בס״ד

Chemicals: The Lifeblood of the Bull (DOW)

Posted on June 27, 2022

A 3233% Take Could Be Yours…

Dow Inc. (NYSE:DOW) is a dues-paying member of the Dow Jones 30 Industrial Average and the Fortune 500.

So she’s got a reputation to look after.

Maybe that’s why the company’s literature speaks incessantly about “sustainability” and “decarbonization” and “biodiversity” while, of course, the operation itself produces some of the most caustic and toxic pollutants on the planet.

It may also explain why they’ve dropped entirely the ‘chemicals’ label from their company description, preferring the more palatable 21st century moniker: ‘provider of materials science solutions’.

Sure is.

We live in a world where words no longer have any meaning – so it fits.

Indeed, now that we think of it, maybe investors got fed up with the company’s euphemisms and doublespeak, and gave the stock an oyster-shuck over the last ten sessions that sent it cascading lower by more than 25% in the most exquisite rendition of Niagara Falls we’ve seen in the market all year.

Just wait ‘til you see the chart…

————————————

That said, DOW now boasts one of the finest free cash flow and dividend yields in the market, putting it among the few go-to stocks for value hunters now in search of a buy.

We are not yet calling it a BUY, however, though we believe an interesting trade can be whittled from it on account of its unique fundamentals and a current option pricing anomaly.

Oh…?

It’s a SPECULATIVE trade that could bag us a healthy 3233% return.

But more on that in a moment.

Do it, sister!  No one cares anymore!

Get yourself a ‘materials science solution’ and get nautical!

We’re examining fundamentals now, and, by golly, it’s been years since we’ve seen the likes of these.

Check them out –

  • The stock’s P/E is 5.79 and forward P/E is 7.16.  And who can argue with that?
  • Dividend Yield is a polypropylene 5.27%, and
  • Price to Book is an acrylic emulsive 2.07.  Nothing chemical there…
  • Earnings expectations for the next year and five years are both negative, according to consensus, but that shouldn’t cramp us from profiting from our trade over the near term.

We actually like the fact that the last five earnings reports on the company have been DOWNGRADES, including from Credit Suisse, Citicorp and Piper Sandler.

It’s a good sign because analysts are almost always behind the curve.  That is, they’re chasing price, offering buy ratings at tops and sells at bottoms.

All five reports were delivered in the last 30 days.

Now to the chart –

Technically, we have a great deal to commend to the bulls.

  1. First, RSI is coming out of a full-week, deeply oversold condition (in green).
  2. That, after price plummeted over 25% (as mentioned above) and volume levels ratcheted higher (in purple) – a potential sign of accumulation.
  3. MACD is now rolling higher (slowly), indicating a momentum shift from bears to bulls is underway, and
  4. We have a series of four waterfall decline gaps (in blue) that will have to be filled before any further drop can ensue.
  5. But we’re looking for a sharp bounce higher now to the first gap at 54 and possibly the second at 57.  Major resistance arrives at the bunched moving averages at 61 – and we don’t believe (at this stage) the stock has any hope of gaining that level.

So we’ve packaged the setup in cellulose ethers, sprinkled it liberally with redispersible latex powders and scienced out a SPECULATIVE bet that could deliver as much as 3233% in less than three weeks.

And it goes like this –

A Jew and His Money recommends you consider buying the DOW July 15th 54/57 CALL spread* for $0.96 (1.37/0.41) and selling the DOW July 15th 53/50 PUT spread** for a credit of $0.87 (1.59/0.72).  Total debit on the trade is $0.09.

[*Buy the 54 CALL and sell the 57 CALL.  **Sell the 53 PUT and buy the 50 PUT.]

Rationale: time remaining to expiry on this one is less than three weeks, and that’s why we’ve labeled it SPECULATIVE.

That said, it could deliver a very substantial 3233% in that time frame.

And wouldn’t that be jovial.

Max gain is $2.91 (on $0.09 spent).

Max loss is $3.09 (difference between the PUT strikes plus the initial debit).

Breakeven is $54.09, just 1.7% above current price.

————————————

When the story’s ultimately written on the chemical industry, there won’t be a lot to say.

The number that will hang for knowingly poisoning the masses will be legion.

And history, unfortunately, has a way of losing count when the numbers get that big.

May the G-d of Israel protect you and yours from the toxins that envelop us.

With kind regards,

Hugh L. O’Haynew

 

Leave a Reply

Your email address will not be published. Required fields are marked *