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Activist unlocking big value in old industrial?

Until recently Jim Cramer had felt there were much better stocks in the space, so why is he shining a spotlight on Dow Chemical, now? "I have to admit, I was not a fan," said Cramer. "Dow Chemical had been one of my least favorite chemical companies, for a long time."

However, his opinion changed, largely due to developments involving billionaire investor Dan Leob.

"A little less than two months ago, we learned that Loeb had taken a major position in Dow Chemical, and he released a letter arguing that the company should break itself up. Specifically, he wanted Dow to spin-off its commodity petrochemicals business and become a company focused on proprietary specialty chemicals, along the lines of the transition we're seeing at Dupont," Cramer said.

Although Cramer is a big fan of break-ups, he thinks Loeb's activism has triggered something else that's equally valuable to shareholders; a sense of urgency among the current executives to improve the business.

Colin Anderson | Blend Images | Getty Images

"Dow Chemical's management disagrees with Loeb, and I think the pressure from Loeb is forcing them to get aggressive about improving the company internally."

And, unlike Loeb, Cramer thinks the company can release value even if Dow Chemical remains one company.

In large part, that's because, "Dow's commodity business is petrochemicals—things like performance plastics, some performance materials, as well as feedstocks and energy," Cramer said. "Why is this important? Because Dow Chemical is vertically integrated, meaning its commodity petrochemicals often serve as the building blocks for its higher-margin specialty products—things like coatings, electronic materials, and agricultural science products."

In other words, Dow Chemical uses many of its commodity chemicals to make specialty ones, so there's a good reason to keep both businesses under the same roof.

That's the argument Chairman and CEO Andrew Liveris has made against breaking up the company and Cramer believes recent earnings support his outlook.

"When Dow reported at the end of January, the company just knocked it out of the park, reporting a 22-cent earnings beat off of a 43-cent basis, with better than expected revenues that rose 3.4% year over year on higher volumes and stronger pricing."

In addition, Dow boosted buybacks and also increased its dividends.

"I think this was Dow Chemical's way of telling Dan Loeb that the company can unlock plenty of value without a breakup," Cramer said.

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Therefore, if you're an investor, whether the company breaks itself in two or not, Cramer thinks Dow Chemical looks like a 'buy.'

If Loeb is successful and the company splits, the two new parts should command a higher valuation. Or, if the current management prevails, the pressure from Loeb should force them to remain aggressive.

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