Pat McKeough responds to many personal questions on specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions.
Last week, one Inner Circle member asked for stock investing advice on one of the world’s largest chemical manufacturers. Pat notes that the company has made headway with new specialty chemicals, but that its future is closely tied to the economic recovery.
Q: Pat: What is your opinion about adding Dow Chemical to a portfolio? I have recently heard they are sitting on a lot of cash reserves and have a high dividend yield. Thanks.
A: Dow Chemical Co., (symbol DOW on New York; www.dow.com), is the world’s second-largest chemical maker. (BASF SE of Germany is the largest).
Based in Midland, Michigan, Dow makes over 5,000 products at 197 plants in 36 countries. Europe, the Middle East and Africa account for 35% of its revenue, followed by the rest of the world (33%) and the United States (32%).
Dow operates through six main divisions: Performance Plastics, Performance Materials, Feedstocks & Energy, Coatings & Infrastructure Solutions, Agricultural Sciences and Electronic and Functional Materials.
In 2011, Dow’s revenue rose 11.8%, to $60.0 billion from $53.7 billion in 2010. The company raised its prices by 13% to cover the higher cost of oil and natural gas liquids like ethane, which it needs to make its products. This offset a 1% drop in sales volumes, and was the main reason for the higher revenue.
The company’s earnings for the year rose 28.5%, to $3.6 billion from $2.8 billion. Earnings per share rose 19.2%, to $2.05 from $1.72, on more shares outstanding. Without unusual items, such as gains on asset sales, earnings per share would have risen 28.9%, to $2.54 from $1.97.
The earnings increase was mainly due to savings from a series of restructurings over the past few years. These measures included closing plants and cutting jobs.
As a member of my Inner Circle, you will get individual answers to your personal investment questions. And you will see my answers to questions other investors like you are asking. In fact, you will get virtually all the investment advice I have to give. You will have access to all of our advisories – The Successful Investor, Wall Street Stock Forecaster, Stock Pickers Digest and Canadian Wealth Advisor – and full access to the members-only, password-protected Inner Circle section of The Successful Investor Network website.
Although my team carefully researches all the stocks that members ask about, I personally review each and every recommendation. To ensure this close personal attention, only a limited number of members can be admitted to our Inner Circle. Under the pressure of world events, even more investors are asking for my personal investment advice. We are nearing our membership limit already. Click here to secure your membership in the Inner Circle right away.
Stock investing advice: Dow gets profitable boost from specialty chemicals
The company is also producing more specialty chemicals, which are more profitable than regular chemicals. In addition, specialty chemicals are often protected by patents. This helps shield Dow from competition.
As part of this expansion, Dow paid $15.7 billion for specialty chemical maker Rohm and Haas Co. in April 2009. The purchase made Dow the world’s largest specialty-chemical maker.
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In the second quarter of 2011, the company raised its quarterly dividend by 66.7%, to $0.25 a share. The shares now yield 2.8%. The stock now trades at 11.7 times the $3.05 a share that Dow will probably earn in 2012.
In the most recent Inner Circle Q&A, Pat looks at Dow’s need for a sustained global economic recovery to stimulate demand for its products and whether sales gains in Asia will continue to offset slower growth in North America and Europe. He concludes with his clear buy-hold-sell advice.
Inner Circle members see Pat’s analysis and recommendations on the stocks that other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this unique investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.
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