Diversification in the Portfolio of Dow Chemical Company, ExxonMobil Corporation, and Other Companies - Assignment Example

Dow Chemical company The company is a multinational corporation operating out of the United States of America and since 2007, has gained the status of the second largest chemical manufacturer globally. The company is known to the backbone of the chemical industry as a major portion of their chemical production is used by other companies and not by the end user. This has been the major strength of the company since 2005 and the management has been struggling hard to retain their grasp on the mainstream Business to Business (B2B) relationships. However, the direct consumption of their products in the consumer market is widely recognised as well with the extensive use of their products in Human and Animal health sector and other consumer products. Ever since its conception in 1897, the company has been known for its innovation in the chemical industry, which started off with the founder inventing a new method to extract Bromine. The company’s recent figures have grown exponentially and it now employs about fifty thousand people with an average yearly spending on one billion dollars on research and development (R&D) which has enabled it to expand into agricultural and plastic products and services as well. These diversifications have boosted the yearly sales of the company to fifty four billion dollars through their customers based that is spread in one hundred and sixty companies worldwide. Because of these innovations, the stock trade for Dow has been consistent over the past five years and the company has seen incremental growth and positive returns. Key reasons for selection: The company has been experiencing major breakthroughs in the consumer, B2B and global organisations over the last two years. Net income of the company has been rising at a rapid rate and has seen a jump of around 60% in the preceding years. The growth of the company has been also linked to the vertical integration that the company has taken up to make Dow a self-sustainable entity in the market and diversify its product line up. These factors have made Dow compete and excel in the globalized environment where it has established strategic production facilities to match the competition in labour and human capital costs. The company has also started many projects in Middle east and Asia with the extensive development in Kuwait for a large production facility for ethylene. This is projected to complete in 2008 and will further increase the revenues and income of the company and will push the stock prices up in the market. Furthermore, Dow is also using its global scale to target Oman for its polyethylene production and is collaborating in China for improvements in production in olefins. Expansions in India and other parts of Asia are under way as well. Even though these ventures may take up huge capital resources, but Dow has strategically planned all investments in its expansion to structure an asset-light approach where it has been able to maintain a steady cash flow in the business by selling stocks of its existing concerns and using that revenue to finance new developments. All of these factors have been taken into account to trade in stocks of Dow to have a secure pawn in stock trades which is assessed to yield positive returns and increase its stock value which may cover up for any losses that may be incurred on any other stock option that may be seen as more risky. Over the period of analysis and monitoring the stock, Dow has showed an average gain of 10% in its stock prices and is hence a good long-term investment in the stock market. ExxonMobil Corporation XOM ExxonMobil wa formed in 1999 through a merger of Exxon and Mobil. The company is ranked at the top in terms of revenue and accumulated $404.5 billion dollars in revenues for the year 2007. The company is one of the biggest in Market capitalization through public trading where in mid April, its market trading value was at $501.17 billion. ExxonMobil is secularly the largest company in the oil industry with the other five supermajors following behind. The company was responsible for the production of 4.18 million BOE (barrels of oil equivalent) for the last fiscal year. Key reasons for selection: The stock of ExxonMobil has been of keen interest in the market ever since 2005- when the rising oil prices had a direct impact on the stock prices to jump upwards. It had declared record profits in the same year, $36 million in annual income, which was a 42% increase within a year. The company has many affiliations around the world and one of its partners in many affairs in Shell oil. The major strengths of the company are derived form the ever growing demand of oil and gas sector and the consistent increase in the prices of oil every year. These factors have made the company enjoy healthier profits and growth again and again and its stock prices have had the confidence of the market. The stock of ExxonMobil has gained on an average 9% on the positive side and the lows have been because of the criticism of the public on the profits that are made in the oil and gas sector. The instability of the oil controlling regions ahs played a part in curtailing the possible jump of the stock price, however, the projected stable conditions and control on oil will result in better financial benefits. However, the stock has proved to be a good opportunity in gaining from the increase in oil prices through ExxonMobil- which has integration in the industry with many partners to keep its revenues stable and growing. The stock option has been used as a cushion to keep the portfolio stable. DuPont DD Dupont is another key player in the chemical industry. This multinational corporation operating out of America was founded in 1802 with its production in gunpowder. Dupont is ranked as the second largest chemical company in the industry in terms of market capitalization and stands at the fourth place