Dow Chemical is one of those large corporations that truly rely on global sales and is not tied to one particular nation, nor reliant on any single set of customers; 37% of its revenue comes from the United States, 36% from Europe and 27% from the rest of the world. We believe Dow is a good candidate for a long term investment. Let's take a look at the industry outlook this year as well as the future forecast for Dow and you will see why we are bullish.
The Dow Chemical Company (DOW) manufactures and supplies products used as raw materials in the production of customer products and services worldwide. The company offers materials for chemical mechanical planarization pads and slurries, chemical processing aids and intermediates, electronic displays, food and pharmaceutical processing and ingredients, home and personal care ingredients, hygiene and infection control, photolithography materials, printed circuit board materials, process and materials preservation, and semiconductor packaging.
Dow's Global Strength and Weakness
We know Dow is a global company, more dependent upon the strength of a global economy then a particular country and therefore not prone to wild fluctuations. Its diversification protects it from slumps that may happen in nations or smaller regional areas. This works out well for the investor. If the housing slump in the United States has slowed it down, emerging markets may counter the slump with increased sales. Steady growth is what we look for as investors.
Now, this does not mean that Dow is impervious to up and down trends. Since Dow products are primarily made using oil and natural gas derivatives, it is vulnerable to price variations from this very volatile commodity. The combination of increased petroleum prices and prolonged economic downturns could have a negative effect upon the stock.
Chemical Industry Outlook through 2012
As may be predicted, 2012 will have a 'mixed outlook'. While Europe's uncertainty and the U.S.'s slow economic recovery play a role is conservative estimates, the emerging markets are expected to increase at a faster pace. This goes right along with Dow's record revenues. With revenue growing by 17% year over year in 2011, 7% by volume and 17% by price. Most of the company's growth came from Latin America and the Asia Pacific Region.
In the U.S., major end market users of chemical products are recovering. This is expected to translate into a moderate increase in production for the chemical industry as a whole. So in the United States, a gradual improvement in 2012, followed by a stronger recovery taking hold in 2013 is what the market expects. As for Europe, we will leave that in an uncertain state until the sovereign debt crisis plays itself out this year. The emerging markets are going to grow and recover much faster than developed countries. Expect China and India the lead the increases.
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With a positive outlook for the chemical industry as a whole, Dow seems like a good investment. Since 2009 the company has been in a long term bullish pattern. This is a healthy pattern because Dow has grown and consolidated several times. This is a sign of strong consistent growth. It is now in the third phase of its growth pattern. If it continues, it should continue up through $43 before it consolidates again. We believe Dow is a good choice for investors to research and consider for a long term investment.
Additional disclosure: DOW