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Watch Out: Barbarians At The Gate For Dow Chemical (DOW)

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 "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) 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 $304.7 million.
  • DOW has traded 9.7 million shares today.
  • DOW traded in a range 215.1% of the normal price range with a price range of $1.47.
  • DOW traded above its daily resistance level (quality: 45 days, meaning that the stock is crossing a resistance level set by the last 45 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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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 3.3%. DOW has a PE ratio of 17.0. Currently there are 3 analysts that rate Dow Chemical a buy, 3 analysts rate it a sell, and 10 rate it a hold.

The average volume for Dow Chemical has been 8.0 million shares per day over the past 30 days. Dow Chemical has a market cap of $46.8 billion and is part of the basic materials sector and chemicals industry. The stock has a beta of 1.76 and a short float of 1.7% with 2.69 days to cover. Shares are up 21.5% 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 solid stock price performance, revenue growth, reasonable valuation levels, good cash flow from operations and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:

  • Compared to where it was 12 months ago, this stock has enjoyed a nice rise of 30.92% which was in line with the performance of the S&P 500 Index. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.4%. Since the same quarter one year prior, revenues slightly increased by 0.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has increased to $1,402.00 million or 27.10% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -7.02%.
  • DOW CHEMICAL has improved earnings per share by 16.7% 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 ($2.29 versus $0.71).

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