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3 Chemical Specialty Stocks to Escape Industry Challenges
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The Zacks Chemicals Specialty industry is facing headwinds from weak demand amid sluggish conditions in Europe, a slow recovery in China and tariff-related disruptions. Profit margins across the sector also remain strained due to persistently high input, supply chain and logistics costs.
Industry players, such as Element Solutions Inc (ESI - Free Report) , Perimeter Solutions, Inc. (PRM - Free Report) and Quaker Chemical Corporation (KWR - Free Report) , are banking on strategic measures, including operating cost reductions, to tide over a persistently challenging environment.
About the Industry
The Zacks Chemicals Specialty industry consists of manufacturers of specialty chemical products for a host of end-use markets such as textile, paper, automotive, electronics, personal care, energy, construction, food & beverages and agriculture. These chemicals (including catalysts, surfactants, specialty polymers, coating additives, pesticides and oilfield chemicals) are used based on their performance and have a specific purpose. Specialty chemicals can be single molecules or a combination of molecules referred to as formulations, and they provide a vast range of effects upon which various industries rely. Their compositions significantly influence the performance of the finished products. Specialty chemicals have applications in the manufacturing process of a vast range of products, including paints and coatings, cosmetics, petroleum products, inks and plastics.
What's Shaping the Future of the Chemical Specialty Industry?
Demand Softness Poses a Headwind: Companies in the chemical specialty space are facing headwinds from weak demand in building and construction as well as industrial end markets, especially in Europe and China, due to economic slowdown. Elevated borrowing costs and inflation have taken a bite out of the residential construction industry. A slower recovery in economic activities in China is hurting demand in that country. Low consumer confidence and high inflation have also dampened demand in Europe. While customer inventory de-stocking is essentially complete, some lingering impacts of the same in certain markets are expected to continue over the near term. The imposition of hefty tariffs has also introduced significant headwinds for the chemical specialty industry. Soft demand conditions, exacerbated by a weak macroeconomic environment and tariff-induced impacts, are likely to weigh on the volumes of chemical specialty companies.
Cost Pressure Still a Worry: Specialty chemical makers are facing headwinds from raw-material and energy-cost inflation and supply-chain and freight-transportation disruptions. Some companies are exposed to challenges from elevated logistics and labor costs. Tariffs have led to increased costs for raw materials, resulting in higher production expenses for the industry players. Also, the Middle East conflict and the blockade of the Strait of Hormuz have led to significant supply disruptions and feedstock cost pressure. Inflationary pressures are expected to continue in the short term and weigh on the margins of chemical specialty companies.
Strategic Actions to Aid Results: The companies in this space are executing a raft of self-help measures, including cost-cutting and productivity improvement, expansion into high-growth markets, restructuring, operational efficiency improvement and actions to strengthen the balance sheet and boost cash flows. The industry participants are aggressively implementing measures to cut costs. These actions are likely to help companies weather macroeconomic challenges.
Zacks Industry Rank Indicates Downbeat Prospects
The Zacks Chemicals Specialty industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #166, which places it in the bottom 33% 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 Specialty industry has underperformed the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has gained 5.7% over this period compared with the S&P 500’s rise of 15.2% and the broader sector’s increase of 13.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), which is a commonly used multiple for valuing chemical stocks, the industry is currently trading at 10.97X, below the S&P 500’s 17.92X and the sector’s 12.59X.
Over the past three years, the industry has traded as high as 13.36X, as low as 9.44X, with a median of 11.77X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
3 Chemical Specialty Stocks to Keep a Close Eye on
Perimeter Solutions: Missouri-based Perimeter Solutions is a leading provider of solutions for the fire safety and specialty products industries. Perimeter’s contracted Fire Safety business, growing fixed service revenues and geographic diversification support long-term growth and earnings visibility. Favorable industry trends are expected to continue to drive demand for fire-retardant products. The company remains focused on expanding its fire prevention and protection business. Its Specialty Products segment continues to broaden earnings sources outside wildfire demand. Recent acquisitions, particularly MMT, are driving sales in this segment. PRM’s strong balance sheet also offers adequate liquidity for growth investments and M&A opportunities.
Perimeter Solutions has expected earnings growth of 17.2% for 2026. The Zacks Consensus Estimate for PRM’s 2026 earnings has moved up 1.9% over the past 60 days. PRM currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: PRM
Quaker Chemical: Based in Pennsylvania, Quaker Chemical (doing business as Quaker Houghton) is a global developer, producer and marketer of industrial process fluids and related specialty chemicals. The company continues to outpace underlying markets through new business wins, with momentum in the Asia-Pacific and improving traction in the Americas as prior disruptions ease. KWR is leaning on self-help actions, including a global transformation program to simplify operations and reduce structural costs, while integration and cross-selling broaden the portfolio. Acquisitions remain a steady contributor to consolidated sales growth, with Dipsol a key driver in the Asia-Pacific.
Quaker Chemical has expected earnings growth of 11.8% for the current year. The consensus estimate for KWR’s current-year earnings has been revised 1.7% higher over the past 60 days. Quaker Chemical, carrying a Zacks Rank #2, has an expected long-term earnings per share growth rate of 18.9%.
