Sherwin-Williams Company (SHW), LyondellBasell Industries NV (LYB), PPG Industries, Inc. (PPG) – Pick Your Poison: Which Chemical Companies Should You Buy?

Olefins prices a near term concern

LyondellBasell Industries NV (NYSE:LYB) is a leading producer of high density polyethylene, or HDPE, which is the third biggest plastic material used in the world. It is expected that demand for HDPE will be 38 million tons this year, showing growth of 4% year-over-year. This rising demand will increase the sales volume for the company.

However, in the second quarter, the company is expected to face margin issues from its olefins segment. In the second quarter, naphtha, which is used to produce olefins, declined in price by around 9% from the first quarter level. Despite savings, olefins prices declined more than 9%, offsetting naphtha’s cost benefits. It is expected that in the second quarter the company will generate EBITDA from European olefins around $194 million, a reduction from $225 million in the first quarter.

LyondellBasell Industries NV (NYSE:LYB) had total cash of $2.88 billion by the end of the first quarter of 2013. The company planned to utilize this cash for share repurchases. It will repurchase 10% of its total 574 million outstanding shares at a cost of around $3.7 billion. It is scheduled to start in the second half of 2013 and finish within the following 12 months. This was earlier expected to take 18 months for completion. The faster time frame will be of greater benefit to the company’s EPS.

Bottom line

Sherwin-Williams Company (NYSE:SHW) is increasing its paint store group by increasing the number of stores, and its acquisition of Comex will expand its footprint in Mexico. PPG Industries, Inc. (NYSE:PPG) is expected to take larger market share in BPA-NI products. Furthermore, its acquisition of Akzo’s North American business will improve its addressable market. I recommend buying these two stocks. LyondellBasell Industries NV (NYSE:LYB) is expected to experience decline in earnings due to the fall in olefins prices. However, its repurchase program will benefit its stock price in the future. I recommend holding this stock.

The article Pick Your Poison: Which Chemical Companies Should You Buy? originally appeared on Fool.com and is written by Shweta Dubey.

Shweta Dubey has no position in any stocks mentioned. The Motley Fool recommends Sherwin-Williams. Shweta is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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