• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Basic Materials

Cabot Looks Promising

'Carbon black' can keep your portfolio out of the 'red.'
By TONI TURNER Jul 23, 2013 | 02:30 PM EDT
Stocks quotes in this article: CBT

Ever heard of "carbon black" before? I hadn't.

But in the world of industrial chemicals, carbon black is in high demand. The fine black powder, derived from petroleum, is one of the most commonly used materials in a broad swath of products, including rubber, tires, inks, paints, batteries, belts and hoses.

In 2012, auto manufacturers and suppliers consumed nearly 80% of the global carbon black production. With auto sales expanding in China and India, along with the U.S., the global carbon black industry is scheduled to grow continuously through 2018.

One of the biggest producers of carbon black is Cabot Corp. (CBT). Founded in 1882 and headquartered in Boston, Mass., CBT produces and sells specialty chemicals and performance materials worldwide to automotive, construction and infrastructure, electronics and consumer industries. Its products also are used in thermal insulation, anti-counterfeiting security, energy and environmental applications.

With earnings per share estimated to expand 32% in 2014, and a forward price-to-earnings ratio of 10.1x those earnings, to me, CBT is an interesting opportunity. CBT also pays an annual dividend of 2.01%, or $0.80 per share, making the opportunity even more attractive.

Now, let's look at CBT's daily chart. As I've mentioned in recent articles, with the market at all-time highs and many stocks trading in nosebleed territory, locating good stocks that are not overbought is a challenge. CBT, however, currently shows a promising pattern on its daily chart.

Source: RealTick

Notice how CBT reversed off its November low of $32.57 and moved higher into the end of 2012. In the first quarter of 2013, price rallied to a high of $44.16. (CBT's all-time high comes in at $49.87, touched in April 2007.) Then, CBT dropped dramatically, as second-quarter results reflected lower sales in China and the disruption in its Japanese operation following the 2011 earthquake and tsunami. By April, price declined below its 20-day simple moving average (red), and its 50-day MA (green) and its 200-day MA (black), falling to an April low of $32.13.

But even as CBT's price fell, note the bullish divergence in its 14-day RSI (black arrows). The RSI became oversold, in the last week of March, falling to $28.88. Subsequently, the indicator reversed to move in an uptrend -- a positive signal. That signal occurred even though CBT's price was still in the process of falling to April lows. When you see a "bullish divergence," meaning the indicator and price are "diverging," or moving in opposite directions, it's usually a good idea to pay attention to the indicator. Many times it is hinting that price may soon follow the in its direction -- and that's exactly what CBT did.

By the end of May, the chemicals company had rebounded to a high of $41.38. It dipped back down to its 200-day MA in mid-June (following broader market action), and rose again to trade above its moving averages in July.

CBT reports earnings July 31, after the closing bell. Consensus is for $0.91 per share versus $1 in the same quarter a year ago.

While CBT may rise into earnings -- and I like the way price is acting because of the nearby earnings report -- my initial purchase at current levels of $40.75, will be one-quarter to one-third my intended position. After CBT's earnings announcement, should price rally above nearby resistance (May/June highs) at $41.38, I will consider completing my full position. My initial protective stop will be placed at $38 (trail). (For those who wish to hold CBT for the long-term, the stop may be lowered to just below the 200-day MA, to $37.40). My initial profit target is $44.

Carbon black should continue to increase in demand in upcoming years, and CBT is poised to profit from that move. So, in this case, knowing what "carbon black" is may deliver nice gains.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Turner was long CBT.

TAGS: Investing | U.S. Equity | Basic Materials | Industrials

More from Basic Materials

Bunge and Agriculture ETFs Are Attached to the Same Cord

Bruce Kamich
Jul 8, 2022 8:45 AM EDT

Here's our outlook for shares of the agricultural company.

Commercial Metals Is Poised for an Upside Breakout

Bruce Kamich
Dec 28, 2021 11:45 AM EST

Let's review the charts and indicators.

Martin Marietta Looked Bullish Even Before Getting an Upgrade

Bruce Kamich
Dec 17, 2021 10:20 AM EST

Here's our updated trading strategy and price targets.

Masco Surges -- but Is It a Buy?

Bruce Kamich
Nov 16, 2021 1:39 PM EST

Traders and investors looking for a building products name to add to their portfolio could go long MAS around this level.

History Says Enthusiasm About Infrastructure Spending Should Be Tempered

Bret Jensen
Nov 10, 2021 8:30 AM EST

It could be a few years before construction projects that receive money from the latest federal infrastructure infusion get off the ground.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:44 AM EDT PETER TCHIR

    CPI Beats Expectations, But Maybe Not the 'Whisper'?

    Slightly better-than-expected inflation across the...
  • 01:44 PM EDT STEPHEN GUILFOYLE

    This Holding Lights Up With Strong Earnings

    Check out the latest from TheStreet's Stocks Under...
  • 09:24 AM EDT PETER TCHIR

    Jobs Report Reaction: Incredibly Strong, But Questions to Ask

    An incredibly strong July jobs report. Not only d...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login