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Three of the following four chemical companies beat earnings estimates in the most recent quarter. The fourth, Huntsman Corp. (HUN), only missed by -$0.01. The other three companies -- Eastman Chemical Co. (EMN), Olin Corp. (OLN), and DOW Chemical Co. (DOW) -- all beat on earnings last quarter. Analysts have still been lowering their future expectations due to the recent lowering of U.S. and world GDP and the increased costs of input materials such as oil. Still oil prices have recently decreased along with some other materials. Inputs may be overall cheaper for Q3 and possibly Q4. The analysts estimates have not decreased by much, but the companies' stock prices have been hit hard. Investors should be able to profit from this divergence.

In addition the large average decrease in the price of these stocks has made them great value plays, great dividend plays, and even great growth plays. The average dividend of the above stocks is now 3.55% (Yahoo Finance) due partially to the price decrease. The average analysts’ predicted 1 year gain % for the stocks is 57.2% as of the close Thursday Aug.25, 2011. The average PE is 9.83, and the average FPE is 7.24. All still expect at least decent growth . To me this means that all are great values. All deserve to see a snap back rally. All should find good stability at their current levels due to their PEs, their dividends, and their growth profiles.

The above are not the only reasons to look favorably on these companies. They are not staying static. Each is making an effort to improve its prospects. DOW has a three gene herbicide tolerant soybean it has submitted for approval. It also has a herbicide system that it believes is much more effective than Monsanto’s Roundup product. EMN has completed the acquisition of Sterling Chemicals, and it has announced the acquisition of Dynaloy Inc. OLN announced a five-year U.S. Army second source ammunition contract, which may be worth up to $300 million over the next five years. Plus it recently broke ground on a new plant in Charleston, TN, for its Chlor Alkali Products segment. HUN announced a $100 million share buy-back program. They all are planning for a bright future.

Some specific financial fundamentals for each stock are in the table below. These data are from TDameritrade and Yahoo Finance. 

Stock

EMN

OLN

DOW

HUN

Price

$77.24

$18.33

$26.40

$12.08

1 yr Analysts’ Target price

$115.25

$29.14

$43.25

$18.92

Predicted % Gain

49.2%

59.0%

63.8%

56.7%

PE

9.16

7.04

12.10

11.02

FPE

7.93

7.83

7.44

5.75

Avg. Analysts’ Opinion

2.2

1.7

2.4

2.3

Miss Or Beat Amount For Last Quarter

+$0.14

+$0.02

+$0.04

-$0.01

EPS % Growth Estimate for 2011

32.50%

80.40%

47.70%

110.80%

EPS % Growth Estimate for 2012

3.90%

21.20%

22.00%

20.00%

5 yr. EPS Growth Estimate per annum

7.50%

24.40%

7.00%

8.50%

Market Cap

$5.41B

$1.47B

$31.18B

$2.90B

Enterprise Value

$6.24B

$1.80B

$49.66B

$6.72B

Beta

2.11

1.54

2.51

2.15

Total Cash per share (mrq)

$11.89

$3.47

$1.79

$2.85

Price/Book

2.87

1.52

1.57

1.39

Price/Cash Flow

6.47

4.96

5.87

4.06

Short Interest as a % of Float

2.33%

5.60%

1.58%

3.10%

Total Debt/Total Capital (mrq)

45.64%

37.11%

44.51%

65.14%

Quick Ratio (mrq)

1.48

1.45

1.12

1.29

Interest Coverage (mrq)

22.71

11.05

49.78

3.49

Return on Equity (ttm)

31.86%

23.14%

13.77%

15.06%

EPS Growth (mrq)

50.99%

145.12%

68.53%

116.62%

EPS Growth (ttm)

70.04%

123.11%

34.73%

365.05%

Revenue Growth (mrq)

25.50%

30.42%

17.83%

25.22%

Revenue Growth (ttm)

35.35%

17.66%

11.39%

21.57%

Annual Dividend Rate

$2.08 (2.70%)

$0.80 (4.40%)

$1.00 (3.80%)

$0.40 (3.30%)

Gross Profit Margin (ttm)

25.24%

17.98%

15.83%

16.84%

Operating Profit Margin (ttm)

13.82%

7.70%

8.56%

5.90%

Net Profit Margin (ttm)

8.63%

11.75%

5.06%

2.88%

If you look just at the one year analysts’ predicted gain and the other growth estimates, you might select DOW or HUN as a top pick. However, if you look farther you will see that they have the lowest Net Profit Margins of the four stocks in the table above. This may mean that they will be the first to be troubled in a recession or even just a slow down. For this reason I tend to prefer OLN and EMN. They are more likely to stay profitable. However, DOW and HUN are both worth a strong look, especially DOW. Its new products may be big earners in the near future (see the above description).

Let’s look at the two year charts of each to get a view of the technical factors.

The two-year chart of EMN is below - (click charts to enlarge):



The two-year chart of OLN is below:



The two-year chart of DOW is below:



The two-year chart of HUN is below:



The Slow Stochastic sub chart of each of the above stocks shows that each is heavily oversold. I have tried to point out that there is no apparent reason for them to have become that oversold at this time. They have merely gone down with the market as their high Betas would indicate they might. However, there comes a point when even a high Beta will not tend to make a stock go down further. These stocks are near that point. Obviously a further crash of 10%-20% by the market would push them down more. However, the overall market seems to be bottoming now. These high Beta stocks should now move up much faster than the overall market. Further each main chart above is at a point of solid technical support. This tells you each is much more likely to move up from here. I believe in playing the percentages. Those indicate that legging into these stocks should be a good idea.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EMN, OLN, DOW over the next 72 hours.

Source: 4 Chemical Companies Are Great Dividend And Value Plays