Dow (DOW) is an excellent investment for retail value investors. I am bullish since the share price is far closer to the 52-week low than the high.
Legacy, Essential, Profitable
DOW is an American legacy company founded in 1897. It develops, manufactures, and sells chemical and material sciences products.
By the way, dow is a verb. It means able or capable. This DOW can lift portfolios.
DOW markets its products globally to manufacturers of a variety of materials across a wide breadth of industries.
DOW’s material science products include polyurethanes, silicones, additives, adhesives, conductive materials, and more. This is a snapshot of a keystone company. DOW is essential to the industrial growth and economic prowess of the U.S. and has products in every developing and developed nation.
DOW beat expectations in Q4 2021 and Fiscal Year 2021. Full-year net sales hit $55 billion. Labor and supply chain issues had eased. Customers absorbed DOW’s price increases in a desultory fashion.
Q4 net income was up about 29% year-over-year. Every operating segment of DOW contributed gains to the sales climbing 34% year-over-year. Spot segments like volumes of polyurethane (-3%) fell quarter-over-quarter. Overall, price increases overcame slumps. Packaging and specialty plastics (+40% year-over-year) led to other segments also reporting healthy returns.
The DOW share price suffered in 2021 from various extrinsic factors. Shares climbed in the first half of the year. The price topped $69, but plummeted with the onset of Omicron and intensive news coverage about labor shortages, growing labor opposition to vaccines, and supply chain barriers. By December 2021, shares were $53.
News sentiment surrounding the stock is neutral over the past seven days. DOW shares, despite the strong full financial report and America’s return to normal, lag stock gains of similar companies; the P/E hovers around 7.
The average Dow price target is $69.31, suggesting 19.1% upside potential.
Analyst price targets range from a low of $55 per share, to a high of $85 per share.
I doubt there is any meaningful threat to the DOW dividend. The company holds over $13 billion in cash, equivalents, and receivables.
The cash is most likely to be used to pay down debt or buy back more shares, as management announced last year the company would do through June 2022.
I must point out that the levered beta stands at 1.28, suggesting the stock has greater volatility than the market. The CEO contends DOW revenue and profits favorably respond to periods of inflation; however, logistic constraints have increased order backlog fulfillment.
Rumors are revenue and earnings will suffer in 2022, but the CEO predicts pent-up customer demand will spark growth. The consensus is the company will report an EPS of $1.91 on April 20, 2022, versus last year’s EPS of $1.36.
The 4.75% dividend yield is another attraction. The average dividend yield is 1.54% in the basic materials sector. This makes some wonder if management will cut the dividend that has grown over the past three years.
Reports are of hedge funds selling 217,200 thousand shares over the last three months. That is not a significant number of shares. The public owns almost 33% of the shares. Institutions and funds own about 70% (~490 million).
Old, but Strong
DOW is an old company on the American business landscape, but strong like a bull. I am bullish on the stock.
The company has significant revenue growth potential, profitability, and faces few risks. Shares are most likely, I believe, to continue the recent rise in price. America and the manufacturers across the world need the products DOW sells.
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