Today's 3 Stock Picks: DOW, GRMN, LOGI

Shares of Dow Chemical (DOW) rose after the company announced it would maintain its dividend and sue Kuwait after that country's top oil policy group pulled out of a $17.4 billion deal at the end of the year. The apparent end of that joint venture imperiled another transaction that was a linchpin of the Midland, Mich., chemical giant's corporate transformation.

The evaporation of an estimated $9 billion benefit from the planned K-Dow plastic manufacturing project cast doubt on Dow's ability to pursue its acquisition of specialty chemicals maker Rohm & Haas (ROH). Dow shares plunged more than 20% the day after Kuwait's Supreme Petroleum Council nullified the deal.

"We were shocked by this news, and this was completely unexpected given the approvals already received and the behavior, actions and words from our partners," Dow Chairman and CEO Andrew Liveris said in a prepared statement Tuesday. "Pursuing legal options is not a decision we take lightly, especially because of the longstanding partnerships we have established in Kuwait over the past decade, but [joint venture partner Petrochemical Industries Company of Kuwait] is in breach of contract, and we must take action to protect the interests of our company and our shareholders."

Michael Judd, an analyst at Greenwich Consultants, says investors aren't cheered as much by the prospect of litigation with a foreign government as Liveris's announcement that the company will keep paying dividends. It declared a quarterly dividend of 42 cents a share on Dec. 11.

While Liveris's resolve may have pleased investors Tuesday, Judd says it could be another move that ultimately limits the CEO's options.

"Basically, he's already put himself in a corner by having [the Kuwait] deal as a memorandum of understanding, and having another deal where he's locked in" with Rohm & Haas, Judd says. "Nobody could have foreseen that the Kuwaitis would pull the plug -- it wasn't a high probability -- but that doesn't change the fact that the company is in the position it's in because of decisions that Dow management made."

If the Rohm & Haas deal goes through, perhaps at a renegotiated price, that will help Dow's transformation, but could also put its balance sheet atilt, Judd warns.

"The ultimate issue will be the amount of leverage the company has at some point if it proceeds with the Rohm & Haas transaction," he says. "We are in uncertain times and to be highly leveraged is not a describable outcome. The question will be whether that dividend is safe or not -- not just because the current corporate administration says it is."

Bottom Line: Hold
Don't expect litigation to solve the merger mess, which will require close attention to determine whether investors seek an exit point or a ride on a successful long-term transformation.

Shares of Garmin (GRMN) lost their way Tuesday after an analyst downgraded the stock, saying the maker of personal navigation devices might see its products go from must-haves to don't-really-needs.

Thomas Lee of Goldman Sachs cut his rating to Sell from Neutral, warning that "2009 will likely be the start of a multi-year secular decline in Garmin's core-end market of personal navigation devices."

The combination of reduced consumer spending and smarter smartphones with their own navigation systems will eat into Garmin's market, he said.

More immediately, Dougherty & Co. analyst Jeff Evanson said the company's fiscal fourth-quarter sales were ahead of expectations and Garmin had gained market share. It's scheduled to report results Feb. 25. While there may have been a preholiday inventory buildup, he estimates revenue will be about $40 million more than the $1.14 billion consensus estimate. That would still be a decline from the year-ago period, when navigation units filled a gift niche as trendy but relatively inexpensive gadgets and racked up $1.22 billion in sales.

November figures by market research firm NPD showed personal navigation devices made up 5.7% of all consumer electronics sales, down from 6.8% the previous year.

"We believe this is a tipping point that the 'hot device' factor is over for the category," Evanson wrote.

The future market looks even worse, Lee wrote. He said 2009 will be a year of steep sales declines as consumer put off spending money and smartphone makers such as Nokia (NOK), Sony Ericsson, Motorola (MOT), Samsung and Research in Motion (RIMM) improve their own navigation offerings. So by the time people start buying again, there will be even more competition.

"While there are noticeable performance deficiencies in smartphones as a GPS standalone device, we believe the performance gap has narrowed significantly, and see the current economic slowdown as an opportunity for smartphone vendors to narrow the gap even further as consumers are likely delay purchases on PNDs over the intermediate term," he wrote.

Bottom Line: Hold
Garmin shares dropped about 75% last year, around twice the rate of the S&P 500. Watch them in the runup to earnings and stay tuned for early guidance to get the most from any uptick before steering away from this stock.

Shares of computer peripherals maker Logitech (LOGI) dropped Tuesday after the company pulled its 2009 guidance.

The world's biggest maker of computer mice, a Swiss company whose U.S. operations are based in the San Francisco area, announced it would lay off about 15% of its work force, about 525 people. It will provide more detail when it announces quarterly results on Jan. 20.

"During the December quarter, the retail environment deteriorated significantly," President and CEO Gerald Quindlen, said. "Moreover, we expect the economic environment to worsen in the coming months and we are therefore taking significant actions to align our cost structure with what is likely to be an extended downturn."

Manuel Recarey, an analyst at Kaufman Brothers, said he was already anticipating a weaker showing than many Wall Street observers. With two weeks to go until more information emerges, he says the one-day drop is a reasonable, if speculative response.

"I'm not too shocked," he says. "I was anticipating weakness, and I would probably say that it might be a little worse than I was looking for."

Logitech's near-term prospects were already a concern for Avondale Partners analyst John Bright, who last month cited lower holiday sales and a seasonal ebb after the Consumer Electronics Show in January, a showcase for new products that may not get to stores right away.

Logitech's strengths include superior logistics management, Bright said in a Dec. 22 note, but he added that increasing sales of low-priced notebooks may also indicate buyers aren't buying peripherals.

Kaufman Brothers' Recarey says declining commodity and shipping costs will help the company, but that he's waiting for more information when the company announces earnings.

"There's an information void right now," he says. "I think long term, the trend certainly supports their ability to grow -- once we get past this very difficult macro environment.”

Bottom Line: Hold
This is a well-run company caught in an economic riptide, and patience is the most constructive response.