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5 Chemical Growth Stocks to Enrich Your Portfolio in 2017
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The chemical industry is gradually gaining strength after being badly shaken by the Great Recession. The highly cyclical industry – which had long been out of favor – is finally getting its groove back, making it an attractive investment proposition for 2017.
The chemical industry fared reasonably well last year, thanks to continued strong momentum in the automotive space and a rebound in the housing sector – two major end-use markets for chemicals.
Notwithstanding a slew of headwinds including concerns over China’s economy, Eurozone’s tepid recovery and weak demand in the energy space, the industry’s recovery momentum is expected to continue this year, supported by continued strength in the light vehicles market, positive trends in the construction space and significant shale-linked capital investment.
U.S. Chemical Industry Set for Strong Growth
While the European chemical industry remains in limbo given lower prices, shrinking production, sluggish demand for European chemical exports and weak R&D investments, prospects in the U.S. look bright.
The U.S. chemical industry remains on course for growth this year and the next despite several challenges including a strong dollar, soft export markets and a low oil price environment. The American Chemistry Council (“ACC”), in a recent report, said that it envisions national chemical production to rise 3.6% in 2017, further accelerating to a 4.8% growth in 2018.
Advances in manufacturing and exports is expected to boost demand for basic chemicals this year and beyond. The ACC expects basic chemicals production to expand 4.2% in 2017.
The trade group also expects American chemical industry’s growth to transcend the nation’s overall economic growth in the long haul. It sees domestic chemical sales to cross the $1 trillion milestone by 2020.
The shale gas boom in the U.S. has also been a huge driving force behind chemical investment on plants and equipment in the country and have provided domestic petrochemicals producers a compelling cost advantage over their global counterparts. The shale revolution has made the U.S. an attractive investment hotspot and incentivized a number of chemical companies to pump in billions of dollars to beef up capacity.
According to the ACC, over 275 new chemical projects have been announced by chemical makers (worth more than $170 billion) since 2010 to take advantage of ample natural gas supplies, nearly half of which already complete or under construction. Such investments – many backed by Federal government support – are expected to boost capacity and export over the next several years.
Strength Across Key End-Markets
The automotive sector continues its good run. This major chemical end-use market is enjoying the fruits of low fuel prices. In particular, U.S. light vehicles market continued to show strength in 2016, supported by an improving job market, rising personal income, low fuel prices and attractive financing options, and the momentum is expected to continue this year.
A recovery across housing and commercial construction markets has been another tailwind for the chemical industry. After being hit hard in the recession, the construction sector has bounced back on the heels of strong housing fundamentals. The underlying demand trends in the housing space remain strong, supported by an improving employment levels, affordable interest/mortgage rates and a rise in income levels. This augurs well for chemical demand in this key market.
Strategic Actions to Reap Benefits
Chemical companies continue to shift their focus on attractive, growth markets in an effort to cut their exposure on other businesses that are grappling with weak demand. The industry is also seeing a pick-up in consolidation activities (exhibited by a wide swath of deals in the recent past) as chemical makers are increasingly looking for cost synergy opportunities and enhanced operational scale in a still-difficult global economic environment.
Moreover, cost-cutting measures (including plant closures and headcount reduction) and productivity improvement actions by chemical companies are expected to yield industry-wide margin improvements.
5 Chemical Growth Plays
Growth investors look for stocks with aggressive earnings or revenue growth potential, which should lead to higher stock prices. Here we put a spotlight on chemical stocks that are poised for healthy growth. With the help of our style score system, we have picked 5 stand-out stocks that have excellent prospects and might offer solid investment returns.
Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined with Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.
Headquartered in Dallas, TX, Kronos sports a Zacks Rank #1 and a Growth Score 'A.' The company delivered a healthy positive earnings surprise of 111.1% in the last reported quarter. The stock has a long-term expected earnings per share (EPS) growth rate of roughly 5%.
Kronos’ cost-reduction efforts and savings from workforce reduction should lend support to its earnings. It is also expected to benefit from lower raw material and other production costs.
South Carolina-based Ingevity has a Zacks Rank #2 and a Growth Score 'A.' The stock has a long-term expected EPS growth rate of 10%. The company delivered an average earnings surprise of 19.8% over the trailing four quarters.
