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The Catalyst Seeker



December 05, 2016 – Comments (0) | RELATED TICKERS: DOW , DD

The title of the following article in this week's Barron's, "The Catalyst Seekers," immediately caught my eye.  As an investor, I always look for cheap stocks that have some sort of potential catalyst that could make them less cheap at some point in the foreseeable future.  Said stocks are even better if they pay you a dividend to wait for the catalyst to occur.

In the article, Levin Capital’s John Levin and Jack Murphy make a very compelling bull case for Dow Chemical (DOW) and DuPont (DD).  The two companies are in the process of merging and the two money managers believe that DuPont's CEO Ed Breen will be able to squeeze tremendous value out of the port merger companies, just as he did with when he was CEO at the post-debacle Tyco.

Levin and Murphy believe that the companies' estimate of $3 billion in synergies from the merger is too conservative and that there is a tremendous benefit to the companies joining forces that is not currently priced into the stocks.

The plan is for the Merged Dow / DuPont to split itself up into three separate pieces once the merger is complete.  

According to the article:  

The business will have GDP-plus growth over time, with better profit margins and better cash allocation than the companies had historically. Dow is trading at 14 times 2017 earnings, DuPont at 20 times. Blend them together and you get 17 times. Put synergy savings on top of that. You’re paying under the market multiple for above-average growth.
The Catalyst Seekers

Levin Capital’s John Levin and Jack Murphy look for value-priced stocks with potential catalysts. They think Nokia, which yields 7%, could double.


No position in DOW or DD

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