Since July 11, the price of oil has fallen 25% from $147 to $110. This has been terrible news for holders of energy stocks -- which have nosedived. But for people who need to fill up their tanks, prices at the pump remain relatively elevated -- having fallen about 10% (I remember paying $4.11 at the peak and now pay $3.69 a gallon).
Meanwhile, the New York Times reports that companies using oil in their products are keeping their prices high despite the oil price drop. These companies seem to be acting in unison to raise prices -- suggesting there is not enough competition in their markets.
Which companies are raising prices still? Those who believe they can get away with it as they try to recoup the lost profit resulting from the recent increase in the price of oil -- which is an important raw material in their products..
Procter & Gamble (NYSE: PG) increased prices to retailers up 7% to 10% "for items made with ingredients derived from oil to 'recover costs already incurred,'" according to a Times interview with its spokesman.
Dow Chemical (NYSE: DOW) raised prices by 50% for the oil-based raw materials that go into diapers and polystyrene. It "does not want to give up those increases until the company recovers its old profit margins since '[its] prices continue to lag [its] cost increases,''" according to a Times interview with its spokesman.
Goodyear Tire and Rubber (NYSE: GT) has raised tire prices by 15% and is "still making synthetic rubber tires from oil-based feed stocks bought at relatively high prices more than three months ago [and it] 'could not consider canceling the price increase until it knew whether oil prices were going to stay down,'" according to a Times interview with its spokesman.
DuPont (NYSE: DD), a competitor of Dow Chemical (NYSE: DOW), reported earnings for the second quarter today, and as Melly Alazraki stated in her Before the Bell article, agriculture helped drive results and earnings. Expectations were not just met, they were beaten by four pennies. The call was for $1.07 in earnings per share by analysts, and DuPont delivered, on an adjusted basis (excluding $0.07 related to a litigation benefit and a better tax rate), $1.11 per share. Last year at this time, DuPont reported $1.04 per share for the bottom line, giving the company about a 7% growth rate.
Shares are up as of this writing by a little under 2%. Not a bad increase considering DuPont is a stodgy Dow Jones component. But it's not exactly an exciting price rally, and it basically reflects my feelings for the earnings results. They were decent enough, but they weren't so overpoweringly good that I'd want to initiate a position in DuPont. And that's saying something, because the business is cheap on a forward-looking basis and from a dividend-yield point of view, in my opinion. DuPont thinks it can do somewhere between $3.45 and $3.55 per share for the fiscal year. With shares trading around $45, that gives the stock a decent valuation.
Yet, DuPont used cash for operations in its first six months, and capital expenditures have increased. Will the economy be kind to DuPont in the coming months? That's the wild card these days, the dreaded economy. Yes, DuPont may have done all right this quarter, but I don't need to buy it. I can look elsewhere for more compelling ideas.
Disclosure: I don't own any company mentioned; positions can change at any time.
Again this week, in a list of earnings expectations for some prominent companies in a variety of sectors, we see an apparent optimism. That is, analysts are anticipating more earnings growth than earnings declines.
Analysts surveyed by Thomson Financial expect the following companies to report a rise in earnings when compared to the same period of the previous year.
TheStreet.com's Jim Cramer says its stunning buy of Rohm & Haas will get people thinking about an energy top.
Just when you thought it was safe to short anything, particularly anything with any commodity exposure, Dow Chemical (NYSE: DOW) (Cramer's Take) comes along and inexplicably pays a gigantic amount of money, $78 in cash, for Rohm & Haas (NYSE: ROH) (Cramer's Take)? My first thought was that it must be a joke. That is inconceivable. A hoax. Something perpetrated by frustrated longs to spook the shorts.
I mean, a chemical company? Two chemical companies? Ground Zero for slowing economic activity and raw costs? People unsure if Dow could even pay its nearly 5% yield? I mean, even last night on my show, I made fun of the idea that people are confusing Becton Dickinson (NYSE: BDX) (Cramer's Take), a medical supply company, with a chemical company because it uses resin.
This post is part of our Big Company, Small Town series, featuring large companies and the small towns in which they are headquartered.
The Dow Chemical (NYSE: DOW) is capitalized at about $40 billion dollars and produces a multitude of household and industrial products that probably touch most Americans lives in some way. It is the largest chemical company in the U.S. and number two worldwide (ahead of ExxonMobil and behind BASF), and it is also a leader in performance plastics.
On May 18, 1897, Dow Chemical incorporated, based on Herbert H. Dow's plan to manufacture and sell bleach on a commercial scale. A year later they were in full-scale commercial production. The Dow-in-diamond mark was created to help resolve product shipping problems. In 1900, the Midland Chemical Company merged into Dow Chemical.
