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4 Stocks to Buy From the Prospering Diversified Chemical Industry
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The Zacks Chemicals Diversified industry has recovered from the havoc wreaked by coronavirus. A revival in demand in major end markets from the pandemic-led downturn and an upturn in manufacturing and industrial activities globally have contributed to the industry’s rebound.
Albemarle Corporation (ALB - Free Report) , The Chemours Company (CC - Free Report) , Univar Solutions Inc. and Innospec Inc. (IOSP - Free Report) are well placed to benefit from the rebound in demand. Strategic measures, including reduction of operating costs, are also helping these companies to navigate a still-challenging environment.
About the Industry
The Zacks Chemicals Diversified industry consists of manufacturers of basic chemicals, plastics, specialty chemicals and agricultural chemicals. Companies in this space serve a host of end markets such as automotive, building & construction, transportation, electronics, aerospace and agriculture. Basic chemicals are produced in large quantities, and include petrochemicals and intermediates (such as ethylene, propylene and benzene), polymers (including plastic resins such as polyethylene, polypropylene and polyvinyl chloride), and inorganic chemicals (such as chlorine, caustic soda and titanium dioxide). Specialty chemicals that include catalysts, specialty polymers and coating additives are used in specific fields based on their performance. Agricultural chemicals include herbicides, fungicides and insecticides that are used to protect crops from disease, pests and weeds.
What's Shaping the Future of the Chemicals Diversified Industry?
Strong End-Market Demand Bodes Well: Lockdowns and restrictions by governments around the world, in response to the pandemic, halted industrial activities through the first half of 2020 and gutted demand for chemicals in the key end-use markets, including automotive, construction and electronics. However, chemical demand started to pick up from the third quarter of 2020 on the return of global economic activities. The uptick in demand is being driven by a rebound in manufacturing and industrial activities globally. Demand from the automotive market continues to hold up well, despite the semiconductor shortage, which is still affecting automotive builds globally. The construction sector has also bounced back on the resumption of many projects, with strength particularly being witnessed in residential construction. A recovery in demand is also being witnessed across the aerospace and energy markets. An upturn in drilling activities on the back of a spike in oil prices has led to an uptick in demand in the energy space. As the major end-use markets gain further strength, demand for chemicals is expected to go up, thereby driving sales volumes and top lines of chemicals diversified companies.
Strategic Actions to Aid Results: The companies in this space are taking a host of strategic measures, including cost-cutting and productivity improvement, operational efficiency improvement and actions to strengthen the balance sheet and boost cash flows. In particular, the industry participants are aggressively implementing actions to bring down costs, which include the reduction of discretionary spending and traveling expenses. The industry players are also raising selling prices to counter raw material and logistics cost inflation. These moves are likely to help the industry in sustaining margins amid the prevailing challenges.
Higher Input Costs Pose Margin Headwinds: The industry players are exposed to cost pressure associated with raw materials resulting from short supply. These companies also face challenges arising from higher supply-chain and logistics costs. The disruption in the supply chain has pushed up the prices of inputs. Russia's invasion of Ukraine and new government-mandated lockdowns in China have also put more pressure on the already strained global supply chain. The lingering impacts of these bottlenecks are expected to continue over the short term. Higher raw material and logistics costs are, thus, likely to hurt the margins of diversified chemical companies.
Zacks Industry Rank Indicates Upbeat Prospects
The Zacks Chemicals Diversified industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #94, which places it at the top 38% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a bright near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Chemicals Diversified industry has outperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has lost 5.8% over this period compared with the S&P 500’s decline of 13.1% and the broader sector’s decline of 11.2%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing chemical stocks, the industry is currently trading at 6.44X, below the S&P 500’s 12.15X and above the sector’s 5.81X.
Over the past five years, the industry has traded as high as 13.42X, as low as 5.37X and at the median of 8.18, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
4 Chemicals Diversified Stocks to Keep a Close Eye on
Albemarle: North Carolina-based Albemarle is a premier specialty chemicals company with leading positions in attractive end markets globally. It is benefiting from higher volumes in its lithium business on continued recovery in global economic activities. Healthy customer orders and plant productivity improvements are supporting volumes. Higher lithium prices due to tight market conditions are also supporting its performance. Its bromine business is also gaining from higher demand, a rebound in certain end markets, higher pricing and cost-saving actions. It is seeing strong demand for flame retardants.
ALB is also strategically executing its projects aimed at boosting its global lithium derivative capacity. It remains focused on investing in high-return projects to drive productivity. Albemarle is also benefiting from cost-saving and productivity initiatives.
Albemarle, currently sporting a Zacks Rank #1 (Strong Buy), has expected earnings growth of 425.3% for the current year. The Zacks Consensus Estimate for ALB’s current-year earnings has been revised 63.7% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 24.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: ALB
Innospec: Colorado-based Innospec makes and markets a wide range of specialty chemicals to markets in the Americas, Europe, the Middle East, Africa and Asia-Pacific. It is witnessing a recovery across all its businesses from the pandemic-led slowdown. Strength in the personal care segment is driving sales in the company’s Performance Chemicals division.
