What are we looking for?
Chemicals. Warren Buffett recently made a $9-billion (U.S.) bet that this sector is hot and will get hotter. On March 14, his Berkshire Hathaway Inc. offered a 28-per-cent premium for Lubrizol Corp., which makes additives for engine oils and other chemicals used in industrial and consumer products.
So are there other good buys in the sector?
This week, UBS analyst Andrew Cash published a bullish report on the U.S. chemical industry. He suggested that price increases will outpace raw material inflation and strong global demand will bolster bottom lines.
More about today's screen
Mr. Cash focused on eight major chemical players, raising his price targets on six of them. We have ranked them by the analyst's expected returns based on the difference between his price targets and the stocks' current prices. Where the companies pay dividends, the dividend yield is included in the potential 12-month gain.
What did we find?
The stocks are trading close to their 52-week highs. Mr. Cash notes that "much of the industry is at mid-cycle and the stock prices reflect lots of good news." There could be periods of volatility for these companies, but their earnings are unlikely to hit their peak for this economic cycle until some time between 2014 and 2016, he says.
In the short term, Mr. Cash expects the companies to give upbeat comments in their outlooks when they deliver first-quarter results beginning on April 26 with Celanese and concluding with Huntsman and Lyondell in the first week of May.
Much of the bullishness around some of these stocks is based on anticipated strong exports and a price advantage that U.S. producers have today over foreign competition, which is the ability to use ethane and natural gas in their manufacturing process rather than more expensive oil-based raw materials and energy.