Ingevity is expected to benefit from strength in its Performance Materials segment and strong adoption of innovative pavement technologies in its Performance Chemicals segment. The company’s cost-reduction efforts should also support its earnings this year.
Netherlands-based LyondellBasell has a Zacks Rank #2 and a Growth Score 'B.' LyondellBasell has delivered positive earnings surprises in 3 of the last 4 quarters. The stock has a long-term expected EPS growth rate of 8%.
LyondellBasell continues to benefit from the favorable North American natural gas environment. It should also gain from its ethylene and polyethylene expansion moves. The company is executing its expansion projects to leverage the U.S. natural gas liquids (NGLs) advantage.
Our next pick in the space is Texas-based Celanese, armed with a Zacks Rank #2 and Growth Score 'B.' The company has surpassed expectations over the last four quarters with an average earnings surprise of around 7.1%. Its long-term projected EPS growth rate is 8.8%.
Celanese’s strategic measures including productivity and efficiency improvement actions should lend support to its earnings in 2017. Further, the company should benefit from capacity expansion, growth initiatives in emerging regions and expansion of its engineered materials pipeline.
North Carolina-based Albemarle is another attractive choice with a Zacks Rank #2 and Growth Score 'B.’ The company delivered positive earnings surprises over the last four quarters with an average earnings surprise of 27.1%. Its long-term projected EPS growth rate is 10%.
The company is taking steps to strengthen its lithium business, partly through strategic acquisitions. As part of this move, it recently closed the acquisition of the lithium assets of Jiangli New Materials. The buyout will accelerate the company’s ability to meet its goal of capturing 50% of the growth in the lithium industry.
Final Thoughts
While the chemical industry still remains hamstrung by a host of headwinds, the industry’s upturn is expected to continue this year on sustained healthy momentum in the automotive space and an upswing in the housing market.
Amid such a backdrop, it would be prudent idea to invest in the above-mentioned stocks with compelling growth prospects if you are looking to reap solid returns from your portfolio this year.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>
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5 Chemical Growth Stocks to Enrich Your Portfolio in 2017
The chemical industry is gradually gaining strength after being badly shaken by the Great Recession. The highly cyclical industry – which had long been out of favor – is finally getting its groove back, making it an attractive investment proposition for 2017.
The chemical industry fared reasonably well last year, thanks to continued strong momentum in the automotive space and a rebound in the housing sector – two major end-use markets for chemicals.
Notwithstanding a slew of headwinds including concerns over China’s economy, Eurozone’s tepid recovery and weak demand in the energy space, the industry’s recovery momentum is expected to continue this year, supported by continued strength in the light vehicles market, positive trends in the construction space and significant shale-linked capital investment.
U.S. Chemical Industry Set for Strong Growth
While the European chemical industry remains in limbo given lower prices, shrinking production, sluggish demand for European chemical exports and weak R&D investments, prospects in the U.S. look bright.
The U.S. chemical industry remains on course for growth this year and the next despite several challenges including a strong dollar, soft export markets and a low oil price environment. The American Chemistry Council (“ACC”), in a recent report, said that it envisions national chemical production to rise 3.6% in 2017, further accelerating to a 4.8% growth in 2018.
Advances in manufacturing and exports is expected to boost demand for basic chemicals this year and beyond. The ACC expects basic chemicals production to expand 4.2% in 2017.
The trade group also expects American chemical industry’s growth to transcend the nation’s overall economic growth in the long haul. It sees domestic chemical sales to cross the $1 trillion milestone by 2020.
The shale gas boom in the U.S. has also been a huge driving force behind chemical investment on plants and equipment in the country and have provided domestic petrochemicals producers a compelling cost advantage over their global counterparts. The shale revolution has made the U.S. an attractive investment hotspot and incentivized a number of chemical companies to pump in billions of dollars to beef up capacity.
According to the ACC, over 275 new chemical projects have been announced by chemical makers (worth more than $170 billion) since 2010 to take advantage of ample natural gas supplies, nearly half of which already complete or under construction. Such investments – many backed by Federal government support – are expected to boost capacity and export over the next several years.
