What happened?

In case you missed it, this week DowDuPont completed the separation of Dow Inc. from the rest of the enterprise. The stock became the newest member of the Dow Jones Industrial Average.

Why is it important?

In general

A bit of history: DuPont Co. and Dow Chemical merged in 2017. Since then the company has been working on a plan of breaking up into three entities (Corteva Agriscience should finish its separation from DuPont on June 1). The purpose of the whole thing was to re-distribute assets and businesses between the companies.

For investors

The remaking of the company will certainly help to increase its efficiency. From now on Dow Inc. will be more focused on plastics and packaging, which account for about half of its earnings and revenue. The firm has a new portfolio, cost structure, and mindset. According to the media, the management plans to spend less money on factories and return more profits to shareholders through stock buybacks and dividends.

The stock took off to levels above $60 but then dropped to $57 as JPMorgan analyst said that it was overpriced and should cost $49. The reason for such a forecast is that the new Dow is more expensive than shares of other petrochemical companies. As a result, it might be difficult for the company to retain valuation, while there’s a risk of a recession in the United States.

Other analysts surveyed by FactSet have a better opinion of the stock. The biggest bulls, Oxgaard, have their price target at $75. Among the reasons to favor this stock, they cite outstanding dividend yield and rebounding interest in ethylene and polyethylene. 

All in all, the stock looks quite interesting in the longer term. There’s only one big question: how likely are the developed nations to ban plastic out of the environmental concerns?  

For traders

Notice that trading the Dow stock has only started. These early moves reflect the probing investors make as they try to figure out how they feel about the company, so get ready to embrace volatility if you want to deal with this instrument.

The daily chart of Dow Inc.
Dow Inc., daily chart

Stocks can be traded as a CFD at Markets.com.