For Subscribers

Get the complete article now!

TWST: Paul, are there any end markets that you’re excited about that could boost growth for these companies?

Mr. Leming: It’s already been mentioned a couple of times that you can’t ignore the electronic sector. Of the companies that I follow, certainly Rohm and Haas (NYSE:ROH) and, arguably, Air Products are the two companies that have the most significant exposure in terms of their overall business portfolio to those markets, yet it’s still a depressingly small part of each company from an investment standpoint. I can’t argue with Frank’s characterization of Shipley knocking the cover off the ball. But Shipley’s stellar performance still hasn’t stopped Rohm and Haas from disappointing on the earnings front a couple of quarters in a row; and Shipley hasn’t prevented Rohm and Haas’ shares from declining roughly 35% over the last five months. So yes, electronics have just been phenomenal news for some of these companies. But as you really look at the main drivers of the major companies that all of us follow, the harsh news is that we follow an industry that has had a very difficult time growing the top line of its business over the last several years. Revenue growth in this industry has been weak to nonexistent for the last five years now. So we can sit and talk about individual market segments that have done well — such as electronics — all we want, but it hasn’t done investors a lot of good.

TWST: Paul, are there any comments you would like to make on Rohm and Haas?

Mr. Leming: I think if you bought the stock at $26, $27 a share, in the wake of the last cautionary comments by management about earnings, you will be patting yourself on the back 18 months from now. I’ve got to believe we’re close to the point of maximum pain on propylene. Maybe it doesn’t get a lot better going forward, but the reality is that propylene prices probably have stopped going up month to month to month. And that’s really the problem they’ve been wrestling with for the last nine months — is just steady, relentless upward pressure on both propylene and acetone. We’ve probably seen the worst on propylene. An issue that everybody has talked about as a positive for Rohm and Haas is actually something that concerns me a little bit. An unquantifiable risk I see at Rohm and Haas is their whole electronic chemical business. Yes, it has just been a source of gangbuster growth for the last six or nine months, and the long-term outlook is great. But as an investor I step back and look at it and say here’s a business that really has been cobbled together out of, depending on how you want to count some of the smaller deals they’ve done, somewhere between four and six acquisitions over the last 18 months. It’s a business that is largely Asian-based or Asian-driven, tied into an end market of electronics and semiconductors, which we as analysts know next to nothing about. There’s going to be a downturn in the semiconductor cycle at some point. And the last people on the face of the earth to catch a whiff of it are going to be chemical analysts. There are some integration risks in putting together five or six businesses in a short period of time which I worry about. Maybe they’ve had these businesses long enough at this point that the integration risks are now behind them.