in comparison to revenue. Till the early twenty first century, Dupont expanded out of its basic product range and diversified into industrial and consumer polymers and other synthetic materials. These were essentially used in the production process the many industries such as textiles, rubbers, refrigeration, paint and pigment. This diversification has been further enhanced by the keen upkeep of the users of its products and the integral consistency of support and application in term sof practicality that is seen in the product development of DuPont. Key reasons for selection: The need for performance materials in technologically advanced industries has been integrated with safety and protection products to give the opportunity to DuPont to benefit from its futuristic design of Research and development strategies. The stocks of the company have been supported by these advancements and new ventures undertaken and have seen a substantial growth over the last two years. However, DuPont has been very careful in projecting its focus on more lucrative opportunities and shedding off its problematic branches in due time. A perfect example of such opportunities is the selling of its textile concerns in 2004 to substitute for integrating the facility to produce certain types of golf carts. DuPont has more recently streamlined its research and development efforts and has started related projects in development in India to further integrate agricultural and nutrition products. The stock has been backed by the recognition of the company as winning the National medal of technology four times since 1990. Their products enjoy global recognition and the company has a substantial customer base which ahs made the revenues for the company to become a consistent source for growth. The research into performance materials ahs been so upkeep that many of the scientists associated with DuPont have made breakthroughs in new material development and new production techniques. All these factors combined make the stock addition of DuPont in the fund a hard ball where the stock is projected to grow more as the industries around the globe evolve into complete technical units specialised on safety and environment friendly units. Huntsman Corp HUN Huntsman corporation is another key player in the global chemical industry. Although the company was founded in 1982, it is only recently, in 2005, that the company went public for open stock trade. The company has been operating in twenty four countries around the world with its revenues going over twelve billion dollars with fourteen thousand employees. Key reasons for selection: As the company moved out into the public, it has been threatened by large corporations in terms of takeovers. The company is relatively new in the market, as compared to the major players, and hence has been struggling for success in the recent years. The pressure from the stock holders had further put obstacles in the stabilisation of the company. However, these problems are not the deterrent factor disregarding the company as a future investment. The company may shortly be acquired by Hexion and the recent fall in the stock price is because of the transfer of company operations. This has caused uncertainties in the shareholders and the estimated stock price and compensation for each share has forced many shareholders to sell. This slide in the price of the stock is temporary and as the company is acquired, the projects that are held of importance and unique for the company will drive the stock price upwards. Investing now in the stock options will make a more lucrative opportunity as the company becomes part of a bigger stakeholder and the company moves out form a family business to a corporate structure. Chevron Corporation CVX The company holds fifth position in the global energy industry and is based in California, USA. Chevron has its presence in one hundred and eighty countries and has its interests in every aspect of the production, refinement, and collection of oil and gas. The company has an extensive product profile which is related to the exploration, production, refining, marketing and providing supply chain management of their raw and finished products. Furthermore, Chevron is also engaged in manufacturing and sale of chemicals and related products along with a comprehensive development in power generation solutions around the globe. These diversifications have made the place for these companies in the world’s top six “supermajor” oil companies. Key reasons for selection: Chevron has been an active player in the oil and gas company and in very recent developments it has been keen on undertaking several key market opportunities. Such steps have been seen since 2001 when Chevron merged with Texaco. A few years later in 2005, Chevron again strategically merged with Unocal Corporation. This merger was based on the interest of Chevron in Unocal’s South East Asian geothermal operations and at the success of the merger, Chevron became the largest producer of geothermal energy around the globe. By the end of 2006, Chevron had totalled in proven booking of 11.4 billion barrels of oil and had the production capacity of meeting 2.4 million barrels per day. Furthermore, the company has a refining capacity of 2.7 million barrels per day a substantial network based on nearly twenty six thousand service stations. The business of the company is formed on diversified customer segments which are both business and consumer diversified. Just as any other key company in the oil and gas sector, the effects of increasing oil prices bear a gain in the long-run and as the company is already diversifying in alternative methods of fuel and power, the value of the returns is projected to increase with the diversifications regarding to product line up for the future. Roham & Haas Company ROH US The company is involved in the performance production of various speciality materials. These products have found their place in the use and application