UBS Investment Research (UBS) published a report entitled "Chemical Industry Pulse" on January 16, 2012. The report isn't publicly available, but we will discuss its main points. In the report, UBS analysts Andrew W. Cash, Gregg A. Goodnight, and Bill Carroll focus on Propylene Oxide which is "key to making polyurethanes and other products". UBS expects the demand for Propylene Oxide to increase in 2012. Other chemical intermediates are expected to show a slow but positive growth in 2012. Here are the stocks mentioned in the article along with competitors.
LyondellBasell (LYB) manufactures and sells chemicals and polymers, refines crude oil, produces gasoline blending components, and develops and licenses technologies for the production of polymers. It has been given a buy rating by UBS Investment Research. On December 10, 2010, LyondellBasell announced the development of a new Asian Propylene Oxide project with its joint venture partner. Dividends of $70-90 million per year are expected from this project. UBS' global operating rate forecast, in addition to an assumed start-up date of 2016, supports a margin estimate of $0.30/lb. Also, the plant is assumed to have a capacity of 250k million tons per annum. Shares of the company are currently trading around $39 per share. Cabot Corporation (CBT) operates as a specialty chemicals and performance materials company and is a competitor of LyondellBasell. Cabot has a dividend yield of 2.1%, while LyondellBasell has a dividend yield of 2.9%. LyondellBasell also generated a higher return-on-equity of 24.5%, versus the 13.5% generated by Cabot. Hedge funds prefer LYB over CBT. At the end of the third quarter, there were 44 hedge funds with bullish bets on LyondellBasell, vs. 14 for Cabot. Howards Marks' Oaktree Capital initiated a brand new position in LYB during the third quarter.
Dow Chemical (DOW) manufactures and supplies products used as raw materials in the production of customer products and services on a global scale. It has been given a buy rating by UBS Investment Research. In 2009, Dow Chemicals started up an HPPO plant that used a technology jointly developed with BASF. UBS estimates that for every 10% change in the margin of Propylene Oxide, earnings per share would change by 8 cents for Dow Chemicals. Shares of the company are currently trading at $32.7 per share and have traded between $20.61 and $42.23 over the last 52-week period. E. I. du Pont de Nemours and Company (DD) is a competitor of Dow Chemicals and its shares are currently trading at $48.8 per share. Dow reported a dividend yield of 3.1% versus the 3.4% reported by DuPont. Dow generated a return-on-equity of 13.5%, while DuPont generated a return-on-equity of 32.4%. However, Dow and DuPont had similar price-to-earnings ratios of 13.4x and 13.2x respectively. We prefer DuPont over Dow Chemical because there were twice as many hedge funds in DD than DOW at the end of the third quarter. Jim Simons' Renaissance Technologies tripled its position in DuPont during the third quarter.
Huntsman Corporation (HUN) engages in the manufacture and sale of differentiated organic and inorganic chemical products on a global scale. It has also been given a buy-rating by UBS Investment Research. UBS estimates that for every 10% change in the margin of Propylene Oxide, earnings per share would change by 5 cents for Huntsman Corporation. Shares of the company are currently trading at $11.2 per share and have traded between $8.13 and $21.52 over the last 52 weeks. Calanese Corporation (CE), a manufacturer and marketer of chemical products, is a competitor of Huntsman Corporation. Huntsman reported a dividend yield of 3.6%, while Calanese reported a dividend yield of 0.5%. Return-on-equity was reported at 10.5% for Huntsman and 51.6% for Calanese. Calanese also generated higher profit and operating margins than Huntsman. There were equal number of hedge funds in each stock, however hedge funds' bet more dollars on Calanese. One of our favorite hedge funds, Third Point, initiated a brand new position in CE during the third quarter. That's why we pick CE over HUN.