While 2022 has been a volatile year for the stock market, several chemicals-related industry groups have remained resilient. Due to favorable market conditions such as rising oil prices, chemicals stocks like Dow are well-positioned for growth.
A leader within the Dow Jones Industrial Average, Dow belongs to the plastics industry group. DOW is also showing impressive Q1 results and trading near a buy point.
In the company's recent Q1 investor presentation, Dow noted several key factors contributing to strong year-over-year growth. "Elevated oil prices and oil-gas spreads, higher operating rates, inflationary impact on pricing in (the) longer term" have caused price gains in all operating segments, businesses and regions. Additionally, supply-chain constraints have been a positive factor.
On April 21, Dow announced earnings of $2.34 per share, beating analyst estimates of $2.05. EPS increased 72% from a year ago. Meanwhile, the company's revenue came in at $15.3 billion, a 28% gain on a year-over-year basis.
Dow produced stellar earnings growth in 2021, with EPS of $8.98, up 440% from the $1.66 it posted in 2020. In 2022 and 2023, EPS is expected to decline slightly to $8.06 and $7.55, respectively.
Investing In Next-Gen Infrastructure
Dow is comprised of three main segments: industrial intermediates and infrastructure, performance materials and coatings and packaging and specialty plastics. Recently, the firm has been working to develop low-carbon technologies, as it pivots toward a more sustainable next-generation infrastructure.
Building the first hydrogen-fueled ethylene plant, developing an electric ethylene furnace, and advancing waste plastic-to-ethylene technology are a few of the company's key developments.
"This investment builds on Dow's strong leadership position and allows us to meet the increasing needs of customers and brand owners seeking to lower the carbon footprint of their products," said CEO Jim Fitterling in a news release announcing the hydrogen fueled ethylene plant.
"Our advantaged position and disciplined approach to capital investment makes us well positioned to lead the industry in decarbonizing, growing and accelerating Dow's path toward carbon neutrality."
The company is urging investors to watch near-term inflationary pressures on raw materials in the coming weeks. This will be among the most influential factors on future earnings.
Chemicals Stocks: Constructive Action In Dow Stock
Dow, a leading IBD 50 stock, is still trading inside the 5% buy zone from a cup-with-handle breakout that occurred back in April. Recently, shares have been holding above support at the 21-day line and trading in a tight range, according to MarketSmith pattern recognition. This decrease in volatility is often a positive sign.
Dow's tight action formed a fresh three-weeks-tight chart pattern, which could help propel shares to the next level. A move beyond the high of the pattern, or 70.78 plus 10 cents, would offer investors a chance to add shares at a proper buy point.
Shares closed slightly lower on Monday, down around 1%. Meanwhile, the relative strength line is slightly off highs, although it's been trending sharply higher in recent weeks.
Remember, the stock market is in a correction, so investors should refrain from new stock buys as much as possible. However, stocks nearing buy points like Dow are good additions to your watchlist.
