US chem stocks surge on finance-market optimism

13 October 2008 19:22  [Source: ICIS news]

NEW YORK (ICIS news)--US chemical stocks surged with the overall market on Monday on optimism about coordinated global efforts to stem the financial crisis.

Among the major and diversified group, shares of Dow Chemical were up by $1.23 (€0.91) (5%) to $26.63, DuPont up by $2.07 (6.2%) to $35.47, FMC up by $5.43 (16.5%) to $38.30 and Celanese up by $2.52 (14.6%) to $19.84 in early afternoon trading.

In the specialty chemicals camp, Rohm and Haas was up by $6.82 (11.1%) to $68.20, Rockwood up by $2.22 (15.5%) to $16.54, Nalco up by $1.31 (10%) to $14.45 and Lubrizol up by $3.91 (12.3%) to $35.59.

Macro drivers will play a greater role in influencing stock prices, said Bank of America analyst Kevin McCarthy.

“We expect investors to focus almost entirely on future growth and risks thereto,” McCarthy said in a research note.

“Relative to prior quarters, we anticipate greater focus on five issues: outlook statements, including underlying assumptions; early fourth quarter trends; cyclical risks and stress testing thereof; balance sheets; and potential for accelerated share repurchases,” the analyst added.

Bank of America economists expect US industrial production to decline by 2.9% year over year in the third quarter, fall 4.2% in the fourth quarter and fall 1.3% for all of 2009, McCarthy said.

For the chemical group, the analyst expects year-over-year earnings per share (EPS) growth to decelerate, from 11% in the second quarter to 8% in the third quarter, “with highest growth from specialty, agricultural and industrial gas names”.

While nearly all chemical stock prices look inexpensive, McCarthy said he was most confident about growth prospects for Monsanto and FMC, “which also have great balance sheets”.

Jefferies analyst Laurence Alexander said the chemical sector “appears oversold and should benefit from a relief rally if government reflation efforts gain credibility in the near term”.

Alexander recommended that investors focus on companies such as Airgas and Praxair, that combine a more stable earnings profile, ongoing structural improvements, solid balance sheets and secular growth themes.

($1 = €0.74)

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By: Joseph Chang
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