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Why PetroLogistics Is a Solid Buy in the Chemicals Space


The company has a return on equity rate of over 40%, its margins are healthy, and the stock's chart looks good.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Today I have been focusing on stocks and limited partnerships in the chemicals space. I already wrote a Buzz & Banter post about Eastman Chemical (NYSE:EMN) last month, but I wanted to throw in another idea that I see. I recommended Eastman Chemical because it has had income growth 40% per year, has operating margins of 20%, and a return on equity of 35%. Plus, Eastman's chart looked good technically.

PetroLogistics (NYSE:PDH) is a company that breaks propane into propylene and hydrogen and sells both as commercial chemicals. From a fundamental perspective, the company is a limited partnership, and because of this, I look at the price-to-sales ratio, which is good at 2.4. Return on equity is over 40%, and margins are very healthy at over 25%. From a technical-analysis perspective, it looks to be starting a momentum phase. The stock has had a positive moving average cross, where the 50-day moving average moves over the 200-day moving average. The stocked also backtested its 50-day moving average and held, and now, PetroLogistics is holding higher above the old breakout consolidation area. This is how the majority of 18-month momentum moves start, so I am buying it here.
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Positions in EMN, PDH
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