Why The Dow Chemical Company (DOW) Could Continue its Rally This Week

Page 1 of 2

We’ve hit the middle of the earnings season, and already have a good idea of how things are shaping up in many industries. Yet, there’s one that still has its bags full of surprises and disappointments waiting to be thrown up over the next couple of weeks: the chemicals sector.

Several chemical companies will unpack their bags next week, but The Dow Chemical Company (NYSE:DOW) has its appointment right on top in my diary. The hugely-diversified company never fails to awe me, and its stock has held it tight for a month or so. An earnings beat is all it needs to keep the momentum going, especially when the company already seems to be doing a lot of things right.

The Dow Chemical Company (NYSE:DOW)Better than the Dog of the Dow?

Barring one, I am not expecting much growth from most of Dow’s businesses, be it plastics, coatings, or electronics. Pricing pressure is likely to be high for its fourth quarter across most geographic regions, offsetting volume improvements. Europe is one great woe of Dow’s life, and a twist in the story is still many pages away as the market accounts for more than a third of Dow’s sales.

The business that saved Dow’s third quarter could do it again this time. Those who watched Monsanto Company (NYSE:MON) stun the Street with solid numbers might have already guessed it: it’s agriculture. If Dow’s agricultural sciences division reported record fourth-quarter sales in 2011, it could be as exciting for 2012 as Latin America warmed up for what could be its best-ever planting season. Monsanto’s sales shot up 21% riding on solid demand for seeds from the region together with pre-spring orders from the U.S. farmers.

Analysts are optimistic about Dow’s fourth quarter, expecting its earnings per share to jump by a sharp 32% from a year ago. Now that’s a huge deviation from where estimates for peer DuPont Fabros Technology, Inc. (NYSE:DFT) stand – analysts expect its earnings to stall at just a fifth of what it earned last year. The interesting part is that both these companies reported dismal third-quarter numbers and laid out massive restructuring programs to tame costs. Yet, while DuPont’s stock has lost nearly 5% since mid-October last year, Dow is trading just perfect with 13% gains. Why is the wind favoring Dow?

Double whammy

One major reason that’s holding up Dow’s stock this year is its decision to restart its idle-since-four-years ethylene cracker in Louisiana. Timing couldn’t get any better: Ethane (a nat-gas component used for producing ethylene) prices hit a five-year low at around the same time Dow got the plant back to work. Look at what olefins (ethylene is an olefin product) did to LyondellBasell Industries NV (NYSE:LYB): operating profits at its largest segment, olefins and polyolefins – Americas surged 28% for the nine months ended Sep. 30, 2012.  Lyondell predicted ethylene to turn out a winner long before Dow realized. Its stock has just hit a fresh 52-week high after clocking massive 49% gains over the past six months alone. Naturally, Mr. Market applauded Dow’s move.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!