Methanex: an unlikely commodity stock that doubled in value this year

Most analysts still rate it a Buy

Methanex plant in Trinidad (Courtesy Methanex)

Methanex plant in Trinidad (Courtesy Methanex)

With the Canadian materials sector down 28.6% year-to-date and most energy stocks still in the doldrums, no one would blame you for throwing your commodity stocks to the curb. There is one operation, though, that’s trending in the opposite direction. Vancouver’s Methanex Corp. boasts a 100% year-to-date return. It’s the second-best-performing stock on the S&P/TSX composite index, and nearly 60% of analysts still think it’s a Buy.

The company is the world’s largest producer of methanol, a chemical that’s used in plastics, plywood manufacturing and windshield washer fluid. Methanol’s price has risen 20% since January, largely due to sales in China, where it is used as a gasoline additive, says Nessim Mansoor, a portfolio manager with Empire Life.

At the same time, the price of its main feedstock, natural gas, has remained very low in North America. So Methanex is moving two Chilean plants to Louisiana. Once operational in 2014 and 2016, those plants will raise output by three million tonnes a year, says Raymond James analyst Steven Hansen.

After the $1-billion project is complete, free cash flow should surge, Mansoor says—to $387 million in 2015 from $130 million in 2014. As a result, Hansen expects the stock will continue to climb. It’s currently trading at $63.90, but he thinks it could hit $71 over the next 12 months. “It’s had a good run,” he says, “but there’s a lot more still to come.”