A Chemical Attraction - Zacks Industry Rank Analysis
19 Abril 2011 - 7:00PM
Zacks
Industry Rank Analysis 4-20-11
The top of the Zacks Industry list continues to be dominated by the
Machinery and Energy industries. However, I wrote about each of
them in the last two weeks, so I will not waste my -- or more
importantly, your -- time by repeating myself. Though if anything,
they are even stronger now than when I wrote about them.
One fairly large industry, both by market capitalization and by
number of firms, which is doing well and is not part of either
Energy or Machinery, is the Diversified Chemical Industry. Its
strong performance is a little bit counter intuitive, in that it is
a huge user of Energy, specifically petroleum, and one would expect
a margin squeeze from rapidly rising oil prices. It appears that
demand is strong enough for Chemicals that the firms have enough
clout to pass through the higher energy costs to their
customers.
Chemicals go into a wide variety of products, and the strength in
this group is a good indication of overall worldwide economic
strength. I would note though that many of the integrated oil firms
also have large Chemical operations, so strength in there and in
Chemicals at the same time is not totally contradictory.
Zacks Industry Classifications
The Zacks industry classifications are very fine, with 256
different industries tracked. It is not particularly noteworthy if
a single small industry shows up doing well, a single firm with
good news can propel a one or two firm industry to the top (or
bottom) of the charts. It is interesting when you see a cluster of
similar industries at the top of the list. The same holds true for
the bottom of the list. The definition of size that matters here is
not the total sales or market capitalization but the number of
companies in the "industry.”
Diversified Chemicals Give Positive Reaction
The Diversified Chemical industry is a large one. It has 33 firms
in it, and many of these firms are huge, household names, even if
their direct exposure to the customer is sometimes limited. A large
number of firms makes it much less likely that the industry will
end up on the top (or bottom, for that matter) of the charts. The
industry is currently in 18th place, an improvement of 15 spots
from last week, with an average score of 2.47 down from 2.52.
I would, however, note that some of the other “industries” related
to chemicals, such as the Specialty Chemical firms are not doing
nearly as well on the Zacks Rank and are solidly in the middle of
the pack. Those firms tend to be more stable and less cyclical than
the Diversified Chemical firms. The output of the Diversified
Chemical firms tends to be measured in tons, the output of the
specialty firms in pounds. The Diversified Chemical firms are often
major suppliers to the Specialty Chemical firms.
The first table shows the Diversified Chemical stocks that hold the
enviable Zacks #1 Rank (Strong Buy). The second table shows the
Zacks #2 Ranked (Buy) firms. If the Zacks ranks were random, one
would expect that only 5% of the firms in an industry would be
“#1s” and 15% would be “#2s.” That is not the case with the
Diversified Chemicals. Six of them (18.2%) have Zacks #1 Ranks, and
eight (24.2%) have Zacks #1 Ranks.
There is a wide spectrum of market capitalizations to choose from
on the lists ranging from mega-caps like
BASF
(BASFY) and
DuPont (DD) down to the tiny
Northern Tech (NTIC). This is a worldwide
industry, and several of the firms are ADRs.
Valuations are for the most part reasonable, but not super cheap,
with the exception of the micro-cap
Gulf Resources
(GFRE). However, the estimates on these firms are rising, and an
estimate in motion tends to stay in motion, so the true P/E on
these firms might be lower than they look based on current
estimates.
Number 1 Ranked Firms
Company |
Ticker |
Market Cap ($ mil) |
P/E Using Curr FY Est |
P/E Using Next FY Est |
% Change Curr FY Est - 4 wk |
% Change Next FY Est - 4 wk |
Current Price |
Basf Ag-Adr New |
BASFY |
$85,152 |
11.17 |
10.44 |
4.00% |
13.22% |
$92.71 |
Ppg Inds Inc |
PPG |
$14,915 |
14.59 |
13.43 |
5.88% |
3.59% |
$92.65 |
Huntsman Corp |
HUN |
$4,739 |
14 |
11.02 |
1.35% |
1.49% |
$19.69 |
Kronos Worldwd |
KRO |
$3,359 |
13.26 |
10.07 |
0.00% |
0.00% |
$57.97 |
Olin Corp |
OLN |
$2,005 |
14.71 |
11.78 |
25.97% |
31.94% |
$25.16 |
Gulf Resources |
GFRE |
$170 |
2.69 |
2.48 |
0.83% |
N/A |
$4.88 |
Number 2 Ranked Firms
Company |
Ticker |
Market Cap ($ mil) |
P/E Using Curr FY Est |
P/E Using Next FY Est |
% Change Curr FY Est - 4 wk |
% Change Next FY Est - 4 wk |
Current Price |
Du Pont (Ei) De |
DD |
$50,849 |
14.81 |
13.17 |
0.82% |
1.36% |
$54.89 |
Praxair Inc |
PX |
$31,316 |
19.03 |
16.78 |
0.14% |
0.11% |
$103.15 |
Lyondellbasel-A |
LYB |
$23,294 |
13.12 |
11.72 |
3.05% |
-0.54% |
$41.01 |
Akzo Nobel Nv |
AKZOY |
$16,903 |
14.56 |
12.53 |
0.00% |
0.00% |
$72.39 |
Celanese Cp-A |
CE |
$7,067 |
11.34 |
9.89 |
0.63% |
0.58% |
$45.29 |
Methanex Corp |
MEOH |
$2,957 |
15.61 |
10.52 |
0.39% |
1.68% |
$31.90 |
Innophos Hldgs |
IPHS |
$1,002 |
12.02 |
11.28 |
0.00% |
0.00% |
$46.60 |
Northern Tech |
NTIC |
$69 |
18.17 |
14.4 |
0.57% |
0.00% |
$15.99 |
In evaluating the Zacks Industry Ranks, you want to see two
things: a good overall score (low, meaning more Zacks #1 and #2
Ranked stocks than #4 or #5 Ranked stocks) and some improvement the
relative position from the prior week. It is also helpful to
understand exactly what the Zacks Industry Rank is.
The Zacks Industry Rank is the un-weighted average of the
individual Zacks ranks of the firms in that industry. It does not
matter if the stock is the 800 lb gorilla that dominates the
industry or some very small niche player in the industry -- they
have the same influence on the industry rank.
Also, that means that the bigger the industry in terms of number of
firms, the less influence any given company has on the industry
rank. It also implies that small industries, with just two or three
firms, should be the ones found at either the top or the bottom of
the list. After all, if there are only two firms in the industry,
it is relatively easy to get a Zacks rank of 2.00 (i.e. one with a
Zacks Rank of #1 and the other with a #3). Right now, that industry
rank would be tied for 6th place among the 255 industries
tracked.
The same obviously goes for the bottom of the list as well. If
there are 50 firms in the industry, and it ends up at one of the
extremes, that means there has to be something pretty significant
going on. Thus, I do not always focus on the very highest rated
industries, but on the highest rated ones in which there are a
large number of firms.
Click here for the Zacks Industry Rank List:
http://www.zacks.com/zrank/zrank_inds.php
BASF AG-ADR NEW (BASFY): Free Stock Analysis Report
DU PONT (EI) DE (DD): Free Stock Analysis Report
GULF RESOURCES (GFRE): Free Stock Analysis Report
NORTHERN TECH (NTIC): Free Stock Analysis Report
PPG INDS INC (PPG): Free Stock Analysis Report
Zacks Investment Research
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