Bet on Gas

Posted: Oct 27, 2011 12:01 AM

Air Products and Chemicals Inc. (APD, $84.54) is a dominant worldwide industrial and specialty gas company, operating in over 40 countries.  Argon, helium, nitrogen and oxygen are just a few of the company's diverse product base.

Despite poor economic environments in the U.S. and Europe, Air Products will be starting quite a few new projects in 2012 which are fueling earnings growth. Projected consensus earnings (EPS) growth is 9%, 6% and 19% for fiscal years 2012 through 2014.

"In the current slow-growth environment, industrial gas companies offer an attractive, unique combination of defensiveness and long-term growth." -- Citi Investment Research & Analysis, Oct. 24, 2011

"In total, new startups are expected to add 30-35 cents in EPS in 2012, which gives us confidence that management's FY12 EPS guidance is on the conservative side," says Citi.  "In particular, we like APD's growing project backlog which is being driven by: 1) hydrogen for refining, 2) oxygen growth in China augmented by coal gasification, and 3) other emerging market growth opportunities like India Merchant, Asia electronics, and the company's recent 25% stake in the gases and equipment businesses of Adbullah Hashim Industrial Gases in Saudi Arabia."

Air Products' stock has the highest dividend yield and the lowest PE vs. other stocks in its sub-industry group (Airgas, Air Liquide and Praxair). APD pays a dividend of 2.54% based on the 10/26/11 closing stock price of $84.54.  The price earnings ratio (PE) is 13.5 based on projected 2012 EPS.

The company has been paying dividends since 1954, and its last dividend increase was announced in November of 2010.  APD has an S&P Quality Ranking of "A" and 87% of the stock is owned by institutions. The company's 2011 fiscal year ended on Sept. 30.

The company repurchased $350 million of its stock in early 2011, with another $299 million remaining in its repurchase program.

The stock has a buy rating with a $99 price target  from Citi (Oct. 24, 2011) and a hold rating with a $90 price target from Standard and Poor's Research (Oct. 22, 2011).

APD stock fell from just over $100 to the high $40's during the 2008 Financial Meltdown.  It's been recovering steadily ever since, establishing trading ranges, reaching higher, and settling into new trading ranges.  The recent stock market correction in August 2011 has presented an opportunity to buy APD at a lower price than we've seen all year.  The stock was trading $84-$97 all year, fell to a $74-$83 range in August/September, and has begun its next move upward.

If I were a trader, I'd put in a buy at $82 and sell at $90, with the goal of netting 10% short-term.

If I were a medium-term investor, I'd buy anywhere below $85 and wait for a retracement to the low $100's.

If I were a long-term growth and income investor, I'd buy now.

Readers should consult their investment and tax advisors to determine suitability, risk and taxation.

Crista Huff, Goodfellow, LLC