IOSP’s investment in capacity expansion will also offer incremental growth opportunities in this business. Its Fuel Specialties unit is also benefiting from the expansion of technologies in areas such as renewable diesel, low sulfur marine fuel and gasoline direct injection engines.
Innospec, flaunting a Zacks Rank #1 at present, has an expected earnings growth rate of 23.8% for the current year. The consensus estimate for IOSP's current-year earnings has been revised 6.3% upward over the last 60 days. The company beat the Zacks Consensus Estimate for earnings in each of the last four quarters at an average of roughly 20%.
Price and Consensus: IOSP
Univar: Illinois-based Univar is a leading commodity and specialty chemical and ingredient distributor. It is benefiting from market share gains, operational execution, acquisitions, cost minimization and a robust liquidity position. UNVR remains committed to cost-cutting, expense management and productivity actions that are helping it minimize operational costs and boost margins.
The acquisition of Nexeo Solutions has also enhanced the company’s capabilities and accelerated its ability to create significant value for customers, supplier partners, employees and shareholders. The buyout of Brazilian ingredients and specialty chemicals distributor Sweetmix is also anticipated to drive growth for the company’s Food Ingredients portfolio in Brazil and generate growth and cost synergies.
Univar, currently carrying a Zacks Rank #2 (Buy), has a projected earnings growth rate of 52.7% for the current year. UNVR's consensus estimate for the current year has been revised 5.9% upward over the last 60 days. It beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 27.6%.
Price and Consensus: UNVR
Chemours: Based in Delaware, Chemours is a leading provider of performance chemicals. It is benefiting from a rebound in demand from the coronavirus-led downturn, strong execution and cost-cutting actions. Chemours is witnessing an increasing adoption of its Opteon platform.
Demand for Opteon remains strong in mobile and stationary applications. CC’s cost-reduction program along with its productivity and operational improvement actions across its businesses is also expected to support margins.
Chemours, presently a Zacks Rank #2 stock, has expected earnings growth of 40% for the current year. The Zacks Consensus Estimate for earnings for the current year has been revised 6.9% upward over the last 60 days. CC beat the Zacks Consensus Estimate in three of the trailing four quarters. In this time frame, it has delivered an average earnings surprise of roughly 28.3%.
Price and Consensus: CC
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4 Stocks to Buy From the Prospering Diversified Chemical Industry
The Zacks Chemicals Diversified industry has recovered from the havoc wreaked by coronavirus. A revival in demand in major end markets from the pandemic-led downturn and an upturn in manufacturing and industrial activities globally have contributed to the industry’s rebound.
Albemarle Corporation (ALB - Free Report) , The Chemours Company (CC - Free Report) , Univar Solutions Inc. and Innospec Inc. (IOSP - Free Report) are well placed to benefit from the rebound in demand. Strategic measures, including reduction of operating costs, are also helping these companies to navigate a still-challenging environment.
About the Industry
The Zacks Chemicals Diversified industry consists of manufacturers of basic chemicals, plastics, specialty chemicals and agricultural chemicals. Companies in this space serve a host of end markets such as automotive, building & construction, transportation, electronics, aerospace and agriculture. Basic chemicals are produced in large quantities, and include petrochemicals and intermediates (such as ethylene, propylene and benzene), polymers (including plastic resins such as polyethylene, polypropylene and polyvinyl chloride), and inorganic chemicals (such as chlorine, caustic soda and titanium dioxide). Specialty chemicals that include catalysts, specialty polymers and coating additives are used in specific fields based on their performance. Agricultural chemicals include herbicides, fungicides and insecticides that are used to protect crops from disease, pests and weeds.
What's Shaping the Future of the Chemicals Diversified Industry?
Strong End-Market Demand Bodes Well: Lockdowns and restrictions by governments around the world, in response to the pandemic, halted industrial activities through the first half of 2020 and gutted demand for chemicals in the key end-use markets, including automotive, construction and electronics. However, chemical demand started to pick up from the third quarter of 2020 on the return of global economic activities. The uptick in demand is being driven by a rebound in manufacturing and industrial activities globally. Demand from the automotive market continues to hold up well, despite the semiconductor shortage, which is still affecting automotive builds globally. The construction sector has also bounced back on the resumption of many projects, with strength particularly being witnessed in residential construction. A recovery in demand is also being witnessed across the aerospace and energy markets. An upturn in drilling activities on the back of a spike in oil prices has led to an uptick in demand in the energy space. As the major end-use markets gain further strength, demand for chemicals is expected to go up, thereby driving sales volumes and top lines of chemicals diversified companies.
