by Mike Kapsch, Investment U Research
Thursday, January 24, 2013
Jim Cramer has one of those personalities you love to hate.
He’s wildly entertaining. Yet he’s so manic that he talks faster than he can move his lips.
His show, however educational, is on television a lot… And he pumps too many stocks as a result. Despite having previously managed a hedge fund, Cramer seems to make a lot of bad calls.
It probably sounds harsh. But I’m not actually writing today to point out Cramer’s faults. Just the opposite, in fact.
You see, when it comes to stocks in 2013, regardless of any shortcomings, I believe Cramer will be spot on about one thing… Dow Chemical (NYSE: DOW) is going to have a great year.
Dow’s Natural Gas Advantage
Cramer says Dow is a “Buy” this year, because the company is taking advantage of cheap natural gas feedstock.
Simply put, natural gas isn’t just used for fuel. Companies like Dow also use it to make other products, such as plastics and fertilizers. Cheap gas prices today are making the production costs less expensive. And that’s leaving extra cash around for firms to reward shareholders.
Investment U readers may recall, I wrote about three industries that would thrive from cheap natural gas prices (plastics, methane and biofuels) back in January of last year.
Back then, I even predicted Dow – along with Methanex (Nasdaq: MEOH), Ashland Inc. (NYSE: ASH)
and Eastman Chemical (NYSE: EMN) – would do very well in 2012.
And while Methanex, Ashland and Eastman are up 15%, 32% and 50% over the past year, Dow’s stock hasn’t budged. I know, I’m sorry.
So what will make 2013 any different?
The answer… Higher economic growth in the United States, and less exposure to Europe.
Blame the World
Last year, Dow shares were beaten down by the slowing of the global economy, mainly in Europe.
In 2011, sales were $60 billion. Last year, they fell to just around $57 billion. The biggest decline came from Europe.
But Dow hasn’t simply rested on its laurels. Over the past year, executives say they’ve aggressively moved resources out of Europe. They’ve also made some tough choices by closing and idling facilities, as well as making necessary layoffs and budget cuts.
Today, Dow’s businesses are lean and not as exposed to Europe. In fact, three years ago, the company had about 35% of its sales coming from there. Today, they represent less than 30%. And that number is also steadily declining.
At the same time, there’s good news coming out of the United States. At the end of last year, Fed officials increased their growth forecast in the U.S. from 2.3% to 3%.
In addition, Private equity investment firm Kolhberg Kravis Roberts & Co. (NYSE: KKR) also says that that energy, manufacturing, autos and housing will drive U.S. earnings and the economy higher in 2013, with the stock market pushing higher, especially, in the second half of the year.
Dow is much better-positioned to benefit from any improvements in the United States than it was in 2012. Investors already seem to be thinking the same thing, as well.
After shares fell 23% from late April to mid-November, they’ve climbed 21% since. I’d bet this positive trend will continue in 2013.