E Olin Corporation - Not What It Seems

My issue with Olin Corporation (OLN) is, to me, as an investment I think the stock is a value trap, pure and simple.

At the surface the stock appears to be under valued. It isn't until you take a closer look that you realize here is a company that spent $4.6 billion purchasing the chlorine business from Dow Chemical in FY 2015 and yet for FY2017, 72% of the company's net income came from taxes.

I have to admit these are the things that make a value investor consider becoming a greeter at an unnamed big box store. But don't take my word for it, see what you think.

Olin Corporation

Olin Corporation operates in three divisions, Chlor Alkali Products, Chemical Distribution and Winchester Products. Chlor Alkali Products manufactures and sells chlorine and caustic soda, hydrochloric acid, hydrogen, bleach products and potassium hydroxide. Chemical Distribution manufactures bleach products and distributes caustic soda, bleach products, potassium hydroxide and hydrochloric acid. Winchester products include sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges. Industry peers include PolyOne Corporation, NL Industries, and Huntsman Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $34.99, with an initial trailing stop at $32.83. Upward price movement will find resistance at $33.89 and $34.85, with final resistance at $36.53, while downward price movement will find support at $30.77 and $29.58.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

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Disclosure: 

I hold no shares of Olin Corporation

Disclaimer: I am an individual investor not licensed or registered with any government or institutional financial agency.

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