Strength Across Key End-Markets
The automotive sector continues its good run. This major chemical end-use market is enjoying the fruits of low fuel prices. In particular, U.S. light vehicles market continued to show strength in 2016, supported by an improving job market, rising personal income, low fuel prices and attractive financing options, and the momentum is expected to continue this year.
A recovery across housing and commercial construction markets has been another tailwind for the chemical industry. After being hit hard in the recession, the construction sector has bounced back on the heels of strong housing fundamentals. The underlying demand trends in the housing space remain strong, supported by an improving employment levels, affordable interest/mortgage rates and a rise in income levels. This augurs well for chemical demand in this key market.
Strategic Actions to Reap Benefits
Chemical companies continue to shift their focus on attractive, growth markets in an effort to cut their exposure on other businesses that are grappling with weak demand. The industry is also seeing a pick-up in consolidation activities (exhibited by a wide swath of deals in the recent past) as chemical makers are increasingly looking for cost synergy opportunities and enhanced operational scale in a still-difficult global economic environment.
Moreover, cost-cutting measures (including plant closures and headcount reduction) and productivity improvement actions by chemical companies are expected to yield industry-wide margin improvements.
5 Chemical Growth Plays
Growth investors look for stocks with aggressive earnings or revenue growth potential, which should lead to higher stock prices. Here we put a spotlight on chemical stocks that are poised for healthy growth. With the help of our style score system, we have picked 5 stand-out stocks that have excellent prospects and might offer solid investment returns.
Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined with Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.
Kronos Worldwide, Inc. (KRO - Free Report)
Headquartered in Dallas, TX, Kronos sports a Zacks Rank #1 and a Growth Score 'A.' The company delivered a healthy positive earnings surprise of 111.1% in the last reported quarter. The stock has a long-term expected earnings per share (EPS) growth rate of roughly 5%.
Kronos’ cost-reduction efforts and savings from workforce reduction should lend support to its earnings. It is also expected to benefit from lower raw material and other production costs.
Ingevity Corporation (NGVT - Free Report)
South Carolina-based Ingevity has a Zacks Rank #2 and a Growth Score 'A.' The stock has a long-term expected EPS growth rate of 10%. The company delivered an average earnings surprise of 19.8% over the trailing four quarters.
Ingevity is expected to benefit from strength in its Performance Materials segment and strong adoption of innovative pavement technologies in its Performance Chemicals segment. The company’s cost-reduction efforts should also support its earnings this year.
LyondellBasell Industries NV (LYB - Free Report)
Netherlands-based LyondellBasell has a Zacks Rank #2 and a Growth Score 'B.' LyondellBasell has delivered positive earnings surprises in 3 of the last 4 quarters. The stock has a long-term expected EPS growth rate of 8%.
LyondellBasell continues to benefit from the favorable North American natural gas environment. It should also gain from its ethylene and polyethylene expansion moves. The company is executing its expansion projects to leverage the U.S. natural gas liquids (NGLs) advantage.
Celanese Corporation (CE - Free Report)
Our next pick in the space is Texas-based Celanese, armed with a Zacks Rank #2 and Growth Score 'B.' The company has surpassed expectations over the last four quarters with an average earnings surprise of around 7.1%. Its long-term projected EPS growth rate is 8.8%.
Celanese’s strategic measures including productivity and efficiency improvement actions should lend support to its earnings in 2017. Further, the company should benefit from capacity expansion, growth initiatives in emerging regions and expansion of its engineered materials pipeline.
Albemarle Corporation (ALB - Free Report)
North Carolina-based Albemarle is another attractive choice with a Zacks Rank #2 and Growth Score 'B.’ The company delivered positive earnings surprises over the last four quarters with an average earnings surprise of 27.1%. Its long-term projected EPS growth rate is 10%.
The company is taking steps to strengthen its lithium business, partly through strategic acquisitions. As part of this move, it recently closed the acquisition of the lithium assets of Jiangli New Materials. The buyout will accelerate the company’s ability to meet its goal of capturing 50% of the growth in the lithium industry.
Final Thoughts
While the chemical industry still remains hamstrung by a host of headwinds, the industry’s upturn is expected to continue this year on sustained healthy momentum in the automotive space and an upswing in the housing market.
Amid such a backdrop, it would be prudent idea to invest in the above-mentioned stocks with compelling growth prospects if you are looking to reap solid returns from your portfolio this year.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>