What Do These Factors Say About Dow Chemical?

With shares of Dow Chemical (NYSE:DOW) trading around $31, is DOW an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Dow Chemical manufactures and supplies chemical products used as raw materials in the manufacture of customer products and services worldwide. The company combines the power of science and technology to passionately innovate what is essential to human progress. It also connects chemistry and innovation with the principles of sustainability to help address many of the problems, such as the need for clean water, renewable energy generation and conservation, and increasing agricultural productivity. With the positive impacts the company is making, look for Dow Chemical to remain a solid profit machine in the future.

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Head on over to the next page to explore the technical landscape of Dow Chemical’s stock…

T = Technicals on the Stock Chart are Mixed

Dow Chemical seems to have found a long-term value range between the $25 and $40 per share. Over the last decade, the stock has spent most of its time in this range. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Dow Chemical is trading around its tangled key averages which signal neutral price action in the near-term.

DOW

(Source: Thinkorswim)

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Taking a look at the implied volatility (red) and implied volatility skew levels of Dow Chemical options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Dow Chemical Options

23.57%

43%

36%

What does this mean? This means that investors or traders are buying a below average amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

April Options

Steep

Average

May Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a below average amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Dow Chemical’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Dow Chemical look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-3000%

-39.13%

-34.52%

-35.19%

Revenue Growth (Y-O-Y)

-1.28%

-9.73%

-9.60%

-0.07%

Earnings Reaction

-6.96%

4.65%

-3.57%

-3.42%

Dow Chemical has seen decreasing earnings and revenue growth rates over the last four quarters. From these figures, the markets have not been too happy with Dow Chemical’s last four earnings announcements.

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P = Average Relative Performance Versus Peers and Sector

How has Dow Chemical stock done relative to its peers, DuPont (NYSE:DD), Albemarle (NYSE:ALB), Ashland (NYSE:ASH), and sector?

Dow Chemical

DuPont

Albemarle

Ashland

Sector

Year-to-Date Return

-3.68%

7.11%

-3.06%

-12.55%

-1.24%

Dow Chemical has been an average relative performer year-to-date.

Conclusion

Dow Chemical is an established company that attempts to provide products that will increase global growth. The stock has spent its time in a range for most of the last decade. Earnings and revenue growth rates are declining which has not helped the stock travel higher. Relative to its peers and sector, Dow Chemical is an average performer. WAIT AND SEE if Dow Chemical can improve its revenue and earnings.

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