NEW YORK (TheStreet) -- Recoveries have their own life cycles.
It usually starts with technology. Then banking and finance stocks recover. Housing recovers. And finally, at the tail end, you see improvement in industrials, basic materials and energy companies.
This recovery has been a little different. For one thing, it has been led by energy. According the the U.S. Department of Energy, in the past two years the U.S. has become self-sufficient in natural gas, and is meeting more domestic demand for oil, too. The U.S. Energy Information Administration (EIA) found that "the share of total U.S. consumption met by liquid fuel net imports peaked at more than 60% in 2005 and fell to an average of 40% in 2012. EIA expects the net import share to decline to 28% in 2014, which would be the lowest level since 1985." Much of this supply comes from the fracking boom powering the whole economy forward.
And no industry depends on gas and oil as much as the chemical industry, both for raw materials and to power processing.
Despite the energy recovery, some of our most emblematic chemical companies, Dow Chemical (DOW) and DuPont (DD), have been lagging the market. Dow is only now approaching its 2011 high. DuPont only recently exceeded its best 2011 levels.
If we're where we're supposed to be in this recovery, then these two stocks should power ahead in 2014.
That's especially true since both companies are making strategic shifts aimed at higher profits.
Dow Chemical wants to shed its basic chemicals businesses and may shorten its name to simply "Dow." It has announced plans to get out of its chlorine-related businesses.
DuPont has already made its first move, spinning off performance chemicals, selling its coatings unit to the Carlyle Group (CG) and selling its glass laminating and fibers business to a Japanese company last month.
Jim Cramer's take on DuPont's moves? "Shareholders should rejoice."
Both companies will still have similarities after their restructurings are done. Both will be heavily involved in agriculture, for instance. But Dow will stay in renewable energy and water purification, while DuPont will be looking toward nutrition products and pharmaceuticals.
The 19 analysts following Dow have an average rating of hold, with only six calling on investors to buy the stock. The 20 analysts following DuPont feel similarly, with only five calling it a buy, 12 calling it a hold and two telling investors to sell.
Personally, I find analysts to be a lagging indicator, so when they're all saying "meh" or "dump it," I tend to get interested. It's when everyone is yelling "buy buy buy!" that I sell, because the supply of buyers is probably running out.
If forced to pick one of these companies, I'd pick Dow. We know that DuPont's transformation has gone pretty well. The company delivered a total return to investors this year of over 40%. That gives Dow a road map it can follow that should get it to a better place.
DuPont's choices are making it more like Monsanto (MO). It bought 80% of an African seed company this year, and resolved patent disputes with Monsanto itself. This clears the deck for future growth. It has also come out with a chemical to fight the tuber moths infecting potatoes.
The companies Dow is spinning off have an estimated value of $5 billion, which could give it a war chest big enough to become an "arms merchant" to renewable energy companies with such product lines as battery materials, foam cores for wind turbines and heat transfer fluids.
If chemicals are at the sweet spot of the economic cycle, and if the strategic shift to higher-margin businesses takes root, then Dow and DuPont are good stocks. Analysts may be discounting them, but they should do well in 2014.
At the time of publication the author had no position in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.