Saturday, June 26, 2010

"Sometimes you can read the tea leaves in one stock sector and gleen some good information about another stock sector"

Dow Jones 10,144 (Down) Week ending 06/25/2010

My friend Dave Thomas at work is always leaning over my cube to talk about the Phillies and to ask me why the stock of QUAKER CHEMICAL CORP. (Symbol KWR, $29.03) keeps going up and did I buy it yet? We started looking at the stock back when it was trading at $12-$14 and I kept telling Dave, who lives in Conshohocken where Quaker is based, that I could not figure out why the stock was rising this dramatically. (The KWR Total Return for 12 Months is 125.4%!).

So I listened to advice instead of giving advice this time and decided to check it out. Quaker Chemical is a global provider of process chemicals, chemical specialties, services, and technical expertise to a range of industries-including steel, automotive, mining, aerospace, tube and pipe, coatings and construction materials. I discovered that their chemical coolants have high demand in the Steel and Aluminum processing and grinding environment and that KWR had won a contract for a major automotive powertrain manufacturer. They had vastly improved their processes with their expertise in this area, certainly a value-add to the customer. Only 2 analysts cover this stock and both have a buy recommendation, so I would say you can go ahead and buy it here. So why all the demand you ask? The tea leaves lead me to the Steel industry sector and what appears to be explosive earnings coming in 2011.

The first thing I like about Precision Castparts Corp. (Symbol PCP, $ 108.56) is that "The Chairman" Mario Gabelli's GAMCO funds own a chunk of it, which is pretty reassuring. The company is projecting 2011 earnings per share of $7.43 and $8.58 per share in 2012. The company has a 5 year sales growth rate of 16.57%. It looks really good here.

The research on Quaker also lead me to United States Steel Corp. (Symbol X, $ 43.24). Between the improving automobile industry, (the average age of a car right now is 9 years, so people are due for a replacement), and the demand for steel in China and India, this looks interesting The earnings per share for 2010 is $1.87 and then ramps up dramatically in 2011 to $5.76 per share. The long term growth rate for earnings per share is 30%. Another buy.

Then if you are looking for a lower priced stock that you can buy a few more shares of, Steel Dynamics Inc. (Symbol STLD, 14.08) might be the ticket for you. They just had a soft quarter and the stock has come down since March so you get a bargain purchase. Earnings should recover nicely in 2011 to $1.95 per share.

So searching in chemicals led me to the Steel sector. I will keep a look out
for other cross currents across sectors that may bring up more bargains.

Sincerest regards and Go Phillies,


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