Goldman Sachs Sees Upside For Specialty Chemicals

Goldman Sachs has raised its view on the specialty chemical sector to attractive from neutral, saying the industry hit its cyclical low point in early March when share prices were down more than 50% from the peak levels of mid-2008. In an investment report, Goldman analyst Robert Koort writes that "green shoots of a cyclical rebound are emerging" and points out that past history indicates stock prices will begin to rebound six to nine months before earnings hit bottom. Koort prefers the stocks of companies that sell into the auto, housing, consumer, and electronics markets in the U.S. and China because of the stimulus spending package both countries have under way. Koort also prefers companies that have opportunities to pay back debt and also have strong cash flows along with opportunities for margin expansion. He singles out Air Products & Chemicals, Nalco, and Albemarle as top picks. Koort also adds paint companies PPG Industries, Valspar, and Sherwin-Williams to the Goldman buy list on the basis of what he calls resilient demand in the home improvement market and the strong growth of sales in China.