Air Products & Chemicals: Worth Considering at These Prices

Sep.29.08 | About: Air Products (APD)

In my previous research recommendation of Walgreen’s (WAG), I reviewed 3 periods that should have demonstrated, according to Dow’s Theory, the most opportune time to buy the stock (the stock is up 5.58% since that Research Recommendation.) At this point, an investor could feel comfortable about considering the sale of this stock. However, I suspect that my own Sell Recommendation will not materialize for a while.

Today’s recommendation is Air Products and Chemicals Inc. (NYSE:APD). APD has increased its dividend every year for 25 years in a row. According to Dow’s Theory, APD went through a total of 9 cycles from trough to trough or peak to peak since 1980. This means that the stock has a tendency to take a very short time to reach it’s previous high. I will review only the most recent cycle to determine the projected point that the stock should fall to its ultimate bottom.

From the bottom in October of 2005, APD went from $53 to $106.06 in May of 200 8. According to Dow’s Theory, the price of APD was expected to fall from $106.06 to any of the following three levels:

  • $88.37
  • $70.68
  • $53.00

Thus far, APD has fallen to the $71.43 level but not before reaching a low of $69.22 during Friday’s trading session. In prior cycles from 1982 to 1998, whenever APD was declining from its peak it would fall between the 1st and 2nd price levels (i.e. $88.37-$70.68). However, in the last five cycles APD has fallen, on average, to the level between the 2nd and 3rd levels (i.e. $70.68-$$53).

Air Products and Chemicals Inc. is estimated to fall between the $61.84 and $53 levels. However, if an investor were to take the risk of buying the stock right now then the potential downside is between 13.42% and 25.8% respectively.

Considering that this stock has a cycle that averages 4 years from trough to trough, you could consider this a stock that will reach the previous high in 1½ to 2 years.

Below is the worst case scenario if the Dow Jones Industrial Average were to fall dramatically. The chart below shows how APD performed compared to the Dow from May 26, 1972 to October 4, 1974. During this period the Dow fell 39.8%, a period which was considered the worst bear market since the crash of 1929. Notice that APD actually went higher to the tune of 65% at the high. Good luck on your research of this stock. 

Disclosure: none