The chemical industry is back on track after a long detour. Continued strength in the automotive sector and a rebound in non-residential construction and housing markets have helped pull the industry out of its limbo, notwithstanding a persistently challenging operating environment.

The bullish Zacks Industry Rank of 23 carried by the Zacks categorized Chemicals-Diversified industry is a testimony to the fact that the chemical industry is back in favor. An impressive rank places the industry in the top 9% of the 250+ groups enlisted.

The Chemicals-Diversified industry has also outperformed the broader market over the past year. The industry has gained 22.8% over this period, higher than S&P 500’s corresponding return of 15.9%.

Despite a spate of headwinds, the highly cyclical industry put up a commendable performance in the March quarter. We note that a number of companies in the space came up with better-than-expected earnings in the first quarter. The outperformance was driven by continued strength across automotive and housing markets -- two major end-use markets for chemicals -- as well as strategic measures including productivity improvement, pricing actions, portfolio restructuring and earnings-accretive acquisitions.

The automotive sector continues its healthy run, backed by an improving job market, low fuel prices and attractive financing options. Chemical makers continue to see healthy demand from this key end market. A recovery across housing and commercial construction markets has been another tailwind for the chemical industry.

While the chemical industry still remains saddled by several challenges, its healthy momentum is expected to continue through the remainder of 2017. Strategic initiatives including continued focus on cost and productivity, operational efficiency improvement and expansion of scale through acquisitions should help chemical makers weather the macroeconomic and industry-specific headwinds.

In particular, the U.S. chemical industry is set for solid growth this year and the next. The outlook for the American chemical industry paints an encouraging picture. The American Chemistry Council (ACC), an industry trade group, envisions accelerated growth for the domestic chemical industry on the back of an improving global economy and a surge in shale-linked capital investment.

The shale gas bounty is expected to drive investment on plants and equipment in the U.S. Chemical makers are ratcheting up investment on shale gas-linked projects to take advantage of ample and affordable natural gas supplies.

Per an ACC report, 310 new chemical projects have been already announced by chemical makers worth around $185 billion that are under construction or planned. Such investments are expected to boost capacity and export over the next several years.

4 Chemical Growth Plays

The chemical industry’s upturn is expected to continue this year on continued momentum across major end-markets. Amid such a backdrop, it would be a prudent idea to invest in chemical stocks with compelling growth prospects if you are looking to reap solid returns from your portfolio.

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 4 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. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Chemours Company (CC Quick QuoteCC - Free Report)     

Delaware-based Chemours sports a Zacks Rank #1 and a Growth Score 'A.' The company has expected earnings growth of 228.4% for 2017. It delivered average positive earnings surprise of 39.8% over the trailing four quarters. Chemours also has a long-term expected earnings per share (EPS) growth rate of roughly 15.5%.

Annual estimates for Chemours have also moved north over the past 60 days, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2017 and 2018 for Chemours have increased by around 16% and 13%, respectively

Kronos Worldwide, Inc. (KRO Quick QuoteKRO - Free Report)     

Headquartered in Dallas, TX, Kronos is another attractive choice with a Zacks Rank #1 and a Growth Score 'B.' The company has expected earnings growth of 354.8% for 2017. It delivered average positive earnings surprise of 64.1% over the trailing four quarters.

Moreover, the estimates for 2017 and 2018 for Kronos have increased by 28% and 20%, respectively, over the last 60 days.

KMG Chemicals, Inc.

Our next pick in the space is Texas-based KMG Chemicals, armed with a Zacks Rank #2 and Growth Score 'A.' The Zacks Consensus Estimate for earnings for KMG for fiscal 2017 is currently pegged at $2.09, reflecting an expected year-over-year growth of 29.8%. The company delivered a positive average earnings surprise of 12.5% over the trailing four quarters. The estimates for both fiscal 2017 and fiscal 2018 for KMG have also increased by around 3% over the last 60 days.

BASF SE (BASFY Quick QuoteBASFY - Free Report)

Germany-based BASF has a Zacks Rank #2 and a Growth Score 'B.' The company has expected earnings growth of 19.1% for 2017. It also has a long-term expected EPS growth rate of 8.8%. The estimates for 2017 and 2018 for BASF have also increased by around 5% and 3%, respectively, over the last 60 days.

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