In our sector performance piece yesterday, we wrote about looking for stocks in the sectors that made the grade for both technical analysis and performance. One such company in the chemicals industry is Stepan Company ( ).
Stepan Company is a global manufacturer of specialty and intermediate chemicals used in consumer products and industrial application. Stepan is a leading merchant producer of surfactants, which are the key ingredients in consumer and industrial cleaning compounds. Manufacturers of detergents, shampoos, lotions, toothpastes and cosmetics depend on surfactants to achieve the foaming and cleaning qualities of their products. Other applications include lubricating ingredients and emulsifiers for spreading of agricultural products.
Besides being in the right sector at the right time, we like some of Stepan fundamental qualities too. SCL trades at just 9 times earnings, while its current growth rate is 12.6%. We like it when the P/E ratio is less than the earnings growth rate. It’s a fairly good sign that we aren’t paying too much. On the earnings front, Stepan has delivered whopping earnings surprises of late; crushing analysts’ projections by more than 52% and 95% respectively for the last 2 reports. It sure looks like they are building earnings momentum. Surging earnings almost always means a surging stock price.
Compared to its industry, SCL is a value on a couple of fronts. First it has a price to sales ratio that Ken Fisher would love of just 32 cents for every dollar they do in sales. The average peer trades nearly 5 times higher with a price to sales ratio of 1.51. Stepan’s 9.41 P/E is just about half of the industry group P/E of 17.46. So there is room for this stock to catch up.
Looking at SCL’s stock chart, the stock recently broke through a quadruple top and could easily rise to $52.50. Point & Figure charts confirm the breakout on July 30th and put in a price objective of $62.50, surpassing its 52 week high of $60.82. That would be a nice return for investors.
Suggested Closing Price Stop: $43.25
