The financial meltdown of 2008 was particularly hard on cyclical stocks. Companies in the chemical industry reported huge losses in the recessionary period, and 45 U.S. chemical companies had to file for bankruptcy in 2008.
With the economic recovery taking hold, chemical companies have shown signs of relief. The U.S. chemical industry accounts for 15% of the world’s chemical industry output, and its contribution towards the GDP of the United States stands at a staggering 25%. We can expect some solid investment opportunities to arise here as the industry has a growth outlook in the United States and internationally.
Larger chemical companies have a better chance of exploiting the revival in the chemical industry as they have global operations with access to multidimensional markets. Three companies in the United States fall into this criterion. They are Huntsman Corporation (NYSE:HUN), The Dow Chemical Company (NYSE:DOW) and Eastman Chemical Company (NYSE:EMN).
Huntsman’s weak fundamentals
Huntsman Corporation (NYSE:HUN) is a global leader in the consumer and industrial chemical industry. The company’s annual revenues are close to $11 billion. Like all cyclical stocks, the company suffered in the financial meltdown, but the trailing three years have seen the company’s performance improve.
The pigment segment of the company has been its fastest growing segment. The segment was reporting strong margins until prices for titanium dioxide started to fall. Due to this change, the company reported a net loss of $24 million in the first quarter.
The second-fastest growing segment of the company is its polyurethane segment because the company’s margins for MDI urethanes have improved. The earnings from this segment were able to partially offset the negative earnings from the pigment segment. Huntsman Corporation (NYSE:HUN) is planning to expand its polyurethane business by acquiring the privately held specialty urethane polyols maker Oxid. The acquisition will improve the company’s footprint and possibly take it out of its recent losses.
The current situation of the company looks slim and I would not be investing my money in this company.
The Dow Chemical Company (NYSE:DOW) is the second largest chemical company globally. Its chemical products are used as raw materials in different industries. The first quarter sales of the company dropped 2% on a year-over-year basis. However, the company expects its performance plastics, electronic & functional materials and agricultural sciences segments to show robust growth in the coming months.
The company has been successful in increasing its quarterly cash flow from operations. As of March 2013, the company has received up to $2.48 billion from its K-Dow transaction with the Petrochemical Industries Company of Kuwait. The Dow Chemical Company (NYSE:DOW) used this amount to repurchase $1.5 billion of its shares and reduce the company’s gross debt. The lower amounts of debt would reduce the interest expense of the company making it a less risky investment.