Air Products & Chemicals: Worth Considering at These Prices

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. (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

Comments

[Dividends A...:]

At less than 15x future earnings you have to make a strong case for this stock in this enviornment. The concern I have technically is that its in free fall and support could come at $60. Regardless it goes on the watchlist with its superior dividend history and wait for the market to call the bottom.

2008 Sep 29 02:49 PM

[Dividend Gr...:]

Annual dividend payments have increased over the past 10 years by an average of 10% annually, which is higher than the growth in EPS. A 10% growth in dividends translates into the dividend payment doubling almost every 7 years. If we look at historical data, going as far back as 1985, APD has actually managed to double its dividend payment every seven years on average. If history were to repeat itself you'd have an yield on cost of 10.60% in 14 years :-)

2008 Sep 29 05:24 PM

[yank:]

Unfortunately, the "Masters of the Universe" (sarcastic) have made it virtually impossible to properly value ANY stock right now. We have to wait until the smoke finally clears. Still not safe to go into the water yet.

2008 Sep 30 08:55 AM

[User 6666:]

Ouch ! Sure wasn't a good time to buy as suggested. Through the floor since this article.

2008 Oct 05 10:04 AM

[User 6666:]

In hindsight, your call was profoundly incorrect.

2008 Oct 05 10:06 AM

[Dividend Inc:]

Thank you USER 666 for your commentary regarding my article. If you visit my blog you will find that I put out research recommendations with buying points within the article. As I distinctly point out in the article:

"Air Products and Chemicals Inc. is estimated to fall between the $61.84 and $53 levels."

Coincidentally, the stock traded to the intra-day low of $57.69. At this level the stock came within $0.27, or 0.004%, of the exact middle of the $61.84 and $53 level. While there is little proof that the stock will actually move higher from the current level I suspect that there is a good chance APD will move to the $81 level.

Also, USER 666, read the section of my blog called About This Site. You'll see the exact strategy to employ when following up with my research recommendation. Enjoy.

-Touc

2008 Oct 07 03:21 AM