Shin-Etsu Chemical Leveraging Its Excellence Through The Pandemic

Regular readers of my articles know that I’m not a “valuation doesn’t matter” sort of investor, but for every rule, there are exceptions, and Japan’s Shin-Etsu Chemical (OTCPK:SHECY) is one where I’m often tempted to relax my approach to valuation. Not only does Shin-Etsu have a strong track record where operational factors are concerned (margins, returns on capital, etc.), the shares have comfortably beat its sector peers and come close to beating the S&P 500 over the past 15 years, while handily beating the index over the last 20 years. What’s more, this is a company that continually reinvests in itself; it’s never the first to pursue the hot new thing, but it generally ends up being one of the best operators where it chooses to compete.

The PVC market is starting to look quite a bit stronger, and that should help offset some potential turbulence in the semiconductor silicon business. Longer term, I think Shin-Etsu will continue to grow revenue at around 3% to 4%, with healthy double-digit FCF margins driving mid-single-digit FCF growth. Shin-Etsu shares aren’t inarguably cheap here, but it’s a borderline “buy” call and definitely one to watch as meaningful pullbacks do occur from time to time.

 

Click here to continue: 

Shin-Etsu Chemical Leveraging Its Excellence Through The Pandemic