This Cyclical Has Special Appeal

Article Excerpt

NOVA CHEMICALS CORP. $44 (Toronto symbol NCX; SI Rating: Extra risk) makes two types of industrial plastics. Ethylene/polyethylene, which accounts for 60% of its revenues, is used to make a variety of products such as packaging, plastic bags, appliances, electronics and plastic pipe. The other 40% of Nova’s revenue comes from polystyrene products, such as foam cups, plates and bowls. North America supplies 80% of its revenue. Nova needs large amounts of crude oil and natural gas to make its products, which leaves it vulnerable to rising oil and gas prices. This plus its heavy reliance on just two common industrial plastics would ordinarily limit our interest. Location, contracts cut oil price risk However, the company’s proximity to Alberta’s large gas fields cuts its risk. Nova also structures its sales contracts so that it can pass along most of its higher raw material costs to its customers. Revenues fell from $3.9 billion in 2000 to $3.1 billion in 2002, as an economic slowdown cut…

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