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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (30088)	2/17/2008 2:58:32 PM
From: richardred	Read Replies (1) of 78745

I totally understand your position. I'm just explaining my thoughts. I'm not trying to sway someone into buying here. That's why I like to here what others have to say. >The reason is that input costs are likely over time to be the same for all competitors. Exactly my thoughts for pure plays, This is why I generally like to have exposure to the whole group. You know the strong ones from the group for various reasons (niches), because of historical data from the past. Why my exposure to those within the group are risk weighted to those in better condition to benefit. It kind of like what you mentioned earlier on oil stocks. Having exposure to oil stocks would benefit more to higher oil prices not to plastic stocks that wouldn't benefit. >but imo, ultimately the raw material costs (oil) will be the the same for all competitors. IMO It would be different to some big oil players who are in petrochemicals and plastics together. Big oil non pure plastic plays, because of sheer scale in relation to pure play competitors. IMO that gives them a cost advantage over competitors. Direct access to raw materials cost savings. They also might take a hit to short term plastic margins at the benefit of gaining new customers or market share. To them plastics or petrochemicals is not a major profit margined business, but gives them diversification from just raw crude production where profit margins are high and have scale. Given globalization that's why I believe big oil producers in the Middle East have hedged their hand with purchases like the GE plastics business. This reasoning why I believe many in the group will eventually be absorbed in time, if and when those with scale want diversification. This would then increase their exposure when prices of oil might decline and they would want more expose to plastics. If oil doesn't decline. Eliminating a weak competitor can improve margins and increase market share. longer term.

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