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What Makes LyondellBasell (LYB) Stock a Solid Choice Right Now

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Shares of LyondellBasell Industries N.V. (LYB - Free Report) have popped around 25% over the past three months. The company benefits from higher demand for its products on a recovery in global economies, synergies of the A. Schulman buyout and the polyethylene joint venture with Sasol. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.

LyondellBasell has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 or 2 (Buy), offer the best investment opportunities for investors.

Let’s delve deeper into the factors that make this chemical giant an attractive choice for investors right now.

An Outperformer

Shares of LyondellBasell have rallied 48.1% over the past six months against the 37.8% rise of its industry. It has also outperformed the S&P 500’s roughly 19% rise over the same period.

 

 

Estimates Northbound

Over the past two months, the Zacks Consensus Estimate for LyondellBasell for 2020 has increased around 1.7%. The consensus estimate for 2021 has also been revised 5.8% upward over the same time frame. The favorable estimate revisions instill investor confidence in the stock.

Positive Earnings Surprise History

LyondellBasell has outpaced the Zacks Consensus Estimate in three of the trailing four quarters. In this time frame, it has delivered an earnings surprise of 6.1%, on average.

Superior Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for LyondellBasell is 24.1%, above the industry’s level of 9%.

Upbeat Prospects

LyondellBasell is seeing a recovery in the market environment on the back of reopening of economies globally. It is witnessing improved volumes from automotive and other durable goods markets and sustained strong demand from packaging and health care markets.

In its third-quarter call, the company said that it believes that the petrochemical industry should gain from recovery in global economies. The company saw improved demand for polyethylene in North America in the third quarter, driving volumes and margins. It expects continued strength in North American integrated polyethylene margins in the fourth quarter. Global polyethylene demand has also grown despite the pandemic. Also, China’s polyethylene trade deficit is supporting North American exports, per the company.

Last month, LyondellBasell also closed the Louisiana-based Integrated Polyethylene Joint Venture (JV) transaction with global integrated chemicals and energy company, Sasol. The 50/50 JV includes a 0.9 MM ton low-density, 1.5 MM ton ethane cracker and linear-low density polyethylene plants along with related infrastructure near Lake Charles, LA.  The JV aligns with LyondellBasell's strategy of investing in high-quality assets in growing markets. The formation of this JV is also part of LyondellBasell’s initiative expand core businesses, while positioning the company to gain from improving economic conditions.

The company should also gain from the high-density polyethylene ("HDPE") project. It started a 500,000-ton per year polyethylene plant in Houston in second-quarter 2020. The plant uses its next-generation Hyperzone HDPE technology. The company expects the Hyperzone HDPE plant to generate $170 million of annual EBITDA.

Moreover, the buyout of A. Schulman has expanded LyondellBasell's compounding business and created a platform for future growth with reach into additional high-growth markets such as automotive, construction materials, electronic goods and packaging. The company should gain from the significant synergies of the acquisition. The integrated business operates as the Advanced Polymer Solutions business segment. A recovery in automotive manufacturing is also driving volumes in this segment.

 

 

Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Fortescue Metals Group Limited (FSUGY - Free Report) , Impala Platinum Holdings Limited (IMPUY - Free Report) and BHP Group (BHP - Free Report) .

Fortescue has a projected earnings growth rate of 73.5% for the current fiscal. The company’s shares have surged around 163% in a year. It currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Impala Platinum has an expected earnings growth rate of 131.7% for the current fiscal. The company’s shares have rallied around 32% in the past year. It currently carries a Zacks Rank #1.

BHP Group has a projected earnings growth rate of 49.2% for the current fiscal year. The company’s shares have gained around 34% in a year. It currently carries a Zacks Rank #1.

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