Turnarounds: Chemically Speaking

02/19/2015 9:00 am EST


George Putnam

Editor, The Turnaround Letter

In a recent special feature, George Putnam, editor of The Turnaround Letter, looks to chemical companies, which have petroleum-based raw materials as a significant input into their products. 

Lower oil prices should reduce the cost of their raw materials, which should lead to better profits. Investors who are willing to get in earlier and be patient could see significant upside in these stocks.

Axiall (AXLL) is a major supplier of chlorovinyl, aromatic chemicals, and building products. Crude oil and natural gas derivatives are primary raw materials and so the company’s costs will benefit from the current level of oil and gas prices. 

Huntsman (HUN) is a large diversified chemical company that derives about three fourths of revenues from polyurethane and performance chemicals. With management already having focused on cost reductions including divesting low-margin businesses, the company is well positioned to benefit from lower energy costs. 

Kraton Performance Polymers (KRA) invented synthetic rubber some 50 years ago, which is used in a wide range of consumer and industrial products. Its primary raw materials include butadiene, styrene, and isoprene, all of which have costs closely correlated with energy prices. 

LyondellBasell Industries (LYB) operates across the entire petrochemical value chain, converting oil & gas into plastic resins and other chemicals. The potential for an economic rebound in Europe could provide an additional boost to the Netherlands-based firm.

Westlake Chemical (WLK) is a maker of chemicals, vinyls, polymers, and fabricated building products, that in turn, serve as raw materials for many diverse consumer, industrial, and construction markets. 

Not only should Westlake benefit from lower energy pricing, but the positive effect would be magnified by any pickup in the US housing and construction markets. 

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