Dow Chemical, Inc. (DOW) has had and continues to have very good management and is producing well for the economy. It is clearly a very stable and consistent organization. Some may think that trading in a similar manner with the indices (DOW, S&P, etc.) is wise. I disagree, with several caveats. Over the past 10 years or so (particularly the last five years) it has not been a profitable place to have invested your money. This company continues to qualify as a “quality” firm within the diversified chemical market. However, you might keep in mind that there are other, often smaller, chemical companies that have produced a far better investor ROI over recent years as well as the past decade.
Earning estimates on balance are quite positive for the near-term, and should be improving. How the Street will reward or punish DOW or any other company in the future is always questionable. It appears, according to comparative analytics, that the upside is quite limited and that the downside currently has more appeal.
My analytics, to a large degree, have to do with comparative analytics. Comparing DOW with its peers and other top capitalization/revenue producing companies, in general, provides a clear but only modestly positive story of both the company and the chemical industry group.
Timely news includes the fact that earnings are expected to beat the “Street.” Dow Chemical also has a recent excellent relative strength. These guys are super smart but too big to help the investor.
As a sector, basic industries and its component companies has always been difficult for investors to profit from on a consistent basis. This is likely due to the revenue dynamics that are often tough to figure for evaluations. Basic industry companies are clearly not the focus within a negative economy and are often too stodgy. Typically, at the bottom of an economic cycle, they can appear to have relatively high P/E ratios. However, when the economy improves and appears to be topping, the P/E multiple tends to shrink. In DOW’s case, they will have to get a string of positive earnings going before the P/E can begin shrinking and it once again is a viable organization. The financials have been under severe government and investor scrutiny and are likely to remain in that position for some time.
My analytic focus (to invest or not to invest) on any company is most heavily weighted on fundamentals and company valuations. DOW appears to have the prospect of improving earnings in the longer term. For me, this is something most worthwhile to consider prior to buying. For prudent investing, those earnings will have to continue to remain strong over a quarter or two (or more) before I would consider it be a “wise investment.” DOW doesn't compare well to its major peers. I need to see very good to excellent valuations before recommending an investment. There are many other basic industry companies that meet my criteria. That means two things: the projected price and the risk / reward ratio must be in the top 5% of my candidates for purchase of that particular sector / industry group.
Fundamental Valuation Analytics Table (weighting 40%):
Dow Chemical, Inc.
Stock and Symbol | Approx. Current Price | My Target Price % Above (+) / Below (-) Current Price – Valuation is “Tweaked.” One Year Projections from the next - - Bullish Inflection Point. | PEG | P/E | Forward P/E | Valuation Divergence (%) (One - Year Projected to a Mean) from the next - - Bullish Inflection Point. |
Dow Chemical (DOW) | 35.5 | + 10 to + 20% | 2.75 | 24.7 | 14.4 | 142% |
Apple, Inc. (AAPL) | 339 | + 20 to + 40+% | 0.72 | 18.9 | 13.0 | 131% |
Comments:
I always compare Apple, Inc. (APPL) with my other “bellwether” companies as well as those I am considering for investment. For me, Apple is numero uno! I then do a quantitative rating for my weighted fundamental, technical, and consensus analysis.
DOW: Rating: Fundamental: Very Good, Technical: Good, Consensus: Good.
AAPL: Rating: Fundamental: Excellent, Technical: Very Good, Consensus: Excellent.
Obviously this is a very positive, but not “excellent” valuation and target price projection for Dow Chemical, however the PEG is much too high!
This work / analytics is for your possible taking positions at a future date and definitely not at this time.
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