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Trade-Ideas: Dow Chemical (DOW) Is Today's Momo Momentum Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Dow Chemical (DOW) as a momo momentum candidate. In addition to specific proprietary factors, Trade-Ideas identified Dow Chemical as such a stock due to the following factors:

  • DOW has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $177.7 million.
  • DOW has a PE ratio of 42.2.
  • DOW is currently in the upper 30% of its 1-year range.
  • DOW is in the upper 25% of its 20-day range.
  • DOW is in the upper 35% of its 5-day range.
  • DOW is currently trading above yesterday's high.
  • DOW has experienced a gap between today's open and yesterday's close of 0.2%.

'Momo Momentum' stocks are valuable stocks to watch for a variety of reasons including historical back testing and price action. Market technicians refer to such stocks as being in a mark-up phase before a possible distribution period and price decline. Technical analysts and traders frequently find that the factors referenced above tend to create a temporary burst of strong wind in a stock's sail. Nevertheless, all successful traders must excel at maximizing gains while keeping losses to an absolute minimum. For that reason, the holding period on momo momentum stocks must always be a primary consideration, and this part of the puzzle is ultimately at the discretion of each individual's risk tolerance and portfolio risk management skills.

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More details on DOW:

The Dow Chemical Company manufactures and supplies chemical products for use as raw materials worldwide. The stock currently has a dividend yield of 3.7%. DOW has a PE ratio of 42.2. Currently there are 2 analysts that rate Dow Chemical a buy, 4 analysts rate it a sell, and 13 rate it a hold.

The average volume for Dow Chemical has been 6.7 million shares per day over the past 30 days. Dow Chemical has a market cap of $41.8 billion and is part of the basic materials sector and chemicals industry. The stock has a beta of 1.97 and a short float of 1.5% with 3.66 days to cover. Shares are up 7.2% year to date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Dow Chemical as a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:

  • Net operating cash flow has significantly increased by 976.47% to $447.00 million when compared to the same quarter last year. In addition, DOW CHEMICAL has also vastly surpassed the industry average cash flow growth rate of -364.21%.
  • DOW CHEMICAL has improved earnings per share by 31.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, DOW CHEMICAL reported lower earnings of $0.71 versus $2.05 in the prior year. This year, the market expects an improvement in earnings ($2.36 versus $0.71).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Chemicals industry average. The net income increased by 27.8% when compared to the same quarter one year prior, rising from $497.00 million to $635.00 million.
  • DOW, with its decline in revenue, slightly underperformed the industry average of 1.3%. Since the same quarter one year prior, revenues slightly dropped by 2.3%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • DOW's debt-to-equity ratio of 0.96 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.12 is sturdy.

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