business.
These investments should pay off over time and long after investors have forgotten about cyclical weakness in chemicals prices through 2022. It’s also good know that Warren Buffett’s Berkshire Hathaway has been been buying the stock in 2022.
2. Univar Solutions
Sticking with the chemicals theme, Univar is a distributor of specialty chemicals that has been fundamentally restructured in recent years. The company divested non-core businesses and made strategic acquisitions, such as the 2019 purchase of Nexeo Solutions, which reduced its exposure to servicing the energy and agriculture industries from 26% of revenue in 2024 to just 7% today.
Univar is now focused on servicing industrial and consumer customers with specialty chemicals and ingredients. This transformation has resulted in a significant ramp-up of earnings before interest, taxation, depreciation, and amortization (EBITDA) margin over the last few years.
These various steps have been a success. Management is now aiming for adjusted EBITDA margins above 9% and adjusted EPS of more than $4.50 through 2025. Moreover, management believes it will generate $1.5 billion in free cash flow from 2023 to 2025, a figure that represents approximately 31% of its current market capitalization and should allow for debt reduction from its current net debt position of around $2 billion while making substantive share repurchases.
Univar is a company transformed and on track to generate significant value for investors.
This copper miner’s results fluctuate — as you would expect — with the price of copper, so don’t go near the stock unless you are confident of price appreciation for the industrial metal. Still, it’s a robust case driven by increased marginal demand for copper used in electric vehicles, renewable energy, industrial automation, and the general trend toward electrification. At the same time, supply may be constrained due to increasing environmental concerns, political instability, and the difficulty of acquiring mining permits.
Indeed, the latter is believed to be behind the flurry of takeover activity in the sector in 2022. If the copper bulls are correct, Freeport stands well-placed to deliver significant returns for investors, not in the least because it has key expansion projects in more politically stable countries like the U.S. and Indonesia.
However, just as with Celanese and Univar Solutions, there is the risk that a slowdown in the economy in 2023 will hit the company — in this case, with a decline in the price of copper. While that uncertainty is evident, the long-term case for copper remains in place.
All told, all three of these stocks could appreciate substantially over the next decade, and $5,000 invested now and forgotten about for a while could result in excellent returns if the global economy returns to its historical growth rate trends.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.