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Why Ashland Inc. Stock Rose 15.4% in March

By Reuben Gregg Brewer – Apr 8, 2016 at 10:45AM

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Ashland started to move higher in early February, here's why the rally kept going through March.

Image Source: Ashland

What: Ashland's (ASH 0.09%) shares advanced 15.4% last month. They are up nearly 20% since hitting a low point in early February. There's a little more to this story than just investors getting back into the market.

So what: Ashland is a chemicals maker and also owns Valvoline (about 40% of revenues), which it plans to spin off later this year. So the first thing you need to understand about Ashland is that it's a work in progress. Investors' perception of the spin off will likely have a notable impact on the stock as the date of the split nears. On that front, Ashland completed its purchase of Oil Can Henry's in early February, which augments the Valvoline business and should be a net positive for the spin off.

Speaking of oil, there's another issue that's been stirring things up for Ashland: it makes chemicals for the oil industry. When the company reported fiscal first quarter results in late January, the energy industry was noted as the biggest headwind to the company's Specialty Ingredients business, which makes up nearly half of revenues. Sales in the Specialty Ingredients division were off 15% overall, and it's worth noting that this division does a lot more than just serve the energy industry.

But, with oil starting to firm up, Ashland may be at a point where its energy exposure begins to turn into a net positive. Although Ashland didn't exactly trace the oil rebound step for step from its nadir in early January, it has tracked pretty closely with oil since early February. Is that coincidental or causal? Probably something in between those two extremes, with a dash of Valvoline thrown in for good luck.

Now what: There are a lot of moving parts at Ashland right now. That said, the company is nearing the end of a major corporate transformation -- one that started years before the decision to jettison Valvoline. This isn't the type of company to jump on just because of a rally, if you are interested you'll want to take a deep dive and really understand what's going on. A month or two of good stock performance is just the tip of the iceberg.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

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