Mr. Copley: Interest level from the client base is most important. We're a company that has only one source of income trading across our desk. We have no banking or anything else, and therefore it is important for us to cover stocks that matter to our client base. Obviously, one tends to start with the largest market cap and work down, and that gives us six obvious stocks, as one has to cover Dow (DOW), DuPont (DD), PPG (PPG), Rohm and Haas (ROH) and the industrial gas companies, Praxair (PX) and Air Products (APD). Thereafter, it tends to be sort of thematic, and in addition to that I cover most of the commodity group: Eastman (EMN), Lyondell (LYO), Millennium (MCH), Georgia Gulf (GGC) and NOVA (NCX).
TWST: How are you approaching the chemicals group?
Mr. Copley: It's very difficult to make generalizations in this group,
because no two companies really have the same product base, the same
earnings trajectory, earnings volatility, etc. It is very difficult to
look at the group as a whole and make simple direct comparisons between
companies. We have developed numbers of valuation metrics, which allow
us to compare the companies among themselves, but generally you're
looking at different drivers for different parts of the business. If
anything, I would say the one general key predictor of performance from
these guys long term is use of cash. We are very interested in how these
companies allocate what free cash they might have in terms of capital
spending versus acquisition versus debt repayment.
Tickers included in this excerpt: APD, BAYZY, BP, DD, DOW, DSMKY, E, EMN, GGC, HAL, HPC, LYO, MCH, NCX, OXY, PPG, PX, ROH, XOM
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