RF Industries, Ltd. (RFIL), Sociedad Quimica y Minera (ADR) (SQM): The Only 2 Income Stocks That Might Pass the Peter Lynch 10-Bagger Test

Potash is used to make fertilizer, and fertilizer accounts for more than 40% of Sociedad Quimica y Minera (ADR) (NYSE:SQM)’s revenue. The company is also a leading producer of iodine and lithium, chemicals that are used in a variety of applications. This business should not be affected by events in the potash market.

Sociedad Quimica y Minera (ADR) (NYSE:SQM) has a P/E ratio of 11.6 based on earnings over the past 12 months and is trading at about 15 times next year’s estimated earnings. Estimates might be cut in the next few months as analysts revise their models to account for the drop in potash prices, but estimates may already reflect lower potash prices. In the past three months, the consensus estimate for 2014 has dropped to $1.88 from $2.81.

In the past seven years, Sociedad Quimica y Minera (ADR) (NYSE:SQM) has grown revenue at an average of 15.3% a year, and EPS growth has averaged 26.4%. Growth is expected to slow in the future, but investors should be able to count on income from dividends.

Based in Chile, Sociedad Quimica y Minera (ADR) (NYSE:SQM) is required to pay at least 30% of its net income to shareholders as a dividend. Like other foreign companies, the dividend payment will vary with earnings.

Recommended Trade Setup:

— Buy Sociedad Quimica y Minera (ADR) (NYSE:SQM) up to $30
— Set stop-loss at $25.30, the downside target based on a weekly double-top pattern
— Set initial price target at $43.60 — the 38.2% retracement of the recent decline — for a potential 45% gain in 6-12 months

Like RFIL, additional gains are possible in the long term.

Both of these companies have delivered fast growth in the past and currently have strong financials. They could be 10-baggers in the future.

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