The company was always evolving under the guidance of Mr. Dow, who in 1913 announced the company would exit the bleach business to refocus to the value of chlorine as a raw material, prompting Dow stock to rise dramatically.
Paul Krugman's New York Times op-ed tries to defend his Princeton colleague, Federal Reserve Chairman Ben Bernanke. Krugman suggests that inflation is not a problem because he can't find any long-term labor contracts with 11% annual pay increases as in 1981's United Mine Workers contract.
Krugman gets himself into a weak position and he does not disclose his fealty to Bernanke whom he evidently does not believe can defend himself. It seems absurd to pretend that inflation is not a problem. Food prices have tripled and oil prices have doubled as Bernanke cut the Fed funds rate from 5.25% to 2%. Last week Dow Chemical (NYSE: DOW) announced a 20% price increase as did Eastman Kodak (NYSE: EK) in response to rising oil and other commodity prices. Huntsman Chemical (NYSE: HUN) announced a 25% price increase. And consumers -- who account for 70% of GDP growth -- expect inflation to rise at a rate of 7.7%.
Well, this seems to be a case of love it/hate it sentiment. At least for me. Since I'm not a shareholder of Dow Chemical Co. (NYSE: DOW), I lean toward the more negative sentiment.
No doubt, many stockholders cheered the company's move today to raise its prices by up to 20% so as to combat high energy prices. After the company reported a 3% drop in earnings last quarter and an alarmingly shrinking profit margin, the move makes sense. Indeed, the stock finished the day 1.49%, or 60 cents higher to $40.83.
As a general investor, though, I can't help but consider the effect this move would have on other companies and the overall economy, and hence my other holdings. You see, Dow makes so many chemical supplies used in so many industries as raw materials that the announced price increase will affect many companies' costs.
And of course, as a consumer, I'm bound to hate the move. Already I pay higher food and gas prices -- now many other regularly purchased items will cost more as a result of Dow hiking prices. I'll pay more for products like antifreeze, cosmetics, pharmaceuticals, detergents, paint and clothes. Oh, diapers too.
Without being bashful about it, Andrew Liveris, Dow Chemical's chairman and chief executive, blamed Washington directly for failing to address the issue of rising energy costs for the past several years. "As a result," he said, "the country now faces a true energy crisis, one that is causing serious harm to America's manufacturing sector and all consumers of energy."
This is scary, and naturally Dow needs not absorb all the rising costs by itself. Therefore, we are now bound to see even higher inflation than some have originally anticipated. Too bad Dow's lobbying and the millions of pre-election promises haven't borne fruit, at least yet. We just have to wait and see now how much this move will affect us and how vast its implications will be as the prices trickle down the chain and reach us.
Dow Chemical (NYSE: DOW) shares are trading higher after the company announced it will raise product prices by up to 20% almost immediately. The company cited higher energy and raw-material costs for the price hikes, and used the announcement to criticize the government for failing to develop a logical energy policy. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on DOW.
After hitting a one-year high of $47.96 in July, the stock hit a one-year low of $33.01 in January. DOW opened this morning at $40.77. So far today the stock has hit a low of $40.25 and a high of $40.79. As of 12:40, DOW is trading at $40.70, up $0.47 (1.2%). The chart for DOW looks bullish and steady, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $35 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just 7 weeks as long as DOW is above $35 at July expiration. Dow would have to fall by more than 13% before we would start to lose money. Learn more about this type of trade here.
For nervous investors and analysts looking for good news on the earnings front, it's been a week of mixed blessings. However, judging by the expectations for the following ten so-called barometers of the U.S. economy, or important sectors of it, things could be looking up. All these companies are scheduled to report quarterly results next week (April 21 to April 25).
These first six companies are expected by analysts surveyed by Thomson Financial to post growth in profits in the most recent quarter, compared to the same period of last year:
The earnings season crunch continues, and among companies scheduled to report earnings tomorrow are Eli Lilly and Co. (NYSE: LLY), Dow Chemical Co. (NYSE: DOW), and US Steel Corp. (NYSE: X). Here is a quick peek at each of them.
Eli Lilly hasn't missed quarterly earnings expectations in the past three years. When it reported third-quarter 2007 results back in October, its earnings per share of 90 cents beat the consensus estimate of analysts polled by Thomson Financial by seven cents, as well as the actual 80 cents per share in the same period of the previous year. For the current quarter, analysts expect earnings of 89 cents per share, or $3.54 per share for the full year. That's up from $3.18 in 2006.
