Dow Inc., a leading specialty chemicals and plastics company, is poised to offer investors a profitable opportunity, according to J.P. Morgan analyst Jeffrey Zekauskas. With an appealing dividend, a strong balance sheet, and potential gains from rising oil prices, Dow’s stock is worth considering.
Strong Stock Performance
Despite hitting a four-month low, Dow’s stock (DOW, -1.47%) has rebounded with a 1.5% increase in premarket trading. This growth places Dow ahead of other gainers in the Dow Jones Industrial Average (DJIA), breaking a six-day losing streak.
Upgraded Rating and Price Target
Zekauskas has upgraded his rating on Dow’s stock from neutral to overweight, reflecting a positive outlook on the company’s future performance. He has set a target stock price of $55, representing a 9.5% upside from the previous closing price of $50.25.
Attractive Dividend Yield
Investors can enjoy a substantial dividend yield with Dow’s stock. At Friday’s closing price, the dividend yield stands at 5.6%. To put this into perspective, the dividend yield for the Materials Select Sector SPDR ETF (XLB) is 2.1%, and the implied yield for the S&P 500 index (SPX) is 1.6%. Zekauskas suggests that Dow may even have room to increase its dividend given its strong cash flows.
Potential Boost from Rising Oil Prices
Zekauskas predicts that Dow’s stock may benefit from the recent surge in oil prices. As North American companies that rely on natural gas liquids as feedstock see increased profits during periods of rising oil prices, Dow could experience substantial gains. Despite the stock’s recent decline, Zekauskas believes that it could potentially respond positively to higher oil prices.
Favorable Market Conditions for Polyethylene Prices
Another factor that strengthens Dow’s investment potential is the current market conditions for polyethylene (PE) prices. Zekauskas anticipates that domestic PE prices will continue to rise due to strong export demand and limited new supply coming online. This favorable market environment further supports Dow’s positive outlook.
Conclusion
Dow Inc.’s stock presents an attractive investment opportunity. Investors can benefit from the company’s appealing dividend yield, strong balance sheet, and potential gains from rising oil prices. Additionally, the improving market conditions for polyethylene prices contribute to Dow’s positive outlook. With these factors considered, Dow’s stock holds promising potential for investors.