| The basic material sector has done fairly well over | | | | year. Some investors may claim that all |
| the recent bull market. Industries such as oil, gold, | | | | companies do have a bad year every so often, |
| and mining are all trading near the respective | | | | but looking at five year sales growth figures for |
| 52-week highs, but still many of these companies | | | | Praxair (10.04%) versus Air Products and |
| are undervalued. One industry in specific, chemical | | | | Chemicals (8.60%) and five year EPS growth |
| manufacturing, has a cornucopia of equities which | | | | figures of 17.83% versus 9.15% respectively, |
| would be a great asset to any portfolio. With | | | | Praxair absolutely has the upper hand in this |
| large-cap holdings such as BASF AG, Monsanto, | | | | rivalry and the industry as well in terms of EPS |
| and Air Products and Chemicals, investors may | | | | growth. What should also help investors is that |
| have a hard time trying to find the company that | | | | capital spending for Praxair at 13.08% (above the |
| will yield the highest gain. However, one company | | | | industry average at 10.25%) is also above the |
| in particular, Praxair Inc (PX) has a great strategic | | | | sales growth rate which means a lot of money is |
| plan and fundamental background to provide | | | | being reinvested into the company for further |
| investors a great opportunity to improve these | | | | economics of scale. Already growing quite nicely, |
| individual's portfolios. | | | | such capital switching will lead to more cost-cutting |
| Before looking at the numbers, it is important to | | | | ventures and an overall higher EPS. |
| first examine what the company actually does. | | | | Now while the numbers from the balance and |
| According Reuters, Praxair, "is an industrial gases | | | | incomes sheets look excellent, how do these |
| supplier in North and South America, Asia, and has | | | | numbers transcend into share price value? It is |
| businesses in Europe." The company focuses on | | | | evident that Praxair is growing, but could this |
| two types of specific products attributed to, | | | | stock be undervalued as well? According to Capital |
| "atmospheric gases (oxygen, nitrogen, argon, rare | | | | IQ, Praxair is currently trading 17.55 times |
| gases) and process gases (carbon dioxide, helium, | | | | projected earnings. This number is below the |
| hydrogen, electronic gases, specialty gases, | | | | industry average and the company's trailing |
| acetylene)." Probably what is most interesting | | | | multiple as well. This number is also quite low |
| about this company is, "Praxair serves | | | | when compared to competitor Monsanto, which is |
| approximately 25 industries, including healthcare | | | | trading over 30 times expected earnings. |
| and petroleum refining; computer-chip | | | | However, compared to other rivals such as Air |
| manufacturing and beverage carbonation; fiber | | | | Products and Chemicals and BASF AG, Praxair's |
| optics and steel making, and aerospace, chemicals | | | | aforementioned ratio is only average. In addition, |
| and water treatment." With such a variety of | | | | the company's price to sales (2.56), enterprise |
| products, geography, and consumers, investors | | | | value to revenue (3.00), and enterprise value to |
| should realize that this company hedges its | | | | EBITDA (10.967) are also slightly above rival |
| business--calling for solid growth overall. For | | | | performances. While it is true that considering |
| example, currently most nations and most | | | | future performance, Praxair should see a price to |
| industries are performing quite well compared to | | | | sales ratio of 2.44 and an enterprise value to |
| many other years. As a result, because of this | | | | revenue of 2.78 for fiscal year 2007, companies |
| bullish market, analysts are predicting average long | | | | like Air Products and Chemicals will see similar |
| term growth for this company at 11.40%. Of | | | | drops if analyst predictions withhold. So |
| course companies surprise Wall Street all the time, | | | | unfortunately, there is not much evidence to |
| but since 2000, only one year has Praxair failed to | | | | support the notion that Praxair is undervalued. |
| show a year-to-year share price increase, and | | | | Nevertheless, there is still more good news |
| that was only a 15% drop in 2000 to 2001: the | | | | relative to bad news when considering Praxair. |
| year the recession began. Therefore, as long as | | | | The company has, according to Reuters, an ROE |
| no severe aberration occurs with respect to | | | | (23.93%), ROA (9.37%), and ROI (11.65%) which |
| Praxair, investors should feel optimistic on how | | | | are all significantly above industry performance |
| Praxair and its hedged strategy will perform in | | | | and also above this corporation's five year |
| both the short and long term. | | | | average. These numbers also are above each of |
| While the provided information is enticing to begin | | | | the three aforementioned competitors named in |
| purchasing shares, some investors may soon | | | | previous sections, which mean CEO Stephen F. |
| realize that all companies in this industry have | | | | Angel, his board members, and his near 28,000 |
| similar business plans and share price appreciation. | | | | employees are doing a great job with the shares |
| While this empirical judgment is true to an extent, | | | | bought by retail and institutional buyers. Praxair |
| what separates Praxair from its competitors is its | | | | also is fairly solvent with a current ratio of 1.19 |
| fundamentals. And fundamental analysis always | | | | and less total debt than equity at a ratio of 0.84 |
| begins with revenue figures. Last fiscal year, | | | | as of its most recent quarter. The company also |
| Praxair reported a revenue number of $8.47 billion | | | | supports a dividend yield of 1.76%, a number |
| according to Capital IQ. This number translated to, | | | | above industries standards and expected to |
| according to Reuters, gross margins at 40.48%, | | | | further grow as the company has a five year |
| operating margins at 18.53%, and net profit | | | | growth rate of 24.08% for this figure. Overall, |
| margins at 12.37%. These figures were above the | | | | while the company is not completely undervalued |
| company's five year average and also above the | | | | relative to the industry, its basic fundamentals, |
| industry's respective three numbers as well. What | | | | business strategy, and intangibles are excellent. |
| is even better about this information is that | | | | It is true that the company is currently trading |
| Praxair's fiercest competitor Air Products and | | | | above both its 50 and 200 day SMA, but growth |
| Chemicals, which reported an annual revenue only | | | | means higher EPS figures, lower multiples, and still |
| slightly above Praxair at $9.51 billion, only saw | | | | great opportunities for investors to make capital. |
| gross margins at 26.28%, operating margins at | | | | The basic material sector has a great run in 2007, |
| 12.43%, and net profit margins at 9.01%. Not only | | | | and since economic news has not been |
| are these figures significantly below Praxair's | | | | foreshadowing an imminent recession, there is |
| numbers as well as the industry averages, but | | | | great potential for many of these companies, |
| gross margins for Air Products and Chemicals are | | | | including Praxair, which should be a great asset to |
| actually below the five year average for the past | | | | any investor's portfolio. |