Finding the Right Chemistry – A Look at a Historical Analyst’s Approach

by David Jenyns on April 22, 2009

Emil Weiss, of Bache & Co., has developed an excellent pattern for projecting chemical earnings and stock prices on the basis of historical data.

Stock prices, contends Mr. Weiss, are a function of historical price-earnings ratios, which in the case of well-seasoned chemical industry stocks, have been quite firmly established for years. The five stocks used in the survey were Rohm and Haas, Union Carbide, Olin Corporation, Monsanto Chemical and Hooker Chemical. Should this projected earnings rise materialize, Mr. Weiss believed “the price-earnings multiple for the entire chemical group will move from 18.5 times (peak estimated earnings) where it is now to about 26.2 times earnings, the average peak level of the past five years for this group as a whole.”

Historically, chemical industry stocks enjoy comparatively high price multiples, ranging from 18 to 26 times earnings. Onyx Chemical makes surface-active agents, resin-polymers, catalysts and wax emulsions. Its growth will probably come from new products, new applications of existing products, and acquisitions. An annual growth rate of even six or seven percent in the chemical industry is considered good.

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