BASF Warning Does Not Bode Well for Dow Chemical, DuPont

News is out this morning that the world's largest Chemical company,

BASF

, will be cutting up to 20,000 jobs.

The company is cutting its profit outlook for 2008 and announced cutbacks in production, citing a "massive" decline in demand in key industries. Management announced plans to temporarily shut down 80 plants worldwide and reduce production at a total of about 100 plants.

This news is certainly not bullish for investors looking to get into the chemical sector. We have been avoiding names like

Dow Chemical

(DOW) - Get Report

and

DuPont

(DD) - Get Report

, despite the fact that the stock prices appear "cheap." Value managers have been big buyers of the companies, citing the high dividends as a reason to own the names. We see the dividend payouts as perhaps being in jeopardy, and this news today, makes us even more cautious on the chemical area. We would look elsewhere for better opportunities.

Bad Housing-Starts Number Actually Good News

We just got the monthly housing starts number, which showed that starts fell 4.5% to an annual rate of 791,000, a record low dating back to 1959.

As bad as this sounds for a homebuilder like

KB Homes

(KBH) - Get Report

, this is actually great news for the economy. It comes down to simple supply and demand. The market does not need more new homes coming on the market, but rather, we need to start taking inventory down.

With a current excess supply of close to 2 million homes on the market, investors need to understand that it will take time to work through this buildup. As an investor, the key is to have patience and not rush into any area of the stock market that may need possibly years to turn up.

KB Homes is not recommended at this time, holding a Dividend.com Rating of 2.7 out of 5 stars.

BJ's Wholesale Club Continues to Gain With Bulk Shoppers

BJ's Wholesale Club

(BJ) - Get Report

just reported its third-quarter profit rose 24% to $28.2 million, or 48 cents a share, compared to $22.7 million, or 35 cents, a year ago.

The company's sales were up 13.4% to $2.4 billion. Same-store sales open at least one year rose 11.9%, or 6.6% excluding gas. The No. 3 U.S. warehouse club operator continues to see shoppers flock to its stores for low prices on staples like fresh food, prepared meals and paper towels.

For the full year 2008, BJ's now expects earnings per share of $2.20 to $2.30, up from $2.10 to $2.20 previously forecast.

We follow BJ's competitors,

Costco

(COST) - Get Report

and

Wal-Mart

(WMT) - Get Report

. We are avoiding the names right now, despite the appeal of consumers looking to buy in bulk and save. The dividend yields for Costco and Wal-Mart are not as attractive as other dividend names we presently favor. That being said, we would get more bullish on the stocks if valuations improve and stocks come down to better risk/reward levels. Costco seems to be getting there quicker than Wal-Mart at this point.

Chip Giant KLA-Tencor Cutting 15% of Workforce

KLA-Tencor

(KLAC) - Get Report

just announced it would cut its workforce by 15%, or around 900 jobs, as it moves to weather the economic downturn.

Management said the cuts are part of an effort to lower its operating expense run rate by $165 million to $175 million by the end of fiscal 2009. Intel's warning last week was not a good sign for the world's largest supplier of equipment used to make semiconductor chips.

We have avoided the shares of KLA-Tencor since we started our early June coverage, and the stock was trading at $42.83. The company has a 3.57% dividend yield, based on last night's closing stock price of $16.81. We would look at

Intel

(INTC) - Get Report

as the name for investors who will eventually want exposure to chip stocks. The company is positioned to benefit first from any pickup in demand. We are avoiding the chip names for now, but will continue to monitor the news as it comes in.

KLA Tencor is not recommended at this time, holding a Dividend.com Rating of 3.1 out of 5 stars.

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At the time of publication, the author had no positions in stocks mentioned, although positions may change at any time.

Tom Reese and Paul Rubillo are senior editors of Dividend.com. Visit Dividend.com for more dividend stock ratings, picks, news, and analysis for long-term and income-seeking investors.