of building and construction, electronics and electrical components, packaging and paper, and other industrial goods. Furthermore, the company is integrally involved in the following industries: transportation, consumer, household, personal care, water, and food markets. These operations are divided into six segments among which the largest segment is of the paints and chemicals division. The paints and materials are followed by performance materials, then the electronic materials, the primary materials, the salt group and lastly the amsllest division being the packaging and building materials. The company reported sales figures of eight thousand two hundred and thirty million in US dollars based on a 3.0% growth rate. Roham and Haas experienced a 15.4% growth in income and reported a net income of $735 Million. Key reasons for selection: The company has seen many rise and falls over the period of time and especially in the years continuing from 2000. In 2001 Rohm and Haas sold the agricultural chemicals division to Dow Chemical Company leaving aside the business it had been doing fairly well for the past seventy years. In the coming year, the company held firm the economic downturn and even though it could not maintain the revenues it had estimated, still it had successfully lifted itself out of the slum and acquired the powder business from Ferro Corporation. Since 2003 to date, the company has been able to increase its revenues and profits because of the interest in electronics and the speedy development of the market. The higher selling prices that the company has been able to charge in the consumer market has been a strong path to maintain a steady positive stock movement in the recent years. The company has also invested in improved manufacturing technologies and in parallel cutting down its costs by attuning its human capital with technology and removing any extra resources that were a financial gain. Eastman Chemicals EMN US Eastman Chemical Company is a global multinational corporation, based in America, working in the chemical industry. The company’s main production comes from manufacturing and refining of chemicals, plastics and fibres. It has established its production presence in ten countries and has a stream of sixteen manufacturing sites spread across the regions. Eastman chemicals sales figures for the last financial year have been reported as %7.5 billion and has managed 11,000 employees in ten countries. The company has been a key supplier for cellulose acetate fibres around the world and has diversified its operations into PET polymers for packaging that has made its turn in the consumer industry today. Eastman further enhanced their production capabilities and refining of PET resin in 2005 through a first innovation in the industry through the process of IntegRex. This benefited the company in curtaining costs and producing related products through skipping many difficult and high cost production steps. The innovation process of the company did not rest there. Eastman innovation and research was also visible at the Torino Olympic games of 2006 in the form of the new types of transparent seats that were developed to replace the older ones. Key reasons for selection: These innovations and other research in leading the industry into different products has made the stock option of Eastman a dynamically influenced towards the future gains where the company’s future expansion plans with stable revenues have made market capitalization a better option. Technological adoption of Eastman’s products has made the future of the sales and revenues a fruitful opportunity for shareholders to gain in the long run while still incurring returns in the short run- though they may fluctuate over a minute variance. Mitsubishi Chemical Holding Corp. JP:4188 Recently, in 2005, Mitsubishi Chemical and Mitsubishi Tanabe Pharma was joined together in for of a holding company called Mitsubishi Chemical Holdings. Mitsubishi Chemical is the largest chemical company in Japan and is involved in the production of a diverse range of chemicals. The production line up includes a variety of petrochemicals, speciality chemicals and many other conventional and non-conventional products in the same category. Furthermore, the company is also offering plastics, films, data storage devices fro the computer application and uses. The application of their products has also been extensively seen in the chemicals used for the manufacturing of semiconductors. The second business concern n the holdings is the concentration on pharmaceutical products. The application of these products has been renowned for use in products to treat or diagnose complications in the central nervous system. Furthermore, the pharmaceutical products also have a line up for cardiovascular and gastrointestinal disorders. Mitsubishi Chemicals holding in terms of Mitsubishi Pharma after their recent merger with Tanabe Seiyaku makes up for the 56% of the pharmaceutical unit. Key reasons for selection: The company has an extensive corporate presence and structure through in lieu of its 284 subsidiaries and 71 associated companies. It is actively involved in real estate, construction, insurance and many other diverse businesses. Mitsubishi chemical holding has had a substantive yearly profit margin of about 4% with about a 15% return on equity. This along with the integration of the company in consumer products has made the stock portfolio a sound choice for the fund. Japan Sumitomo Chemical Co Ltd JP:4005 The company is one of the leaders in terms of operations and revenues in Japan- operating mainly in the chemical industry. The company’s operations are sub-categorised in different divisions such as Petrochemicals, basic chemicals, It related chemicals and other types of mainstream chemical products for Business and consumer use. The company had started off with production of superphosphate fertilizer and then diversified into major chemical supplies into the market segments. Of