Warren Buffett and Dow Chemical's (DOW) - Get Report recent buyout of Rohm & Hass( ROH) was a game-changer in the chemical sector. The deal, which valued Rohm & Hass with a current EV/EBITDA of around 16, is nearly twice as high as the average EV/EBITDA of the sector, showing that Buffett and Dow Chemical are convinced that value for the sector is a whole lot higher.
That said, the chemical sector as a whole was hit extremely hard as input costs (mostly oil, natural gas and coal) ramped to all-time highs last month, forcing investors to dump their stock amidst fears of substantially weaker profit margins. It is natural to assume, then, that as commodity prices have their biggest monthly decline in almost 30 years, investors have already started flocking back to the sector -- but they haven't. And here is why they should.
Some of our favorite names in the chemical space include
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