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.

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 $365.7 million.
  • DOW has traded 13.0 million shares today.
  • DOW traded in a range 227.4% of the normal price range with a price range of $1.69.
  • DOW traded above its daily resistance level (quality: 194 days, meaning that the stock is crossing a resistance level set by the last 194 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 products that are used primarily as raw materials in the manufacture of customer products and services worldwide. The stock currently has a dividend yield of 3.2%. DOW has a PE ratio of 16. Currently there are 6 analysts that rate Dow Chemical a buy, 2 analysts rate it a sell, and 8 rate it a hold.

The average volume for Dow Chemical has been 7.5 million shares per day over the past 30 days. Dow Chemical has a market cap of $60.7 billion and is part of the basic materials sector and chemicals industry. The stock has a beta of 0.58 and a short float of 1% with 1.56 days to cover. Shares are up 16.2% year-to-date as of the close of trading on Wednesday.

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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 increase in net income, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, good cash flow from operations and growth in earnings per share. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Chemicals industry. The net income increased by 40.9% when compared to the same quarter one year prior, rising from $1,049.00 million to $1,478.00 million.
  • The debt-to-equity ratio is somewhat low, currently at 0.89, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.21, which illustrates the ability to avoid short-term cash problems.
  • Net operating cash flow has significantly increased by 118.78% to $1,258.00 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 16.45%.
  • DOW CHEMICAL has improved earnings per share by 49.4% 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 $2.86 versus $3.61 in the prior year. This year, the market expects an improvement in earnings ($3.00 versus $2.86).

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