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This $31 billion company never fails to impress. Biggie Dow Chemical (NYSE: DOW  ) has been all over the news recently, first for the rollout of the one-of-its-kind solar power shingle, and then for its big agreement with a Saudi oil company.

Things have been good for the chemicals industry in general, as was evident from the superb results most companies in the field came out with in their last quarters, including Dow. Does all of this good news make the company a must-buy now? I'd like to do a little more homework before taking a call on any stock. Take a cue from the following to make your decision on Dow.

Growing margins
Strong growth in all operating segments has been pushing up Dow's top line. What's more, the company has been doing extremely well in all geographic areas, led by robust demand from the emerging markets. Dow has also been hiking prices to tackle inflationary pressures. All these factors have helped the company's revenues grow at 11.4% in the past 12 months.

What has been impressive is the strong 32.9% growth in Dow's one-year bottom line, a major jump from a negative rate of 6.9% in the past half-decade. Growing top line along with tight control on expenses helped boost margins.

Great going!
Dow's growth initiatives have also been impressive. From acquisitions to joint ventures, the company has been reaching out all over. The best part is Dow's keen eye on making the most from emerging markets, where revenues reached record highs recently.

Dow's investment in research and development remains strong. The latest feather it has added to its cap has been the introduction of solar roofing shingles in collaboration with homebuilder D.R. Horton (NYSE: DHI  ) . With environmentally friendly products catching the eye of the world, it could mean tremendous opportunities for Dow.

Dow's recent bet on bioplastics is also a welcome move. But nothing can be bigger for Dow right now than the joint venture it has signed recently with a Saudi Arabian oil company. Aimed at building one of the world's largest chemical facilities, the venture will target markets such as China and Africa for the products that are expected to be churned out from the new facility in 2015. Great going indeed!

Easing a burden
In spite of heavy investments, Dow's total-debt-to-equity ratio, which stands at 80.2%, has been reducing gradually. In the first half of this year, Dow retired around $4 billion of debt, which will help reduce its interest burden by around $250 million annually, which is good news. Strong operating margins, interest coverage ratio of 3.1 times and cash balance of $2 billion provides enough comfort for Dow's debt levels.

Value insights
Good performances and financial stability is fine. But is Dow's valuation cheap when stacked against some of its peers'? Let's take a look.


Trailing P/E

Forward P/E


Dow Chemical 11.7 8.9 1.55
DuPont (NYSE: DD  ) 17.1 10.3 3.46
Huntsman (NYSE: HUN  ) 9.1 5.7 1.11
Albemarle (NYSE: ALB  ) 13.0 9.9 2.52
Celanese (NYSE: CE  ) 12.4 8.3 4.40

Source: S&P Capital IQ.

Dow looks cheap on an absolute basis, and when compared to its peers on a trailing P/E basis. That the company's earnings are expected to grow is also evident from a lower forward P/E, suggesting a good possible upside for the stock.

A price-to-book value on the lower end of the spectrum and a decent return on equity of 13.8% further add to the optimism. But what you'll love most about Dow is its awesome dividend yield of 3.6%.

The Foolish bottom line
Dow looks well poised to grow, and I definitely wouldn't mind placing a bet on an ever-growing company. What about you?

Stay updated on Dow's news and analysis by clicking here to add it to your stock watchlist.

Neha Chamaria does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 21, 2011, at 12:56 PM, gymbee wrote:

    While agreeing on it being a good investment, when i see its 52 week high at $42 and change, and now I see a price at $27, I get less optomistic. It has made some stupid decisions over the last few years and Liverous continues to survive. I got a lot invested and I'm a little bearish about its future.

  • Report this Comment On October 21, 2011, at 4:32 PM, jlbaker5 wrote:

    I am confused because on your chart HUN beats DOW in all three categories. I do believe HUN has a dividend yield of 3.2%, which isn't too far off the 3.6% of DOW. By these metrics, HUN looks like the better opportunity. ... Thoughts?

  • Report this Comment On October 22, 2011, at 7:54 AM, funfundvierzig wrote:

    Robustly growing Dow Chemical is now about twice the size of the much shrunken DuPont Company, the number three American chemical corporation. ExxonMobil Chemicals is second largest in the industry in America. The 21st century and widely disparate managements have flipped the rankings upside down. ...funfun..

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