But Eli Lilly's 8.3% earnings per share growth forecast for the next year is less than the industry average. The analysts' consensus recommendation has been to hold Eli Lilly for the past six months. Shares have fallen recently to about two bucks above the 52-week low of $49.09 back in November.
For drug company news that could influence the earnings results, see BloggingStocks' Eli Lilly coverage.
With stocks beaten up, those courageous investors looking for cheap stocks should take a look at Dow Chemical (NYSE: DOW). With the recent announcement of its 50/50 joint venture with Kuwait's Petrochemical Industries Company (PIC), to form a market-leading, global petrochemicals company, Dow stands to become the world's leading petrochemical company. Look for growth in China to help propel earnings over the next decade.
"We're creating a petrochemicals company that will be a global leader from its first day of operation, an $11 billion company that is well positioned to grow profitably across the industry cycle," said Andrew N. Liveris, Dow chairman and CEO. "For Dow, this marks an important milestone in our transformational strategy: growing our Basics businesses through joint ventures; reducing our capital intensity; and, freeing up cash to invest in our portfolio of Performance and Market Facing businesses."
The stock is off 20% from its high, and it's now sporting a juicy yield of 4.5%. That's not all; the stock has a P/E of about 10.60 and more importantly, a PEG of just 0.86. So what you have is a company with nice growth, paying a handsome dividend, that has gotten pounded down. Dow Chemical looks like a winner for investors over the next few years.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has no position long or short in any stock mentioned as of 1/8/08.
The market's choppy / consolidating pattern continues as 2008 begins, so defensive stocks remain prudent plays, and among these, Dow Chemical is worth a review.
Dow Chemical (NYSE: DOW) is the No. 2 chemical company in the world and the largest in the United States. A leader in performance plastics, Dow's other products include polyethylene resins, fibers, films, and performance chemicals such as acrylic acid.
In general, analysts see a kaleidoscope of pricing conditions for Dow, but favorable industry revenue fundamentals on solid global economic growth: international sales account for more than 60% of revenue. Moreover, that patchwork of pricing conditions has prompted Wall Street to take a more-cautious stance with DOW, which has driven its P/E to about 12, but view that as getting DOW for a bargain price.
The risks? The standout risk with Dow concerns volatile costs for raw material. A substantial cost increase in this category could squeeze Dow's earnings results. The Reuters F2007/F2008 EPS consensus estimates for DOW are $3.71/$3.50.
The First Call mean rating for DOW is: Hold. [17 firms.] Mean 2008 target: $49.00 [high: $55, low: $43.]
Stock Analysis: Dow Chemical is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from DOW's shares. Sell / Stop Loss if you were to purchase shares in this company: $27.
DISCLOSURE: Joseph Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
The Associated Press is reporting that Dow Chemical Company (NYSE: DOW) will sell a 50% interest in five of its global businesses to a Kuwaiti company, Petrochemical Industries Co, for about $9.5 billion to form a new petrochemicals joint venture.
The joint venture will be based in the U.S. and will employ more than 5,000 people worldwide, mostly current Dow employees and will be 50% owned by Dow and PIC.
This will put cash in play that can be used for a wide range of activities. Dow may choose to slash long-term debt, which this tidy sum would eliminate almost entirely. It also may choose to expand other ventures that have a promise of higher returns or diversify into businesses that are less dependent on oil as feedstock and thereby increase potential growth while reducing volatility.
Dow Chemical Company (NYSE: DOW) was trading at $45.50 in pre-open trading, above its close of $41.75.
DOW and Petrochemical Industries Company of the State of Kuwait announced plans to form a 50/50 joint venture that will be a market leading global petrochemicals company. DOW overall option implied volatility of 29 is near its 26-week average of 28 according to Track Data, suggesting non-directional price risk.
Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
Since July 11, the price of oil has fallen 25% from $147 to $110. This has been terrible news for holders of energy stocks -- which have nosedived. But for people who need to fill up their tanks, prices at the pump remain relatively elevated -- having fallen about 10% (I remember paying $4.11 at the peak and now pay $3.69 a gallon). 
DuPont
Dow Chemical (NYSE: DOW) announced it will acquire Rohm and Haas (NYSE: ROH) for $78 per share. 
This post is part of our 
Paul Krugman's 
For nervous investors and analysts looking for good news on the earnings front, it's been a week of mixed blessings. However, judging by the expectations for the following ten so-called barometers of the U.S. economy, or important sectors of it, things could be looking up. All these companies are scheduled to report quarterly results next week (April 21 to April 25).
Eli Lilly hasn't missed 
The Associated Press is 
Dow Chemical Company
NYU's Roubini: 'All fronts' approach necessary to end global financial crisis 
Global Q&A: A rainy day in London
GE matches reduced expectation and people cheer
