Celanese Offers Nat Gas Growth Play: Cramer
Amid the market upheaval caused by the Greek election — and the next crisis abroad, a spike in Spanish bond yields — the only course of action that makes sense for investors is one that has nothing to do with Europe, “Mad Money” host Jim Cramer said Monday.
“We need trends that transcend Greece and Spain and Italy and the whole euro zone,” he said. “And I’ve got a terrific one for you tonight. I’m talking about the ultra-low price of natural gas here in the United States.”
But instead of buying the energy companies themselves, Cramer suggested taking a look at industries that rely heavily on natural gas. In particular, he liked Celanese.
The company has a four-pronged business. It makes acetyl intermediates, used in colorants, paints, adhesives, coatings and medicines. It manufactures high-strength plastics used in lightweight car parts. In its consumer specialty division, it makes acetate tow, a material used in cigarette filters. And its industrial business makes emulsions used in paints and coatings, as well as plastics for flexible packaging films, lamination films, solar panels and medical devices.
Its stock price, down 27 percent from its February highs, is too attractive to ignore.
The company uses so much natural gas that every $1 decline in the commodity price translates into an extra 15 to 20 cents to its bottom line. That’s significant, Cramer said, given that Celanese is expected to earn $4.52 per share this year.
Meanwhile, natural gas traded at $2.64 per million BTUs, down more than $2 from its 52-week high.
Celanese is also planning to spend $500 million to $1 billion to construct a new methanol facility in Texas by July 2015. The new plant is expected to add 65 cents to the company’s earnings per share in 2016.
Cramer pointed out that the company delivered a 5-cent earnings miss off a 77-cent basis in April.
But a Mark Rohr, “a terrific new CEO” could spell a turnaround for the company. Formerly the head of chemical company Albermarle for 8 years, Rohr saw the company’s earnings grow at a 22 percent compound annual growth rate during that time.
“I also like that Rohr raised the dividend by 25 percent shortly after taking over. Celanese still has a puny yield of just 0.6 percent, but management eventually plans to boost the yield up to 1.5 percent,” Cramer said. “Again, that inspires confidence.”
Cramer noted that many of the company’s end markets are getting stronger, including autos, aerospace, and the U.S. housing market — and he believed its long-term prospects were strong.
“Right now Celanese is trading at just 7 times forward earnings with a 10 percent long-term growth rate,” he said. “That’s a bargain, one that I don't think will last by the time the company has a huge analyst meeting come September.”
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