These three chemical giants were some of the most cyclical stocks around, he said, until it became clear that the U.S. was losing some of its competitive edge to countries who could produce commodities more cheaply overseas. Right away, DuPont and PPG took action.
DuPont made aggressive moves to become more of an industrial company focused on high value-added products, rather than remain the primarily basic chemical company it was before. The firm invented crop protection products like Rynaxypyr and Dermacor to keep insects and pests away from important seeds and crops. DuPont is also the brand behind Kevlar body armor, the flame-resistant Nomex material worn by firemen and Solamet, a paste that increases the efficiency of solar cells.
The industrial titan also firmly established itself in the health care, agriculture and safety space — which Cramer said were three non-cyclical themes with “huge secular tailwinds.” He said that under CEO Ellen Kullman’s guidance, DuPont is no longer hostage to the health of the economy, even though some still think it is. “That’s why the stock is so heavily undervalued.”
Back in the day, Cramer said, PPG Industries was known as Pittsburgh Plate Glass and made for a great cyclical stock to short on a slowing economy like the one we’re facing today. But when CEO Chuck Bunch rose to power, he decided to shift PPG’s focus on commodity chemicals over to high-value proprietary chemicals instead — such as protective paints, coatings, enhanced optical products and fiber glass — while also getting rid of its old commodity businesses.
Now, since the company is almost entirely specialty chemical, he said, PPG is much more capable of weathering the economic slowdown than it was back when it produced only plate glass. PPG trades at a relatively high multiple — 14 times 2012 earnings — while DuPont sells for just 12 times earnings, because the constant corporate revamping has yet to be priced into the stock.
“So, PPG and DuPont have transformed themselves,” he said. “What about Dow Chemical?”
Dow isn’t a bad company at all, Cramer said. The really issue here is that the firm embodies the “essence of the commodity play.” And apart from its $15.4 billion acquisition of materials company Rohm & Haas, Dow hasn’t done much to wean itself away from basic chemicals, he said. And despite the stock’s enticing 4.4 percent yield and P/E multiple of 14, he doesn’t think it’s worth owning right now, while the economy is just continuing to “muddle through.”
Bottom line: Right now, companies like DuPont and PPG that have seized control over their own destinies and recognized the inherent weakness and low barriers to entry of the world’s basic businesses, have made their stocks worth buying, while Dow hasn’t really changed. “It’s nothing more than a bet that policymakers around the globe can fix things,” he said. “And that’s a bet I don’t want to make.”
When this story was published, Cramer's charitable trust owned DuPont.
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