Right, and now you have MSDW out there pounding the table on a stock that has risen 45% in the last three months and they only have rated "outperform"?? Why not a "Strong Buy"?? They are inclined to raise thier price target from 120 to 150 (a must since the stock's now at 130) based on what??? Has MSDW raised earnings estimates? - not yet anyway, the highest yr2000 est for Dow (out of 18 analysts who cover it) is still only $6.40 with a mean estimate of $5.60 (up about 6% in the last week). The fundamentals don't even come close to supporting this price, the only thing moving Dow Chemical stock higher now is momentum. So MSDW is pounding the table?? come on, give me a break ... this is the institutional version of "pump and dump".
Dow has been out of favor w/analyst and institutional investors for several years now because of their inability to break even during the trough of the business cycle. Dow got killed during the last trough and analyst lost favor with Dow. In the last few years, Dow has seriously changed it's business model and actually made money during the 1st Qtr.99. Dow is quickly proving to analyst and institutional investors that it is not the same old company. I'll agree with you to some extent that the price is probably a little driven right now because of cash flowing into cylical stocks...but never before during cash infusions to cyclical stocks has Dow Chemical been such a favorite among institutional investors.
Don't take my post wrong. I think Dow is a fine company and usually it's stock is a good investment. They did have a very good 1stQ. I've owned Dow stock since 1979 and in fact I still have some in a dividend reinvestment account though will disclose that as of yesterday afternoon (and more this morning) I am net short the stock.
My beef is with the likes of Morgan Stanley Dean Witter who "pound the table" on Dow stock in what can only be (given the facts) an obvious attempt to push the stock higher so thier large accounts can sell. The fact is they only have Dow stock rated a "market outperform" not "strong buy". They raised to to Market outperform from "neutral" only last February. The stock has had a great run and is now over MSDW's original 12 month price target of $120 (and did it w/in 2 months). What's changed (other than the stock price) since February to justify this sudden pounding??? First Quarter results have been out for more than a week now and still no publicized upgrade or upwards earnings revisions from MSDW just a bunch of hype that they managed to get in front of the public through CNBC. IMO they're really advising thier accounts to lighten up on any further strength.
At it's core, Dow is a global basic chemical company. For sure there are some specialty and nice performance chemical niches but the fortunes of Dow (for the forseeable future) will swing with the global economy and the prevailing supply/demand dymnamics. This is basically the same Dow we've known for years. To its credit the present management team has been focused on putting together a business portfolio whos constituents are evaluated on thier ability to give a positive return on capital. This will help ensure that Dow as a whole remains competitive in the global market but will not change the cyclic nature of the business nor the underlying secular growth potential for basic chemicals.
Even with a return to former growth levels in Asia, Latin America and Europe, the underlying long term global growth potential for basic chemicals is still only around 8-10%. Add in a nice consistent very dependable dividend of around 3% and you get a company that should be valued on average (on a price to earnings basis) somewhere in the low to mid teens. This obviously will rise and fall with the prevailing expectations for future performance. Which is where we find ourselves right now. What is the real potential for future earnings performance and is $130/share a reasonable price to pay for those earnings.