Healthy Spreads And Steady Operations Helping Braskem

Brazilian shares have had a good run since the spring, and Braskem (NYSE:BAK) has gone along for the ride with the shares climbing another third since my last piece, taking the shares up 70% over the past year. Brazil's economy is still in tough shape, but weak oil prices and healthy international demand for polyethylene and polypropylene have kept the company's financials in good shape.

There are a lot of unknowns that investors have to make their peace with if they're going to own Braskem. The company announced earlier this month that they were having settlement discussions with the U.S. Department of Justice and the SEC regarding the company's involvement in a widespread bribery and corruption probe in Brazil, but the magnitude of any settlement (in the U.S. and Brazil) is still unknown.

What's more, Brazil's economy seems to be stabilizing, but the path of the recovery is uncertain and Braskem's chemicals are tied to demand for fundamental products like construction materials, appliances, cars, packaged foods and so on. In addition to all of that, there is the regular unpredictably of the currency markets, energy markets, and basic chemical markets.

I believe Braskem is still undervalued on an EV/EBITDA basis, but it's a more challenging call. Braskem should benefit from increased production in Mexico, healthy fundamentals in the U.S., and the Brazilian recovery, but basic chemical companies don't often lend themselves to being long-term buy-and-hold stocks.

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Healthy Spreads And Steady Operations Helping Braskem