Turning a Keen Eye on Oversold Chemical Companies?

Chemical companies are integrally linked to oil; what is bullish for oil is usually bullish for chemical prices and companies. With the recent Goldman Sachs (GS) and Morgan Stanley (MS) bullish calls on oil and other commodities, chemical companies are likely to bounce. They made a start at that on May 25. Some should also benefit from their agricultural products, which got a big lift from the USDA’s World Crop Report on May 11. Chemical companies have been one of the strongest areas in the market this year, and many believe they will continue to be strong as the economy recovers. We could be entering a “weak spot in the economy,” but there is still every reason to believe this oversold, strong industry group will rebound.

The table below has some of the fundamental data about each of the following companies: E.I. du Pont de Nemours and Company (DD), Eastman Chemical Co. (EMN), Cabot Corporation (CBT), FMC Corporation (FMC), Olin Corp. (OLN), Huntsman Corporation (HUN), and DOW Chemical Corporation (DOW). All of these have had insider selling and institutional selling over the last six months. It seems to be roughly in the same percentages with some variation, which seems more indicative of the stocks being sold off as a group than of anything else. With the bullish call on oil and other commodities by GS and MS on May 24, this selling is likely over for the near term. The fundamental data for these stocks in the table below come from Yahoo Finance and TDameritrade.

Of these seven stocks, I would tend to go against HUN and DOW because their Net Profit Margins are much lower than that of their competitors. This could change in the future, but they were up against roughly the same conditions as the other companies in the previous year and did not perform. Their five-year EPS Growth Estimates are both lower than those of the competitors in the table as well. In the case of DD, it is also a significant agriculture industry supplier. Given its numbers above, I would tend to automatically want to invest in it. For all of the others, let’s look at the charts.