February 27, 2008 - Market shakeouts are a painful yet valuable sorting process that shows which stocks are flashes in the pan and which are the real deal.  Praxair (NYSE:PX) is proving its rightful place in the latter camp, holding up impressively as it mines a vein for steady profits even amidst this economic downturn.  It's stock price has gained nearly 40% since we wrote about it just over a year ago, and perhaps more telling is how PX attracted strong buying interest after dipping at the start of the year. 

Praxair is in the business of industrial gases.  This century-old firm is one of those big, behind-the-scenes companies that most individuals never come across in their daily lives--it's not like an eBay or Coca-Cola.  Yet for many years Praxair's stock has been on the radar of investment professionals for its steady business, strong competitive position, and solid performance.  This stock also pops up on our screen of Top 10 profit margins in the Diversified Chemicals and Top 10 yields in Synthetics.

Praxair sells two main types of products, atmospheric gases and process gases. It produces atmospheric gases using processes such as cryogenic air separation to create oxygen, nitrogen, argon, and other rare gases.  The raw material for atmospheric gases is simply air, while the process gases such as carbon dioxide, helium, hydrogen, and acetylene are primarily sourced as by-products purchased from chemical plants, refineries, etc.

These gases are sold to a wide variety of industries including healthcare, petroleum refining, computer-chip manufacture, beverage carbonation, fiber-optics, steel-making, aerospace, chemicals and water treatment.  Many customers contract with Praxair to build on-site plants that supply the gas products directly to their operations.  These on-site arrangements account for nearly a quarter of its revenues and give Praxair's business a rare degree of stability and protection. For example, Praxair is building a state-of-the-art hydrogen plant at Chevron's refinery in Richmond, CA.  The facility comes with a 15 year supply deal to Chevron.

In addition to industrial gases, Praxair has a surface technologies division which makes wear-resistant and high-temperature corrosion-resistant metallic and ceramic coatings and powders.  This business represents about 7% of revenues.

In 2007, Praxair delivered earnings of $3.62 per share on revenue of $9.4 billion, up from $3.00 per share on revenue of $8.3 billion the year before and $2.50 on $6.6 billion in 2005.  For 2008, analysts forecast EPS of $4.14 and revenue of $10.5 billion.

The annual growth rate for earnings is expected to be 13.4% over the next five years.  While this growth is hardly spectacular, it is impressive for such a large company in a mature industry such as this.  Moreover, the steady and predictable nature of its business give Praxair an attractive quality that many investors seek--particularly in unstable times like this.  The company recently raised its dividend again to $1.50 per share annually, giving PX a decent yield of 1.80%.

At $84.15, the stock has more than doubled over the past 3 years--well ahead of the broader market averages.  Praxair is not the sort of stock that makes investors rich overnight or even the object of attention at cocktail parties.  It is a stable, behind-the-scenes business on a growth trajectory in the low double digits.  With the respectable dividend thrown in, many investors find Praxair to be a stock well worth knowing in the good times and bad.

Company Website: http://www.praxair.com/

- James Hale