Strategic Actions to Aid Results: The companies in this space are taking a host of strategic measures, including cost-cutting and productivity improvement, operational efficiency improvement and actions to strengthen the balance sheet and boost cash flows. In particular, the industry participants are aggressively implementing actions to bring down costs, which include the reduction of discretionary spending and traveling expenses. The industry players are also raising selling prices to counter raw material and logistics cost inflation. These moves are likely to help the industry in sustaining margins amid the prevailing challenges.
Higher Input Costs Pose Margin Headwinds: The industry players are exposed to cost pressure associated with raw materials resulting from short supply. These companies also face challenges arising from higher supply-chain and logistics costs. The disruption in the supply chain has pushed up the prices of inputs. Russia's invasion of Ukraine and new government-mandated lockdowns in China have also put more pressure on the already strained global supply chain. The lingering impacts of these bottlenecks are expected to continue over the short term. Higher raw material and logistics costs are, thus, likely to hurt the margins of diversified chemical companies.
Zacks Industry Rank Indicates Upbeat Prospects
The Zacks Chemicals Diversified industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #94, which places it at the top 38% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a bright near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Chemicals Diversified industry has outperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has lost 5.8% over this period compared with the S&P 500’s decline of 13.1% and the broader sector’s decline of 11.2%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing chemical stocks, the industry is currently trading at 6.44X, below the S&P 500’s 12.15X and above the sector’s 5.81X.
Over the past five years, the industry has traded as high as 13.42X, as low as 5.37X and at the median of 8.18, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
4 Chemicals Diversified Stocks to Keep a Close Eye on
Albemarle: North Carolina-based Albemarle is a premier specialty chemicals company with leading positions in attractive end markets globally. It is benefiting from higher volumes in its lithium business on continued recovery in global economic activities. Healthy customer orders and plant productivity improvements are supporting volumes. Higher lithium prices due to tight market conditions are also supporting its performance. Its bromine business is also gaining from higher demand, a rebound in certain end markets, higher pricing and cost-saving actions. It is seeing strong demand for flame retardants.
ALB is also strategically executing its projects aimed at boosting its global lithium derivative capacity. It remains focused on investing in high-return projects to drive productivity. Albemarle is also benefiting from cost-saving and productivity initiatives.
Albemarle, currently sporting a Zacks Rank #1 (Strong Buy), has expected earnings growth of 425.3% for the current year. The Zacks Consensus Estimate for ALB’s current-year earnings has been revised 63.7% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 24.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: ALB
Innospec: Colorado-based Innospec makes and markets a wide range of specialty chemicals to markets in the Americas, Europe, the Middle East, Africa and Asia-Pacific. It is witnessing a recovery across all its businesses from the pandemic-led slowdown. Strength in the personal care segment is driving sales in the company’s Performance Chemicals division.
IOSP’s investment in capacity expansion will also offer incremental growth opportunities in this business. Its Fuel Specialties unit is also benefiting from the expansion of technologies in areas such as renewable diesel, low sulfur marine fuel and gasoline direct injection engines.
Innospec, flaunting a Zacks Rank #1 at present, has an expected earnings growth rate of 23.8% for the current year. The consensus estimate for IOSP's current-year earnings has been revised 6.3% upward over the last 60 days. The company beat the Zacks Consensus Estimate for earnings in each of the last four quarters at an average of roughly 20%.
Price and Consensus: IOSP
Univar: Illinois-based Univar is a leading commodity and specialty chemical and ingredient distributor. It is benefiting from market share gains, operational execution, acquisitions, cost minimization and a robust liquidity position. UNVR remains committed to cost-cutting, expense management and productivity actions that are helping it minimize operational costs and boost margins.
The acquisition of Nexeo Solutions has also enhanced the company’s capabilities and accelerated its ability to create significant value for customers, supplier partners, employees and shareholders. The buyout of Brazilian ingredients and specialty chemicals distributor Sweetmix is also anticipated to drive growth for the company’s Food Ingredients portfolio in Brazil and generate growth and cost synergies.
Univar, currently carrying a Zacks Rank #2 (Buy), has a projected earnings growth rate of 52.7% for the current year. UNVR's consensus estimate for the current year has been revised 5.9% upward over the last 60 days. It beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 27.6%.
Price and Consensus: UNVR
Chemours: Based in Delaware, Chemours is a leading provider of performance chemicals. It is benefiting from a rebound in demand from the coronavirus-led downturn, strong execution and cost-cutting actions. Chemours is witnessing an increasing adoption of its Opteon platform.
Demand for Opteon remains strong in mobile and stationary applications. CC’s cost-reduction program along with its productivity and operational improvement actions across its businesses is also expected to support margins.
Chemours, presently a Zacks Rank #2 stock, has expected earnings growth of 40% for the current year. The Zacks Consensus Estimate for earnings for the current year has been revised 6.9% upward over the last 60 days. CC beat the Zacks Consensus Estimate in three of the trailing four quarters. In this time frame, it has delivered an average earnings surprise of roughly 28.3%.
Price and Consensus: CC