the many latest projects that are undertaken by the company is the electrolytic soda plant that has the production capacity of 100,000 tons of chlorine gas. Key reasons for selection: The company operates on the philosophy that is very close to the culture of Japan. It has sustained growth in revenues along with a stable stock price increments through its efficient production processes that have been tailored to match the control measures and development in technological implementation. The stock of the company has been included in the portfolio as the company has controlled its assets and operating income in the recent years to yield higher profits through its operations. Japan Mitsui Chemical, Inc. JP:4183 Japan Mitsui Chemicals is another company operating in the chemicals industry in Japan and is a part of the Mitsui conglomerate. The turnover of the company has been reported to be Fifteen billion dollars for the last financial year with its operating environments settled in Japan, Europe, China, Southeast Asia and the USA. The company employs a total of 13,000 people around the world and deals mainly in the production of performance materials, basic chemicals, petro chemicals, and functional polypropylene materials. Key reasons for selection: One major strength of the Mitsui Chemical Company has been to be part of the Mitsui conglomerate where its rapid expansions have been financed and supported to make it dynamically growth oriented. On the other hand, the other reason of its substantive progress ahs been to be bale to seek opportunities around the globe and match the supplier quality standards and diverse demand of products. Of te recent expansions, Mitsui has been able to initiate its first polypropylene production facility in India to penetrate in the Asian markets and setup a regional segment for further expansions in other markets. Diversification in the Portfolio The portfolios of stocks in the fund have been spread over almost equally in terms of the value of the individual stock. The fund comprises of ten companies in the chemical, oil and gas sector. This has allowed a lot of room for cushion in terms of that all stock is not dependent upon fluctuations in the economics of a single factor. Therefore, any negative impact of the market forces on a certain type of industry on a related product will not decrease the overall value of the fund substantially- even if all other stock options remain constant. Furthermore, the stock funds have been spread over different production line-ups, in which case a negative impact on industrial chemicals may be covered by any gains in consumer chemicals, or a disintegrating factor in polymers may be covered by performance materials. This strategy has especially been considered in the diversification of the portfolio as a decrease in the use of one product or range of products may be gained in the additional demand, or an increase, in the substitute of that product. The fund has been tailored to include companies that are already environment compliant and have gone through the process of being “green.” This will allow cushion for the future as the new regulations and stricter policies of governments around the world will not effect the performance of the companies not will have any hindrances in the growth in terms of capitalization or revenues. Furthermore, the companies have been chosen from two different markets, of Japan and America, to diversify further. This will cushion any economic regression in the local economy in which the company is operating out of and one economic recession may be compensated by stable stock prices in the other economic region. In the fund, 38% of the total value of stock has been placed in Japan while the rest has been invested in American firms. The fund has been further diversified through inclusion of companies whose products are not directly consumed as chemical products. A primary example is the inclusion of Exxon in the fund whose operations are primarily in the oil industry. However, the petroleum products of the Exxon may be used by other chemical industry. Exxon has been included to make sustainable investment of the entire fund be diverse and to manage fluctuations in the developments of the chemical sector. Another strategy used in the fund for diversification has been to invest in the companies that have a global presence and especially those who have either already moved or are in the final stages of their establishment in the growing markets of Asia and other regions. This will help keep the portfolio stable as any change in demand or production due to consumption or state control may not have that diluting affect on the performance of the company. Where a multinational may lose in one region, it still will have a good possibility to gain from the other regions. Although, the fund is only horizontally diversified, where only the number of the stock portfolios have been added to the fund and the only constituent of the fund is only stocks, the risk factor involved has been covered in terms of the global presence of sticks, the origin of the companies and the detailed products these companies are offering. Although the returns of the stock investments may look to be average in the shirt term, but as globalisation is realised for the market and the world- these stocks will gain the edge in terms of return on investment in the long run. Works Cited: Bierman, Harold. The Bare Essentials Of Investing. World Scientific Publishing, 2007. Depamphilis, Donald. Mergers, Acquisitions, and other restructuring activities. Academic Press, 2007. Dorsey, Pat. Morningstar Stocks 500. Wiley, 2008. Edwards, Robert and Magee, John. Technical Analysis of Stock Trends. AMACOM, 2007. Kolb, Robert and Overdahl, James. Futures, Options and Swaps. Wiley-Blackwell, 2007. Plunkett, Jack. Plunkett’s Chemicals, Coatings & Plastics Industry Almanac. Plunkett Research, 2007. Slatter, John. The 100 Best Stocks You Can Buy. Adams Media Corporation, 2007. Read More