Investors skilled at buying “on the dip” profited handsomely from the plastics market this year.
Once Wall Street decided that the world wasn't going to end in early March, the market began a steady climb that peaked in mid-September and remains well above its earlier depths.
Among publicly held companies with sizable plastics exposure, Dow Chemical Co., Celanese Corp., PolyOne Corp., Spartech Corp. and ICO Inc. each posted gains of 70-80 percent from their low points, based on per-share prices in early trading Oct. 12.
Not far behind that group are Eastman Chemical Co. (up 65 percent), Westlake Chemical Corp. (up 57 percent) and DuPont Co. (up 51 percent). Compounder/distributor A. Schulman Inc. appears to lag the pace with a bounce-back of “only” 34 percent, but to its credit, Schulman's per-share stock price never fell as much as many of the other firms' stock did.
None of the above can match the boomerang turn negotiated by Ferro Corp., the Cleveland-based specialty chemicals firm that generates about 25 percent of its sales from plastics-related business. In early March, Ferro's per-share stock price bottomed out at 86 cents. Then the comeback began. By late September, it briefly exceeded $10, and, as of Oct. 12, it stood at $8.76 — a 90 percent improvement.
How did all these firms rescue themselves from the abyss? In many cases, they made difficult choices to close facilities and reduce employee totals. Several also overhauled purchasing and inventory systems to find savings. Some also were helped out by export markets, which were made more attractive by a weaker dollar and relatively low prices for crude oil and natural gas.
Many of the above stocks already are down from their late September highs. Analyst Kevin McCarthy with Bank of America/Merrill Lynch pointed out in a recent note to investors that “economic data are not inspiring much confidence as we enter the final quarter of the year.” McCarthy also said that several economic indices recently failed to meet expectations, and that shares in chemical firms sold off nearly twice as much as the broader market in the first week of October. He added that year-end destocking could result in a pause in the market's “cyclical upswing.”
In a second note, McCarthy said that some plastics and chemicals firms still may benefit from positive third-quarter financial reports. Bank of America/Merrill Lynch recently raised its estimates and price targets for Dow and DuPont.
The other half of buying low is selling high, and from McCarthy's observation, it sounds like that's just what some investors already have done. But even if the run is over, it's a lot easier for top management at the firms listed above to face their boards now than it was six months ago.
Esposito is an Akron-based Plastics News senior reporter and the primary host of PN's Material Insights videos online at plastics news.com/materialinsights.
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