# Methanex (MX.TO)



## dubmac (Jan 9, 2011)

I've been following Methanex for a while - debating whether to include this dividend growth candidate into my TFSA. Given the Cdn dollar will likely decline modestly in the next 6 months, and the demand for methanol seems to be softening (is it?), I'm wondering whether this is a good entry point for a long term buy - not for flipping. what would you look for to evaluate MX?


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## treva84 (Dec 9, 2014)

dubmac said:


> I've been following Methanex for a while - debating whether to include this dividend growth candidate into my TFSA. Given the Cdn dollar will likely decline modestly in the next 6 months, and the demand for methanol seems to be softening (is it?), I'm wondering whether this is a good entry point for a long term buy - not for flipping. what would you look for to evaluate MX?


As MX is a commodities company (methanol) it will forever be subject to the boom / bust of the commodities cycle. Currently I'd say we are in a bust, so initiating a long term position would be reasonable. If you buy and hold, you will be subject to further boom/bust cycles. Today's share prices are around the price of when MX started climbing of the last bust in 2012. Meaning you could have purchased at the start of the boom in 2012 and held to today, and you would have 0 capital appreciation.

Also, what is it about MX that stops it's customers from buying Methanol from other producers? With commodities, prices are what attract customers - if someone runs a leaner operation and can undercut MX's operation they will lose out on their sales. What then gives MX a durable competative advantage to stop this from happening? Is it scale of operation? (I do not know, I haven't looked into it).

The dividend, on the other hand, has been growing since 2010 and the yield is 3.8%. Cash flow looks good so I don't think they will be cutting the dividend, although it has been cut in the past with other downturns. 

I think if you can stomach the volatility of a commodities company and you are looking for yield more than capital appreciation I would consider buying MX. If you're looking for total return, or can't get any indication what their competative advantage is, I would personally stay away.


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## hollyhunter (Mar 10, 2016)

MX.TO has an ongoing P/E of 11.67, which indicates that it is highly undervalued. Technical analysis seems to put it in a nice base. Six months target: 50.53


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## Steve Divi (Jul 14, 2016)

MX.To Is one I have previously owned and I still think it's a good stock. You just have to be prepared for the large swings in supply and demand. If it fell into the high $20's I might pick some up. Their Payout Ratio is nice and I could see some more dividend increases in the future.


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## AltaRed (Jun 8, 2009)

Digging up an old thread for Doctrine to respond too, since he seems to look for and invest in certain value dogs at the right time. MX is having a hard time given it has not been able to get much feed stock for its non-North American plants, and may ultimately never get much throughput through them (possible write offs in the future). The stock has been beat up because of that AND more recently due to reduced demand by its largest customer, China. At the same time, it looks like it is re-inventing itself with FID on a new plant on the Gulf Coast.

My questions: Are you looking at it? If so, do you see a chance this thing plummets to $25-30 depending on the damage done in China due to coronavirus? Valuation metrics still look high, e.g. P/B, etc.

I am not an investor in commodities but I might be convinced...just like I might be convinced on XEG if it falls into the $7 range.


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## doctrine (Sep 30, 2011)

It seems like I look at MX every 3-6 months and it has always been so expensive that I didn't dwell on it. I am definitely on the lookout for China/coronavirus value plays though. Maybe this is one.

There may be some value here. MX had $6.92 in EPS in 2018, which went down to $1.01 in 2019. I suppose the future of the stock wholly depends on the futures of methanol. I guess I'm not sure, but I would certainly rather be in at $44 than the 2018 high of $105+. 

I like that they're profitable and growing production. I'm just not sure of the outlook. So undecided, but I think its certainly attractive, not that far above 2016 year lows but still profitable.

I also don't really like commodities long term as well, but I am very interested in trading them on shorter term time horizons and investing the profits in the steady-eddies. Maybe this is one. Wish I knew a little more about the market for methanol.


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## AltaRed (Jun 8, 2009)

Wait and see is probably the best on a lot of possible coronavirus ops. We don't yet know whether we are mostly done with the infection rate in China or whether we are only in the 3rd inning. China apparently has about a 16% impact on world trade, up from about 4% during SARS. So if China is on lock down for a whole quarter or more, there will be a major domino effect everywhere. Stock markets will see a severe bear in the 2Q20.

Added: Just read this on CNN https://www.cnn.com/2020/02/09/business/china-coronavirus-global-auto-industry-impact/index.html Logical that the domino effect will/could show up in auto assembly plants first.


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## gardner (Feb 13, 2014)

At the present price their dividend yield is above 4% but the payout ratio to earnings is 127%. They will have to start earning more or lower the dividend. It does not feel like a strong contender for dividend growth at the moment.


