DOW Stock Down 24% in 3 Months: Should You Buy the Dip?

Dow Inc.’s DOW shares have lost 23.9% in the past three months, underperforming the Zacks Zacks Chemicals Diversified industry’s decline of 7%. The bearishness reflects headwinds from soft end-market demand amid an unfavorable macroeconomic environment and pricing pressure, which have weighed heavily on the stock. Technical indicators show that DOW has been trading below the 200-day simple moving average (SMA) since Oct. 7, 2024. The stock is also trading below the 50-day SMA since Oct. 21, 2024. Following a death crossover on July 29, 2024, the 50-day SMA continues to read lower than the 200-day SMA, indicating a bearish trend.Dow’s Shares Trades Below 50-Day SMA Image Source: Zacks Investment ResearchDOW is currently trading close to its 52-week low of $40.04 reached on Dec. 16, 2024. Given the significant pullback in Dow’s shares, investors might be tempted to snap up the stock. But is this the right time to buy DOW? Let’s find out.Demand Weakness, Pricing Headwinds Take Toll on DOW StockDOW faces challenges from demand softness in Europe and China. Lower consumer spending amid inflationary pressures are affecting demand in Europe. Construction and manufacturing activities remain soft in the region. Demand in Asia has been affected by the weaker demand recovery in China. The property sector remains sluggish in China with declining new home prices.Demand in infrastructure including residential construction, remains weak. Inflationary pressures are hurting consumer durables and building and construction demand. Demand in infrastructure including residential construction also remains weak. Dow also sees softness in automotive in Europe and China due to low demand. Soft conditions across these markets are likely to weigh on volumes in the near term.  Demand is expected to remain pressured by elevated inflation, low consumer confidence across Europe and China, and geopolitical tensions, particularly in building and construction and durable goods markets.Dow is also being challenged by weaker prices in its Performance Materials & Coatings unit, which is weighing on the segment’s margins. The unit faces challenges from weaker siloxane prices partly due to supply additions in Asia. Siloxane prices remain under pressure due to competitive pricing pressure resulting from additional supply. While capacity additions have slowed of late, elevated industry supply is expected to continue to impact prices over the near term.High-Return Growth Projects & Cost Actions Aid DowDOW benefits from its differentiated portfolio and low-cost feedstock positions. It remains focused on investing in attractive areas through highly accretive projects. Disciplined and balanced capital allocation priorities are also supporting its Decarbonize and Grow strategy to deliver long-term value creation for its shareholders. DOW is advancing its Decarbonize and Grow, and Transform the Waste strategies, which are expected to deliver more than $3 billion in underlying earnings annually by 2030.The company received a definitive green light from its board in November 2023 for its Fort Saskatchewan Path2Zero initiative, marking a significant milestone in its commitment to building the world's inaugural net-zero Scope 1 and 2 emissions-integrated ethylene cracker and derivatives facility in Alberta, Canada.The project involves the construction of a new ethylene cracker, a 2-million MTA polyethylene capacity expansion and retrofitting the existing cracker to achieve net-zero Scope 1 and 2 emissions. It is expected to generate $1 billion in EBITDA growth annually throughout the economic cycle and decarbonize 20% of Dow's global ethylene capacity. The investment positions DOW to meet increasing demand in lucrative markets such as packaging, infrastructure and hygiene, with additional potential gains from the commercialization of low and zero-emission products. Dow has inked a long-term agreement with Linde for the supply of clean hydrogen at the Path2Zero project.Dow also focuses on maintaining cost and operational discipline. The company is implementing targeted actions focused on optimizing labor and purchased service costs, lowering turnaround spending and boosting productivity. Its targeted actions delivered $1 billion in cost savings for full-year 2023.DOW’s Solid Financial Health Supports Capital AllocationDOW has a strong balance sheet and generates substantial cash flows, which allow it to finance its growth investments focused on higher-value businesses and regions and drive shareholder value. It generated cash from operating activities from continuing operations of $800 million in the third quarter of 2024. It ended the quarter with solid liquidity of around $13 billion, including cash and cash equivalents of roughly $3 billion. Dow returned roughly $1.97 billion to its shareholders in the first nine months of 2024 through dividends and share buybacks, including $584 million in the third quarter. It bought back shares worth $494 million in the first nine months of 2024 and had roughly $931 million available under its share buyback program at the end of the third quarter. Dow recently reached a definitive deal to sell a 40% equity interest in select U.S. Gulf Coast infrastructure assets to a fund managed by Macquarie Asset Management. DOW anticipates getting about $2.4 billion in initial cash proceeds from the sale of its 40% minority equity interest, with the potential to generate cash proceeds of up to roughly $3 billion for a 49% minority stake. Macquarie Asset Management will have the option to increase its ownership stake to 49% within six months of the transaction's closure. The deal increases financial flexibility and allows for continuous cash deployment into the most attractive initiatives that will generate long-term value for its shareholders.DOW offers a healthy dividend yield of 6.9% at the current stock price. While DOW has a high payout ratio of 131%, its dividend is perceived to be safe and reliable, backed by strong cash flows and sound financial health.Dow’s Earnings Estimates SouthboundThe Zacks Consensus Estimate for DOW’s 2024 earnings has been going down over the past 60 days. The consensus estimate for fourth-quarter 2024 earnings has also been revised downward over the same time frame. Find the latest earnings estimates and surprises on Zacks Earnings Calendar. Image Source: Zacks Investment ResearchDOW’s Valuation Looks AttractiveDOW’s cheap valuation should lure investors seeking value. The stock is currently trading at a forward P/E of 13.39X, lower than its five-year median. It also represents a roughly 14.5% discount when stacked up with the industry average of 15.66X. Image Source: Zacks Investment ResearchDOW Stock Underperforms Industry & S&P 500 DOW’s price performance has been lackluster this year, reflecting the demand and pricing headwinds. Its shares have tumbled 26.6% year to date, underperforming the industry’s 9.1% decline and the S&P 500’s increase of 27.8%. Its peers, LyondellBasell Industries N.V. LYB and BASF SE BASFY, have lost 21.3% and 17.6%, respectively, while Eastman Chemical Company EMN has gained 1.3%, over the same period.DOW’s YTD Price Performance Image Source: Zacks Investment ResearchHow Should Investors Play the DOW Stock?While DOW benefits from its cost and productivity actions and investment in high-return projects, it is exposed to weak demand in a challenging environment and pricing headwinds, which have led to its underperformance this year. This, coupled with declining earnings estimates cast a pall on the company's prospects. It is not advisable to buy the dip in this Zacks Rank #5 (Strong Sell) stock until market conditions improve.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks Naming Top 10 Stocks for 2025Want to be tipped off early to our 10 top picks for the entirety of 2025?History suggests their performance could be sensational.From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Dow Inc. (DOW): Free Stock Analysis Report BASF SE (BASFY): Free Stock Analysis Report Eastman Chemical Company (EMN): Free Stock Analysis Report LyondellBasell Industries N.V. (LYB): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks