Zacks Industry Rank Analysis Highlights: BASF, DuPont, Northern Tech and Gulf Resources

Thu Apr 21, 2011 9:30am EDT

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Zacks Industry Rank Analysis Highlights: BASF, DuPont, Northern Tech and Gulf Resources

PR Newswire

CHICAGO, April 21, 2011 /PRNewswire/ -- Stocks featured in this week's Zacks Industry Rank analysis include BASF (OTC: BASFY), DuPont (NYSE: DD), Northern Tech (Nasdaq: NTIC), Northern Tech (Nasdaq: NTIC) and Gulf Resources (Nasdaq: GFRE).

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Zacks Industry Rank Analysis is written by Dirk Van Dijk, CFA, Chief Equity Strategist, Zacks.com.

A Chemical Attraction

One fairly large industry, both by market capitalization and by number of firms, which is doing well and is not part of either Energy or Machinery, is the Diversified Chemical Industry. Its strong performance is a little bit counter intuitive, in that it is a huge user of Energy, specifically petroleum, and one would expect a margin squeeze from rapidly rising oil prices. It appears that demand is strong enough for Chemicals that the firms have enough clout to pass through the higher energy costs to their customers.

Chemicals go into a wide variety of products, and the strength in this group is a good indication of overall worldwide economic strength. I would note though that many of the integrated oil firms also have large Chemical operations, so strength in there and in Chemicals at the same time is not totally contradictory.

Zacks Industry Classifications

The Zacks industry classifications are very fine, with 256 different industries tracked. It is not particularly noteworthy if a single small industry shows up doing well, a single firm with good news can propel a one or two firm industry to the top (or bottom) of the charts. It is interesting when you see a cluster of similar industries at the top of the list. The same holds true for the bottom of the list. The definition of size that matters here is not the total sales or market capitalization but the number of companies in the "industry."

Diversified Chemicals Give Positive Reaction

The Diversified Chemical industry is a large one. It has 33 firms in it, and many of these firms are huge, household names, even if their direct exposure to the customer is sometimes limited. A large number of firms makes it much less likely that the industry will end up on the top (or bottom, for that matter) of the charts. The industry is currently in 18th place, an improvement of 15 spots from last week, with an average score of 2.47 down from 2.52.

I would, however, note that some of the other "industries" related to chemicals, such as the Specialty Chemical firms are not doing nearly as well on the Zacks Rank and are solidly in the middle of the pack. Those firms tend to be more stable and less cyclical than the Diversified Chemical firms. The output of the Diversified Chemical firms tends to be measured in tons, the output of the specialty firms in pounds. The Diversified Chemical firms are often major suppliers to the Specialty Chemical firms.

There is a wide spectrum of market capitalizations to choose from on the lists ranging from mega-caps like BASF (OTC: BASFY) and DuPont (NYSE: DD) down to the tiny Northern Tech (Nasdaq: NTIC). This is a worldwide industry, and several of the firms are ADRs.

Valuations are for the most part reasonable, but not super cheap, with the exception of the micro-cap Gulf Resources (Nasdaq: GFRE). However, the estimates on these firms are rising, and an estimate in motion tends to stay in motion, so the true P/E on these firms might be lower than they look based on current estimates.

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Contact: Dirk Van Dijk, CFA
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