Utilities SPDR (ETF) (XLU), CenterPoint Energy, Inc. (CNP), EQT Corporation (EQT): Materials Selling Is Overdone

Dow’s agricultural sciences achieved record sales on the back of strong farmer demand; sales surpassed $2 billion and it was the third straight year of double-digit sales growth: Latin America delivered the strongest growth, with North America flat, but European volumes lower. According to Trefis, Agricultural Science Products account for 16% of Dow’s share price, but this percentage is likely to grow as successes build. Monsanto Company (NYSE:MON)‘s 50% jump in profit from Roundup sales points to the robustness of agricultural productivity: Dow’s own crop protection sales were up 12% for new products. In addition, Dow also has cross licensing agreements with Monsanto for next-generation SmartStax corn, cementing Dow AgroSciences as a collaborative leader in the space, and offering it multiple revenue opportunities.

However, over half of Dow’s stock price is attributed to Performance Plastics & Materials. Sales from this division amounted to $3.5 billion, but this was down 3% from the same quarter of last year, although margins on those sales improved. The company is addressing underperformance by streamlining its operations: it is divesting businesses that don’t live up to expectations. Since 2009, it has sold businesses that contributed up to $8 billion in revenue; with $1.5 billion scheduled for divestment over the next 18 months. This is a considerable undertaking given total revenues for the year come to $56 billion.

Summary

As a sector with both defensive and cyclical tendencies, it can either double up and catch the best of both worlds, or suffer the worst of either. At the moment, Materials is catching it bad with both barrels: deflationary commodity pricing, depressed demand from Europe, flat growth in North America and increasing weakness from Asia.

However, in this environment, bargains are born. Better still, stocks like Air Products & Chemicals and Dow Chemical have proven themselves resilient to the selling and are primed to gain when the sector moves back into favor. Now is a good time to give these stocks some attention, and be ready to act when the broader market turns as there is a good chance stocks like these will be doing the driving for the next rally.

The article Materials Selling Is Overdone originally appeared on Fool.com and is written by Declan Fallon.

Declan Fallon has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Declan 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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