Chemical stocks have been on fire lately.
Shares of PPG , for example, are up 16 points, or 27 percent, since Cramer recommended it at roughly $60 on June 30. Since then, DuPont has also posted gains of 35 percent, up more than 12 points from $34.59.
In looking for a "cheap chemical stock with lots of room to run," Cramer found LyondellBasel . The company was created in 2007 when Basel acquired Lyondell. It became the world's third—largest chemical company, but went bankrupt in January 2009 because of its high debt load. Shortly thereafter, a new management team restructured the company by slashing a billion dollars in costs and reducing the size of the workforce. On April 30, the company came out of bankruptcy and its debt load has been reduced to $7.2 billion from $18 billion. Certainly, the Lyondell that relisted on the New York Stock Exchange Thursday is a different company than the one that went bankrupt in January 2009.
"This is a leaner, meaner Lyondell that's still a market leader in many different chemicals," Cramer said, adding that the company is a major player in oxyfuels, meaning gasoline, diesel, jet fuel and lube oils. It's also a leader in polypropylene, polyethylene and ethylene. "These are the chemicals that make up the building blocks of the global economy."
The division that produces these chemicals accounts for half of the company's sales. Lyondell, however, produces genuine proprietary technology too. It's licensed to other chemical companies and in turn, 40 percent of the world's polypropylene and 35 percent of the world's polyethylene is made with Lyondell's technology.
Lyondell is also a big play on the cheapness of natural gas, Cramer said. Nat gas is one of a chemical company's largest raw costs, especially a company like Lyondell that makes so many gas-intensive polys and ethyls. There's been a major increase in the supply of natural gas thanks to non-stop drilling in the shale plays and the excess nat gas has made North America a very cheap place to produce ethylene. This lower operating cost should give Lyondell a big boost.
At the same time, the ethylene market is putting in a bottom, as the amount of new demand is finally expected to exceed the amount of new capacity coming on. For Lyondell, a mere one-cent increase in the price of ethylene can give Lyondell an additional $100 million in earnings before interest, taxes, depreciation and amortization.
Compared to its competitors, shares of LYB are cheap, trading at just 11 times next year's earnings. Plus, only five analysts currently cover the stock. With Lyondell being a $15 billion company, Cramer thinks other analystS will soon initiate coverage and when that happens, the stock will pop.
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