Extraordinary Times - Value Rotation Begins - Buy Chemicals - TSE And DOW

Jan. 13, 2022 4:55 PM ETDow Inc. (DOW), TSE568 Comments
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Prati Management


  • Outperformance of growth over value is at unprecedented levels and was pushed even harder with the COVID induced Fed printing as well as the Omicron scare.
  • A more hawkish Fed has induced a sharp move away from high valuation technology growth stocks. The first week of 2022 appears to be a prelude to new sector leadership.
  • As 2022 has started in a volatile fashion, we have seen strength in materials (chemicals especially), and a shellacking of big growth stories with no earnings. We expect this trend to continue.
  • Low multiple stocks offer a larger safety buffer as well as the historical precedent of outperforming growth stocks during later stages of bull markets in a rising rate environment.
  • TSE and DOW remain grossly undervalued in my view. In addition, they are entering an environment characterized by pricing power, low supply/inventory, and high demand.
Stock Market Chemicals Index. Trading screen with a sector index for Chemicals, quotes, charts and changes.

Torsten Asmus/iStock via Getty Images

A picture is worth a thousand words - so let's start with four pictures.

From Bloomberg - This chart depicts value pricing based on forward earnings ratio to growth's forward earnings. The range is from 1998 to January 2022. The last time the ratio

This article was written by

Prati Management profile picture
Richard Prati has nearly 40 years of equity analysis and investment experience and spent nearly 20 years on Wall Street in various positions including the co-founding of American Technology Research and ultimately selling the company in 2008. Experience in public and private global equity analysis and investing. BS in Economics from Vanderbilt and MBA from the University of Rochester.

Disclosure: I/we have a beneficial long position in the shares of TSE, DOW, WRK, LNXSF, OLN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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