Rising Prices: Just The Catalyst Dow Needs

Hardly Bubbling Up
One year ago, Earl Gaskins, managing director at Brandywine Asset Management, told this column that shares of Dow Chemical (DOW ), then trading at 30, were worth 42. Six months later, the shares had reached his target, up 40% on rising chemical prices. The shares have since slipped to 39, but Gaskins says there's another gain coming. His firm is still holding its 300,000 shares.

Why? The current wave of chemical price rises is going to last longer than anyone thought, delivering higher and higher profits to Dow well into 2006. New supply, which had been expected to come from Middle East competitors, particularly in Iran and Saudi Arabia, and push prices back down, has been delayed. Dow's annual earnings will jump from this year's estimated $2.18 a share to $5.50 in 2006, says Gaskin.

He's modestly raising his price target to 48. Standard & Poor's (MHP ) says the shares are worth 55. Indeed, Gaskins thinks the stock could get a second lift if Dow gets a break on the cost of its oil and natural gas feedstocks. The company has been cutting payroll and other expenses even while raising prices.

Gene Marcial will be back next week.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By David Henry

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