The rally since Election Day has brought some interesting industries into light. Most of the time when I’m talking about rallies I’m talking about higher beta industries on the move. After all, industries that are higher beta, by definition move more than the rest of the market, so it’s logical to think these higher beta industries would do better during a rally. When I think high beta I’m usually thinking about tech or biopharma. We are going to have to change our definition to include chemicals as long as this rally keeps moving.
Today’s Bull of the Day Kronos Worldwide (KRO) is a higher beta stock on its own with a beta of 2.35. It’s in the diversified chemicals industry that we have in the Top 30% of our Zacks Industry Rank. Kronos is a global producer and marketer of value-added titanium dioxide pigments. The company along with its distributors and agents sells and provides technical services for its products to over 4,000 customers in 100 countries around the world, with the bulk of its sales coming in Europe and North America. I know titanium dioxide doesn’t sound the wave of the future but it’s used to color things like paint and sunscreen.
I don’t expect to turn you all (or myself) into PhDs in Chemistry in this short article but we don’t have to be experts to see the effect on the numbers here for the stock. Analysts have gone bullish recently, increasing their earnings estimates for the current year and next year. Our current year Zacks Consensus Estimate has gone from 13 cents to 21 cents over the last sixty days. Next year’s number has gone from 25 cents to 36 cents. That 11 cents may not sound like a lot but when you’re talking about a stock that’s trading at 36 times forward P/E, that amounts to almost $4 on a stock that’s trading in the $13s.
Investors have certainly got the memo. Shares of KRO rallied from under $8 on Election Day. Most of the spike up took place in the first two weeks. Since mid-November the stock has chopped sideways a bit with a slight bullish tilt. What’s so timely now is the Commodity Channel Index behavior. The CCI dipped to -88 last week before the stock rallied sharply higher, sending it up through the zero line. Normally, you want the CCI to get to -100, then back over the zero line to give a “Buy” signal. I think you could play this one for the breakout, buying a breakout from the high on heavy volume. Due to the near signal, there is a chance the stock could retreat first.
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