The Zacks Chemicals Diversified industry faces challenges from persistent demand weakness in certain markets, including consumer durables and building & construction. Lower consumer spending due to inflationary pressures in Europe and a slow recovery in China are weighing on demand.

Industry players like DuPont de Nemours, Inc. (DD Quick QuoteDD - Free Report) , Albemarle Corporation (ALB Quick QuoteALB - Free Report) and Kronos Worldwide, Inc. (KRO Quick QuoteKRO - Free Report) are banking on strategic measures, including operating cost reductions and aggressive price hikes, to tide over the 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?

Demand Headwinds From End-market Softness: Companies in the chemical-diversified space remain hamstrung by demand weakness in certain key markets. The sluggishness in the building & construction, and consumer electronics markets is the key concern. In North America, uncertainties surrounding the U.S. housing market are weighing on building & construction. Elevated borrowing costs and inflation have taken a bite out of the residential construction industry. The consumer electronics market, a key driver of demand for specialty chemicals and advanced materials, is among the hardest hit. Following the post-pandemic boom, global electronics demand has cooled amid high inflation, elevated interest rates and cautious consumer behavior. Manufacturing activities have also softened amid weaker demand for goods and higher borrowing costs, while recovery remains tepid. Demand for chemicals in the industrial sector has weakened due to constrained industrial production. Softer demand in industrial and consumer durables is hurting chemical volumes. 

Slowdown in Europe and China a Concern: In China, a slower recovery in economic activities is hurting chemical demand. China is seeing slower economic growth and a sluggish real estate market. A weak property market and a slowdown in infrastructure investments have led to softer demand. The real estate sector has taken a hard hit amid a decline in new home prices, property investment and housing sales. The slowdown in Europe, resulting from the prolonged Russia-Ukraine war and weaker consumer spending due to high levels of inflation and high interest rates, has also led to softer demand in that region. Energy and feedstock inflation has reduced industrial production and consumer spending in Europe. The ongoing weakness in these key regions will likely impact the demand for chemicals over the short haul.

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 lower costs. The industry participants are also raising selling prices to counter cost inflation. Such moves are likely to help the industry sustain margins amid the prevailing challenges.

Zacks Industry Rank Indicates Gloomy Prospects

The Zacks Chemicals Diversified industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #208, which places it at the bottom 15% 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 bleak near term. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 Underperforms Sector & S&P 500

The Zacks Chemicals Diversified industry has underperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.

The industry has lost 25.2% over this period compared with the S&P 500’s rise of 9.1% and the broader sector’s decline of 2.4%.

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 17.47X, below the S&P 500’s 21.85X and above the sector’s 15.61X.

Over the past five years, the industry has traded as high as 19.29X, as low as 8.76X and at the median of 14.53X, as the chart below shows.

Enterprise Value/EBITDA (EV/EBITDA) Ratio

Enterprise Value/EBITDA (EV/EBITDA) Ratio

3 Chemicals Diversified Stocks to Keep a Close Eye on

DuPont: Delaware-based DuPont provides technology-based materials and solutions to markets including electronics, transportation, construction and water. DuPont remains focused on driving growth through innovation and new product development. Its innovation-driven investment is focused on several high-growth areas. DD remains committed to driving returns from its R&D investment. The acquisition of Spectrum Plastics Group, a leading manufacturer of specialty medical devices and components, also strengthened DuPont’s position in stable and fast-growing healthcare end markets. DuPont is also benefiting from cost synergy savings and productivity improvement actions. The company remains focused on driving cash flow and returning value to its shareholders. It looks to boost cash flow through working capital productivity and earnings growth.

DuPont, carrying a Zacks Rank #3 (Hold), has a projected earnings growth rate of around 4.9% for 2025. DD also beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 12.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: DD

Albemarle: North Carolina-based Albemarle is a premier specialty chemicals company with leading positions in attractive end markets globally. Albemarle is well-placed to gain from long-term growth in the battery-grade lithium market. The market for lithium batteries and energy storage remains strong, especially for electric vehicles (EVs), offering significant opportunities for the company to develop innovative products and expand capacity. Lithium demand is expected to grow with significant global EV penetration. ALB is strategically executing its projects aimed at boosting its global lithium conversion capacity. It remains focused on investing in high-return projects to drive productivity. Albemarle is also taking actions to cut costs, optimize its conversion network and increase efficiencies to preserve its long-term competitive position.
 
Albemarle, a Zacks Rank #3 stock, has expected earnings growth of 28.6% for 2025.  It also has an expected long-term earnings growth of 16%.

Price and Consensus: ALB

Kronos Worldwide: Texas-based Kronos, carrying a Zacks Rank #3, is a leading international producer of titanium dioxide (TiO2) products. It is expected to gain from the higher demand for TiO2. Stronger demand for TiO2 in the primary markets of Europe and North America is likely to drive its sales volumes. Markets for TiO2 are growing in South America, Eastern Europe, the Asia Pacific region and China. KRO is also expected to benefit from easing pricing pressure. It is also taking actions to reduce costs and align production and inventories to expected demand levels, which are expected to support its margins. Reduced energy costs, along with cost-reduction initiatives, are expected to aid its performance this year.

Kronos Worldwide has expected earnings growth of 20% for 2025. The Zacks Consensus Estimate for KRO’s earnings for 2025 has been stable over the last 60 days.

Price and Consensus: KRO