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## AltaRed (Jun 8, 2009)

gardner said:


> At the present price their dividend yield is above 4% but the payout ratio to earnings is 127%. They will have to start earning more or lower the dividend. It does not feel like a strong contender for dividend growth at the moment.


With few exceptions, commodities are not where one looks for dividend growth because both earnings and cash flow can move like a roller coaster. They are a 'trade' and that is all I would be looking for here if I put my toes in the water. But I need a lot lower price, e.g. $25-30, to step in here for an ultimate 1.5-2 bagger trade.


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## dubmac (Jan 9, 2011)

I posted this OP in June 2016. I wish I would have bought it! (hindsights always 20/20). It went from 36ish to 105 (a 3 bagger) in 3 yrs. Of course, since then it has tanked back to 40's. so...likely not a good long term buy - better one to flip after it doubles.


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## AltaRed (Jun 8, 2009)

Commodities are for cast iron stomachs and a tolerance for motion sickness. Easy to see in hindsight. Not so easy looking into a black abyss.


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## hboy54 (Sep 16, 2016)

MX has been a long term hold here. First purchased around $8 about 2 decades ago, same dollars added to buy more at $4 within the initial year or so. Eventually got as low as $2.

It has always been volatile, but has managed long term CAGR of 14 or 16% depending upon where about 20 years ago you want to cherry pick your start point. Paid a growing dividend for about a decade, and over the 2 decades, the share count has been reduced from just under 200 million to somewhere around 80 or 90 million today. Finally, it invests in new capital projects. The golden trifecta of a long term holding IMHO. If investors looked at MX the business instead if MX the share price chart, I think they would find it is on par with a company much loved like CN for example.

What it won't give you is the certainty that if you buy today, it won't be a half or a third some time soon. I have no problem with this, I just buy lowish when the holding becomes lowish as a percentage of my portfolio, and sell highish when it becomes highish as a percentage of my portfolio. End result, started 20 years ago with X shares at $8, today have about 8X at $45.

Most recent activity from most recent, from memory is something like buy at $45, donate at $90, sell at low $60 buy high $30s ... all kinds of scope for being luckier but at the end of the day all one can do is take a reasonable shot.

Is $45 today a reasonable shot? Not for me, it is high single digit percentage of my portfolio. If it gets to $25 like AltaRed is wanting and waiting to see? All thigs equal, I'd likely increase the share count 25% or so.


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## agent99 (Sep 11, 2013)

I have owned MX for quite a while. Sold 1/2 when it first doubled. Then sold 1/2 of remainder when that doubled. Still have a fair amount but seeing it cost me nothing, I just collect the smallish dividend. Good company in a cyclical business. In China, they had plans on using Methanol to produce automotive fuel. Don't know what came of that.


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## doctrine (Sep 30, 2011)

MX has been a pretty good hold for me, I bought at $25 back in July as part of my cyclical commodity strategy and now up about 60%. Ahead of just about everything I have except Teck. My short term target is $50 but realistically in a post-vaccine world it could get back even higher given the potential for supply shortages.


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## Ponderling (Mar 1, 2013)

Nice to see it on an upward trajectory recently.


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## doctrine (Sep 30, 2011)

Very nice. It met my target and so I have sold for a ~100% gain since July.


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## Ponderling (Mar 1, 2013)

got close enough to 1yr target by analysts, so sold today.


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## 55andout (Apr 6, 2011)

Questions for doctrine and Ponderling. I'm currently sitting on MX shares that are up a little over 140% and I have been debating with selling out or keeping some. So my question to you is why you both fully sold out? Do you believe this stock will be declining soon? Why not set a stop price and let it keep going? I guess if I had a good alternate investment for the proceeds then I wouldn't be asking these questions. I'm just looking for other peoples ideas on how and when to sell stocks, this seems to be something I'm struggling with.


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## doctrine (Sep 30, 2011)

In MX at $25, I saw an easy 100%+ upside and my plan was always to sell them when they are more fairly valued and move back into some of my staple utilities and others, like FTS for example, which is still down 10% from Feb where MX has now recovered to late 2019 levels. So MX is pretty fairly valued here, even in a stronger market. I still have some other cyclicals but I will probably keep trimming over the next 6-9 months as they also hit their targets. 

MX could still go up I suppose, I just am not as sure at this price and MX has always been a pretty expensive stock and at a P/B of 2.6 right now. MX could easily drop 30-50% in a matter of months like it did this year but also in 2016 and 2018 and 2019 as well. Good company though, probably close to turning a profit again soon. A drop to $30-35 might be a second buying opportunity, who knows.


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## Ponderling (Mar 1, 2013)

I am not opposed to getting in again if the price drops, as this can be cyclical. I just think I can find safer returns in other things still recovering, and maybe visit mx when I hopefully have a shopping cart of cash from these initiatives at some point in the future.


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