Getting the Yips?? - DOW???!?
I just cannot pull the trigger on Dow - DOW - $42. The stock hits a new low every day, it has a 7%+ yield, and a well above average long-term story.
What the hell am I waiting for? Sometimes a stock “acts” so bad that even I get scarred.
Have you ever seen a golfer with a real case of the “yips”. Yips does not mean missing a few short putts. Real yips is a mental/neurological condition that make great golfers line up a perfectly flat 12 inch putt and knock it 60 feet off the green, down a hill, and into a bunker. It is frighting to watch.
There is a strong fundamental story at DOW. They have been selling under-performing assets, and low cost US natural gas prices gives the company a large advantage in export markets. They have many strong businesses in packaging and tech related chemicals. It is even kind of a misunderstood spinoff since it separated from duPont in 2019. Wall Street hates it, a positive, with only 5 buys and 16 sell holds. Peak earnings were $9, and lets call the bottom $2, so the average earnings power is $5.50, making the stocks about 8x. EV/Sales is 1x. DOW has been building a new Multi-billion dollar “net zero” cracker in Canada, that will eventually be very profitable.
On last Wednesday, the new/old CFO presented at an industry conference (he was 20+ years at DOW before leaving to oversee the demise of Leggett & Platt - LEG - $12, and is now back at DOW). He did not sound excited about 2025, says that EBITDA would only “bounce $1 billion” off the 2024 bottom. The issues in China were not well discussed. There was little share buyback discussion. I was hoping for something, and got very little. I don’t need a &^%$#$%$#@ parade, I just need a glimmer of hope. Maybe DOW is “playing possum” and trying to make a large repurchase, but they are not that smart.
In the final analysis I am just a real estate (commercial and residential), auto, and China bear, and that is 25%-40% of the Dow story. Pass for right now.
Here is what else I considered in the chemicals and industrial cyclicals:
SCL - Stepan - $75 - I looked at 2 dozen, but this is my new favorite small cap chemical company. Interesting new insulation products have ramped up capital spending. I need to learn more. Maybe too much agricultural chemicals I already have exposure to.
EMN - Eastman Chemical - $102 - is my new favorite mid-cap chemical company. A spinoff long ago from Eastman Kodak (a value stock I avoided)
LYB - LyondellBassell - $77 - just DOW with more Euro exposure, and fewer neat packaging businesses
PPG - PPG Industries - $126 - well run, but too much exposure to home building and repair
TROX - Tronox - $12 - if you believe in a new housing boom, this is the stock to own, a little too leveraged for my taste
WHR - Whirlpool - $113 - the other 7% yield stock worth thinking about, maybe a tariff winner, I fear the consumer being over-leveraged
FCX - Freeport-McMoRan - $42 - copper, too much China exposure, decent miner
RIO - Rio Tinto - $62 - 7% yield, iron ore, really well run, but too much China exposure
NUE - Nucor - $142 - too much auto exposure, maybe the tariff winner, too much politics
CE - Celanese - $ 71 - too much debt, the original LBO way back in the 1980’s, well run, almost a case study in being over-leveraged
PSX - Phillips 66 - $129 - more petrochemicals than you think, too much like HF Sinclair
Maybe I have too many top-down thoughts? Maybe I am just getting the yips?
Rio Tinto sits there with 9x interest coverage and a great history of buying up cheap assets. Time to do more iron ore work. Yikes. At the same time our new Treasury Secretary- elect says there is a non-zero chance that China stocks could go to zero.