Will Ashland Channel Ben Graham?

April 14, 2009

HardAssetsInvestor.com's managing editor tries to determine if another 95% stock uptick is in the cards for the diversified chemicals enterprise.
  • ‘Bargain basement' vs. ‘value'
  • Ashland's 2008 nemesis
  • Analyst trepidation justified?


Benjamin Graham, were he still alive, would likely be having a field day picking through today's market wreckage for bargains. Graham, the granddad of value investing and mentor to Warren Buffett, earned a reputation for deep-discount investing in the wake of the 1929 stock market crash.

Just as there were valuable bargains to be struck in the aftermath of the '29 collapse, there are enticing buys to be made now.

Graham was no commodity investor per se. His signal work, "The Intelligent Investor," mentions only stocks. Still, you could say that Graham treated stocks as commodities. His analyses essentially dug out the fundamental value of companies and permitted purchases only when substantial discounts from market value could be obtained. Value, rather than brand name, was Graham's standard.

There are, too, so-called "commodity stocks" – equities issued by companies in the commodity "business" – that can be evaluated from Graham's, and presumably, Warren Buffett's, vantage point.

Take the stocks in the Basic Materials sector as examples. This segment, made up of companies in the chemical, mining, industrial metals and forestry/paper industries, was brutalized after a five-year bull run. In just five months, between June and November 2008, the Dow Jones US Basic Materials Sector Index lost nearly 59% of its value. Only recently has the benchmark started to show signs of stabilizing.

Among the stocks contributing to the index's decline was that of Ashland, Inc. (NYSE: ASH), a company Ben Graham would no doubt recognize. Well, old Ben would recognize part of the company, anyway. Originally founded in 1918 as Ashland Oil, the Kentucky-based company is now a diversified chemicals enterprise operating in four divisions.


  • Ashland's Valvoline segment is the old-line core of the business which produces and markets automotive lubricants, chemicals and filters. A nationwide chain of oil change stations is now operated out of the division.
  • The Performance Materials division supplies specialty chemicals such as resins and adhesives to the building, construction and manufacturing trade.
  • A Distribution segment deals in chemicals, plastics and other materials in North America and Europe as well as providing waste collection, recovery and recycling services.
  • Ashland's newest enterprise, Water Technologies, supplies water treatment material for industrial and municipal operations as well as providing fuel treatments, welding, refrigerant, sealing and fire-fighting products.


Ashland, Inc. (Price-Only And Dividend-Adjusted)

Ashland, Inc. (Price-Only And Dividend-Adjusted)


What Ben Graham would see now if he were looking at Ashland is a company with surprisingly good fundamentals that's been chucked into the bargain basement along with a lot of sector dross.

We looked at Ashland last year as it was still rather uncomfortably refashioning itself into a diversified chemicals outfit (see "Ashland Could Be A Play").

So what would Graham like about Ashland now?


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