If you look hard enough, there are always areas of the economy that are profitable.
In the chemical industry, natural gas is both a fuel and a raw material.
The boom in shale gas and an abundant supply of natural gas liquids (NGL) has enabled US chemical companies to gain a competitive advantage over other producers around the world.
Over the last few years major chemical producers have spent more than $147 billion, according to my research, on new plants to take advantage of inexpensive NGL and these projects are starting to produce results.
We are adding to our positions in Westlake Chemicals (WLK) and LyondellBasell (LYB).
LyondellBasell added 800 million pounds of ethylene capacity last year and just recently completed a major ethylene expansion at its Channelview plant.
Another downstream sector that is having good margins due to the collapse in oil prices is the refining sector.
In this sector, we like Phillips Petroleum (PSX), Western Refining Co. (WNR), and Alon USA Partners (ALDW).
The midstream sector of the oil and gas industry is another business that we like.
One we like is Enterprise Products (EPD), which has several billion dollars of new projects coming online this year.
The other company is Kinder Morgan (KMI). It is also increasing capacity and expanding its natural gas pipeline into Mexico.
Many companies that derive income from overseas have been hurt by the strong dollar. However, companies that are domestically orientated have done well.
Among them, in my opinion, are companies such as Kroger (KR), Walt Disney (DIS), Home Depot (HD) and Tractor Supply Company (TSCO).
We also like financial stocks like Wells Fargo (WFC) and JPMorgan (JPM).
We are not adding new money to our industrials positions at this time, but we are not selling out of them either.
We will continue to watch these players: Honeywell (HON), United Technologies (UTX), Emerson Electric (EMR) and Rockwell Automation (ROK).
There is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account. Further, the reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.
BSG&L is a Texas-based registered investment adviser. Our founding principals, Ben Dickey and Kevin Londergan, have more than 30 years experience in both accounting and financial services.
At BSG&L, we believe that greater and consistent returns can only be achieved by identifying long-term tendencies in the investment markets and understanding fundamental shifts in expected investment returns.