June 24, 2008: Dow Chemical: Oops
Foolishly in retrospect, I recommended and purchased Dow Chemical (DOW) a while ago expecting the stock to perform well, passing price increases for its petroleum-based products along to consumers and to increase production at plants located in oil-rich countries. Wrong.
True, price increases have and are been passed along the chain, including freight surcharges of $300 per truck shipment and $600 per rail,effective August 1st.
Unfortunately Dow has announced a large number of plant idlings in ethylene oxide, acrylic acid, styrene and polystyrene due to high costs and weak demand. You don't idle plants when you have pricing power. Generally, you raise prices. So what the plant closings tell investors is that Dow Chemical is trying to bring supply down to where demand is. In capital markets, one does not idle capacity unless there is a compelling need.
Continued pressure on margins obviously continues to haunt DOW as they move up faster than prices. One hope for the stock at this point is for a significant stock buyback to occur.
DOW is trading at $36.58 per share within a fifty-two week range of $47.96-$33.01. Sporting a 4.59% dividend that appears safe, DOW trades at a PE of 12.3 and is significantly below its 200-day moving average. Volume the past several days has been extremely heavy as the stock has trended downward.
I am going to hold DOW in my portfolio. The price of oil may be at its peak in which case DOW is a good stock to own. The dividend does provide some cover and, the company is well managed and internationally diversified. I am not buying more on a double-down. Being foolish does not have to be taken to a lower level.
True, price increases have and are been passed along the chain, including freight surcharges of $300 per truck shipment and $600 per rail,effective August 1st.
Unfortunately Dow has announced a large number of plant idlings in ethylene oxide, acrylic acid, styrene and polystyrene due to high costs and weak demand. You don't idle plants when you have pricing power. Generally, you raise prices. So what the plant closings tell investors is that Dow Chemical is trying to bring supply down to where demand is. In capital markets, one does not idle capacity unless there is a compelling need.
Continued pressure on margins obviously continues to haunt DOW as they move up faster than prices. One hope for the stock at this point is for a significant stock buyback to occur.
DOW is trading at $36.58 per share within a fifty-two week range of $47.96-$33.01. Sporting a 4.59% dividend that appears safe, DOW trades at a PE of 12.3 and is significantly below its 200-day moving average. Volume the past several days has been extremely heavy as the stock has trended downward.
I am going to hold DOW in my portfolio. The price of oil may be at its peak in which case DOW is a good stock to own. The dividend does provide some cover and, the company is well managed and internationally diversified. I am not buying more on a double-down. Being foolish does not have to be taken to a lower level.
posted by T @ 6/24/2008 11:48:00 PM
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