Eastman Chemical (EMN-N)

Cyclical business that hasn't performed well.
Seasonality affecting share price (May-October).
Expecting better performance of shares.
Sign that economy is soft.

A commodity chemical company that does a lot of recycling. He understands it's very hard to get a hold of recycled plastic, so he's very negative about this group.

Just delivered a beat in their quarterly report last week, but the stock actually got hit. Days later, Bank of America upgraded EMN and the stock rebounded. He recommended this in June because there's a long-term shortage of the chemicals they supply. Also, EMN has developed a technology that makes recycled plastic a lot more lucrative. EMN raised its full-year forecast by a strong 50 cents. It trades at 13x earnings and should be $5-6 higher.

(A Top Pick May 8/17. Up 25%.) Still has lots of upside potential, but is coming hard up against technical resistance, so is watching to see if it will break out. There is enough potential that it should be able to do it. Needs another $2 or $3 on the upside, and then we get a clear technical break out, and then it would be okay to Buy. Right now, he would be cautious.

Chemicals are good movers toward the end of an economic cycle. With weakness in Natural gas, it helps them. They have a 2.6% dividend and a 50% upside potential. If he gets 15-20% by next year he will be happy with it. (Analysts’ target: $90.00.

She likes it and in general the materials sector also. They have the second highest earnings growth for 2017 and most stocks are trading cheaply. There is good potential upside for this year.

A very large, highly diversified chemical business that manufactures a series of different plastics, polymers, olefins as well as synthetic fibers. One of the biggest challenges has been compression of crack spreads that have been tightening, so any of the plastics they are making are getting more expensive and margins are getting squeezed. Another challenge is the reduced demand for acetate tow, of which they are the biggest manufacturer, which are used primarily for filters for cigarettes and ink reservoirs for pens. The amount of leverage on the balance sheet is pretty high, at about 3.2 to 4 times. However, valuation is pretty compelling. Price to cash flow is at about 6X and earnings at about 9.6X. If you can stomach the volatility it is probably going to be a really good business to hold. They are committed to dividend growth. Very well diversified.

A really volatile name in some ways. Compared to other chemical companies, they have been pushing really hard to get into more of the specialized product to get a higher margin and more diversification, but are still exposed to more of the commodity type parts of the market. A lot of the sales are going into Asia, which is where you are seeing some weakness. There is a lot of leverage in the model, where there is not a lot of control. She is on the sidelines for this.