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Chemical companies are integrally linked to oil; what is bullish for oil is usually bullish for chemical prices and companies. With the recent Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) bullish calls on oil and other commodities, chemical companies are likely to bounce. They made a start at that on May 25. Some should also benefit from their agricultural products, which got a big lift from the USDA’s World Crop Report on May 11. Chemical companies have been one of the strongest areas in the market this year, and many believe they will continue to be strong as the economy recovers. We could be entering a “weak spot in the economy,” but there is still every reason to believe this oversold, strong industry group will rebound.

The table below has some of the fundamental data about each of the following companies: E.I. du Pont de Nemours and Company (NYSE:DD), Eastman Chemical Co. (NYSE:EMN), Cabot Corporation (NYSE:CBT), FMC Corporation (NYSE:FMC), Olin Corp. (NYSE:OLN), Huntsman Corporation (NYSE:HUN), and DOW Chemical Corporation (NYSE:DOW). All of these have had insider selling and institutional selling over the last six months. It seems to be roughly in the same percentages with some variation, which seems more indicative of the stocks being sold off as a group than of anything else. With the bullish call on oil and other commodities by GS and MS on May 24, this selling is likely over for the near term. The fundamental data for these stocks in the table below come from Yahoo Finance and TDameritrade.

Stock

DD

EMN

CBT

FMC

OLN

HUN

DOW

Price

$52.16

$102.81

$40.97

$82.95

$23.03

$18.76

$36.19

1yr Analysts Price Target

$63.10

$114.90

$51.80

$95.63

$30.29

$23.92

$46.95

PE

14.58

13.59

13.01

32.06

10.04

17.05

19.55

FPE

11.96

10.34

11.16

12.64

9.76

8.77

9.83

Avg. Analyst Opinion

1.9

2.1

2.3

1.6

1.7

2.3

2.4

P/B

4.5

3.91

1.85

4.68

1.87

2.27

2.19

P/CF

10.08

9.1

7.38

16.03

6.51

6.94

8.33

5yr, EPS Growth Estimate per annum

10.07%

8.50%

15.00%

10.60%

40.00%

7.00%

7.00%

Market Cap

$48.44B

$7.30B

$2.69B

$5.95B

$1.84B

$4.48

$42.54B

Enterprise Value

$56.11B

$8.06B

$2.98B

$6.53B

$2.07B

$8.20

$60.58B

Beta

1.50

2.08

1.72

0.99

1.33

2.34

2.46

Short Interest as a % of Float

0.93%

1.84%

0.80%

1.03%

5.11%

4.78%

1.37%

Cash/Share (mrq)

$5.19

$11.90

$5.58

$1.20

$3.55

$2.64

$2.86

Total Debt/Total Capital (mrq)

52.07%

46.87%

29.70%

33.48%

37.96%

66.91%

47.30%

Quick Ratio (mrq)

1.53

1.67

2.12

1.48

1.44

1.32

1.14

Interest Coverage (mrq)

18.02

23.67

7.8

17.22

--

2.79

12.68

Return on Equity (ttm)

36.29%

29.65%

15.39%

18.71%

20.81%

12.36%

12.02%

EPS Growth (mrq)

22.91%

75.73%

14.87%

24.96%

836.45%

145.60%

31.43%

EPS Growth (ttm)

36.72%

93.15%

328.52%

-11.83%

75.13%

5.42%

236.02%

Revenue Growth (mrq)

13.74%

28.32%

11.10%

5.09%

20.44%

27.94%

9.81%

Revenue Growth (ttm)

17.46%

34.35%

21.26%

9.08%

11.19%

21.74%

11.65%

Annual Dividend Rate

$1.64

$1.88

$0.72

$0.60

$0.80

$0.40

$1.00

Gross Profit Margin (ttm)

26.85%

25.52%

19.93%

33.97%

15.86%

16.68%

15.70%

Operating Profit Margin (ttm)

11.27%

13.52%

9.59%

12.88%

5.35%

5.24%

8.05%

Net Profit Margin (ttm)

9.89%

8.06%

7.09%

7.54%

11.11%

2.34%

4.53%

Avg. EPS Estimate FY2011

$3.84

$9.31

$3.28

$5.72

$2.02

$1.80

$2.99

Avg. EPS Estimate FY2012

$4.36

$9,94

$3.67

$6.56

$2.36

$2.14

$3.68

Of these seven stocks, I would tend to go against HUN and DOW because their Net Profit Margins are much lower than that of their competitors. This could change in the future, but they were up against roughly the same conditions as the other companies in the previous year and did not perform. Their five-year EPS Growth Estimates are both lower than those of the competitors in the table as well. In the case of DD, it is also a significant agriculture industry supplier. Given its numbers above, I would tend to automatically want to invest in it. For all of the others, let’s look at the charts.

[Click all to enlarge]

One-year DD chart:

One-year EMN chart:

One-year CBT chart:

One-year FMC chart:

One-year OLN chart:

All of these charts look strikingly similar except OLN’s. The stocks all appear to be oversold using the Slow Stochastic indicator, and all appear to be overall heading upward and have experienced recent pullbacks. The pullbacks to or below the 50-day SMAs may be good buy signals for these relatively strong stocks. OLN pulled back too, but it does not have as technically strong an uptrend as the other four. It does have a stupendous five-year EPS Growth Estimate per annum of 40%, far above the growth estimates of the other stocks above. I would look into this stock a lot more carefully for a long term investment. However, I could not advise buying it based on its chart, although there is a strong chance it will go up quickly.

Please do more research on OLN before investing. For all of the others, the fundamentals and the technicals (what you see on the charts) agree with each other very well. You can buy these for a short term bounce trade as they are oversold.

Alternatively, you could buy any of DD, EMN, CBT, and FMC for the long term based on their fundamentals and charts. If you decide to buy for the longer term, you probably want to more thoroughly investigate the fundamentals surrounding each stock. I have looked at DD, which has an impressive record of beating estimates and growing under its new CEO. Its industries are also growth industries. A well-managed company in good growth industries will usually do well.

I am reasonably familiar with EMN, which has spent the last several years restructuring, etc. It now appears to be finally benefiting from all of that work. It is likely a solid stock, but you may wish to investigate further.

The Q1 GDP revision number comes out Thursday (today). Ditto the Initial Claims number. Either or both of these could derail the already tenuous bullish sentiment of yesterday’s (Wed.’s) market. The EU credit crisis could possibly derail the bullish sentiment. Otherwise you might want to get into these stocks for a nice rebound over the next several days. Friday could be a down day going into a long weekend. Keep this in mind. If you don’t get in early enough Thursday, you might wish to wait until Monday or later depending on the overall market performance.

Source: Turning a Keen Eye on Oversold Chemical Companies