The Dow Chemical Company (DOW), PPG Industries, Inc. (PPG): There Are Better Ways to Play the Chemical Sector

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PPG Industries, Inc. (NYSE:PPG) is one of the leading chemical companies in the market, with a diverse product portfolio that includes coatings and glass products for a variety of applications. The company has done very well for itself, with shares up over 55% in the past year, currently just under their all-time highs. After a gain like this, and with a seemingly high valuation, is PPG still attractive enough to invest in, or would one of its rival chemical companies like E I Du Pont De Nemours And Co (NYSE:DD) or The Dow Chemical Company (NYSE:DOW) be a better addition to our portfolios?

About PPG Industries

 

PPG Industries, Inc. (NYSE:PPG) makes most of its money from coatings, and about 15% from its glass products. The business is divided into five segments, three for the coatings and two for the glass business.

As far as coatings go, the largest segment by revenue is the Performance segment, which produces aerospace, protective, marine, and automotive coatings. Industrial coatings consist of packaging coatings and other coatings meant for various industrial equipment. Finally, Architectural coatings produces coatings for use by painting professionals that are sold through PPG Industries, Inc. (NYSE:PPG)’s company-owned stores and other retail channels.

PPG Industries, Inc.

The company’s glass business is divided into two segments. The first, simply called the glass segment, consists of PPG Industries, Inc. (NYSE:PPG)’s flat glass business, which is one of the largest in North America. The company produces flat glass for construction, aircraft, furniture, and other uses. The other segment is called Optical and Specialty materials, and includes Transitions lenses, sun lenses, and many other optical products.

A busy year so far…

In addition to the business segments listed above, PPG was involved in the commodity chemicals business until this year, producing chlor-alkali and various derivatives. At the end of January, the company merged its commodities chemicals business with Georgia Gulf, now Axiall Corp (NYSE:AXLL). As a result of the transaction, $900 million in cash was paid to PPG directly and about $1 billion of Axiall shares was paid to PPG’s shareholders. Commodity chemicals is a rather volatile business that tend to carry with it lower profit margins, so this transaction helps PPG reach its goal of more consistent and predictable growth. On an investment note, Axiall could end up producing great returns if raw material and energy costs continue to work in their favor.

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