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A Chemical Reaction

Let's start with the basics. The stock sells for around 9x 2014's projected earnings, just over 7x operating cash flow and also yields 2.5%. In addition, consensus earnings estimates for both 2013 and 2014 have moved up about 5% over the last three months. LYB sports a low five-year projected price-earnings-growth ratio of 1.11 for a chemical concern.

But the main reason you want to invest in LyondellBasell is its continuing transformation. In the last two years, its natural gas liquids (NGLs) cracking efficiency has improved to 85% from 70% and the company is targeting 90% over the next few years. Falling NGL prices have also been very good for the bottom line. Prior to 2009, the company's U.S. facilities imported around two-thirds of its feedstocks for ethylene and other production. That percentage is down to 5% and dropping. This has been hugely beneficial to margins. It also could invest up to $1 billion by 2016 to increase production in the U.S. to further take advantage of low natural gas and NGL prices.

Finally, its 268,000 barrel-per-day refinery in Houston is moving to heavy crude sources in Canada from Venezuela. This is beneficial for margins as well as stability of supply. Most of this fuel source is coming via rail now but as Keystone pipeline infrastructure is built out, the company estimates that it could reduce transportation costs by some $200 million annually. I look forward to picking up shares in this transforming chemical concern.

At the time of publication, Jensen had no positions in the stocks mentioned.

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