Ultrapar Holdings (UGP): 115 Reasons to Buy the Dip

Some of the best opportunities arise from market wide pullbacks like the one we’re experiencing now. Buying the dip is something you hear often — and it’s simple in practice, but tough to actually pull off.

Ideally, you want to find a stock that has seen greater losses than the wider market — but one that has solid fundamentals and still has a solid growth trajectory. A lot of those stocks receive little publicity — thankfully, this gives us a bit of time before everyone else catches one.

Ultrapar Holdings (NYSE: UGP) is one of those stocks. This is one of Brazil’s largest conglomerates, and a major liquid natural gas (LNG) player. Right now, it’s sitting at a market cap of $4.04 billion — and it’s managed to stay in business all the way back from 1937.

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Here’s exactly why it’s a Strong Buy right now. 

First, at WallStreetZen, we use a quant rating system that uses 115 unique factors to evaluate stocks. The top 5% of equities are given a Zen Rating of A — and those stocks have a fantastic track record, as they’ve provided an average annual return of 32.52% since the early 2000s. Right now, UGP is in the top 1% of stocks — in fact, it ranks 33rd out of a total of roughly 4,600 equities.

Each Zen Rating is a composite score, made up of 7 Component Grade ratings. Taking a look at those can clue us in on what it is that makes Ultrapar Holdings rank so highly.

For one, the company’s revenues are forecast to grow at a rate of 87.35% per year — while analysts are expecting earnings to grow by 89.38% per year. That’s pretty exceptional — and based on that, plus 20 additional factors taken into account by our model, UGP ranks in the top 16% of stocks in terms of the Growth Component Grade rating.

What makes this one so exceptional, however, is that it has extremely strong ratings across the board. With a 38.78% rally since the start of the year, Ultrapar shares are also in the 88th percentile for Momentum — in other words, equivalent to or better than 88% of stocks, or in the top 12%.

Our Safety Component Grade rating, for example, takes into account revenue inflow consistency, earnings stability, and how predictable earnings are. Here, UGP is in the top 18%.

However, the single biggest advantage it has is its valuation. Remember how we talked about buying the dip? UGP delivered an earnings beat a month ago — the second in a row. Since then, however, the stock’s price has dropped by 8.58%. 

Right now, it’s trading at a P/E of 10.11x — and a PEG ratio of just 0.11x, signalling that it is severely undervalued. In terms of the Value rating, Ultrapar is in the top 1%.

We track 145 stock market industries — and they’re also given ratings. At the moment, Oil & Gas Refining & Marketing is the 7th highest-rated industry, giving it an Industry Rating of A. There are 21 stocks within the industry — and UPG is the top-rated one, so it stacks up quite favorably against rivals & peers.

I’m not going to bore you by going into granular detail on every single Component Grade rating here — I suggest you check them out for yourselves. However, I do feel as if I should mention that in Financials, the stock’s weakest area by far, it still ranks in the respectable 66th percentile.

Well, maybe a tiny bit more about those Component Grade ratings, eh? Our Artificial Intelligence rating uses a neural network trained on two decades of market data to identify likely outperformers. Here, UPG ranks in the top 11%. Basically, it’s an incredibly well-rounded package — one without any glaring flaws.

Point being — the fundamentals are there. The dip is in. This is a classic case of an underappreciated stock — but I wouldn’t drag my feet on this one. It isn’t exactly a small, low-profile company — and it’s only a matter of time before people get wise to the fact that they can get a stake in a proven giant at a steep discount.

—> Click here to research UGP

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