Price and Consensus: KWR
Element Solutions: Florida-based Element Solutions is a leading specialty chemicals provider, offering innovative and differentiated solutions to its customers across a vast spectrum of industries. ESI is poised for growth, driven by strong execution and strategic positioning in the electronics sector. The company is benefiting from strength in the electronics market. ESI is seeing strong organic growth in its Electronics segment. The Micromax acquisition has strengthened its position to build an industry-leading Electronics portfolio. High-value end markets are contributing to a favorable product mix, while the ongoing pricing and productivity initiatives are boosting margins.
Element Solutions has an expected earnings growth rate of 21.5% for 2026. The Zacks Consensus Estimate for ESI’s 2026 earnings has been stable the past 60 days. ESI surpassed the Zacks Consensus Estimate in each of the trailing four quarters at an average of roughly 6.3%. ESI currently carries a Zacks Rank #3 (Hold).
View the Zacks #1 Rank List
Image: Bigstock
3 Chemical Specialty Stocks to Escape Industry Challenges
The Zacks Chemicals Specialty industry is facing headwinds from weak demand amid sluggish conditions in Europe, a slow recovery in China and tariff-related disruptions. Profit margins across the sector also remain strained due to persistently high input, supply chain and logistics costs.
Industry players, such as Element Solutions Inc (ESI - Free Report) , Perimeter Solutions, Inc. (PRM - Free Report) and Quaker Chemical Corporation (KWR - Free Report) , are banking on strategic measures, including operating cost reductions, to tide over a persistently challenging environment.
About the Industry
The Zacks Chemicals Specialty industry consists of manufacturers of specialty chemical products for a host of end-use markets such as textile, paper, automotive, electronics, personal care, energy, construction, food & beverages and agriculture. These chemicals (including catalysts, surfactants, specialty polymers, coating additives, pesticides and oilfield chemicals) are used based on their performance and have a specific purpose. Specialty chemicals can be single molecules or a combination of molecules referred to as formulations, and they provide a vast range of effects upon which various industries rely. Their compositions significantly influence the performance of the finished products. Specialty chemicals have applications in the manufacturing process of a vast range of products, including paints and coatings, cosmetics, petroleum products, inks and plastics.
What's Shaping the Future of the Chemical Specialty Industry?
Demand Softness Poses a Headwind: Companies in the chemical specialty space are facing headwinds from weak demand in building and construction as well as industrial end markets, especially in Europe and China, due to economic slowdown. Elevated borrowing costs and inflation have taken a bite out of the residential construction industry. A slower recovery in economic activities in China is hurting demand in that country. Low consumer confidence and high inflation have also dampened demand in Europe. While customer inventory de-stocking is essentially complete, some lingering impacts of the same in certain markets are expected to continue over the near term. The imposition of hefty tariffs has also introduced significant headwinds for the chemical specialty industry. Soft demand conditions, exacerbated by a weak macroeconomic environment and tariff-induced impacts, are likely to weigh on the volumes of chemical specialty companies.
Cost Pressure Still a Worry: Specialty chemical makers are facing headwinds from raw-material and energy-cost inflation and supply-chain and freight-transportation disruptions. Some companies are exposed to challenges from elevated logistics and labor costs. Tariffs have led to increased costs for raw materials, resulting in higher production expenses for the industry players. Also, the Middle East conflict and the blockade of the Strait of Hormuz have led to significant supply disruptions and feedstock cost pressure. Inflationary pressures are expected to continue in the short term and weigh on the margins of chemical specialty companies.
Strategic Actions to Aid Results: The companies in this space are executing a raft of self-help measures, including cost-cutting and productivity improvement, expansion into high-growth markets, restructuring, operational efficiency improvement and actions to strengthen the balance sheet and boost cash flows. The industry participants are aggressively implementing measures to cut costs. These actions are likely to help companies weather macroeconomic challenges.
Zacks Industry Rank Indicates Downbeat Prospects
The Zacks Chemicals Specialty industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #166, which places it in the bottom 33% 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 Specialty industry has underperformed the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has gained 5.7% over this period compared with the S&P 500’s rise of 15.2% and the broader sector’s increase of 13.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), which is a commonly used multiple for valuing chemical stocks, the industry is currently trading at 10.97X, below the S&P 500’s 17.92X and the sector’s 12.59X.
Over the past three years, the industry has traded as high as 13.36X, as low as 9.44X, with a median of 11.77X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
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3 Chemical Specialty Stocks to Keep a Close Eye on
Perimeter Solutions: Missouri-based Perimeter Solutions is a leading provider of solutions for the fire safety and specialty products industries. Perimeter’s contracted Fire Safety business, growing fixed service revenues and geographic diversification support long-term growth and earnings visibility. Favorable industry trends are expected to continue to drive demand for fire-retardant products. The company remains focused on expanding its fire prevention and protection business. Its Specialty Products segment continues to broaden earnings sources outside wildfire demand. Recent acquisitions, particularly MMT, are driving sales in this segment. PRM’s strong balance sheet also offers adequate liquidity for growth investments and M&A opportunities.
Perimeter Solutions has expected earnings growth of 17.2% for 2026. The Zacks Consensus Estimate for PRM’s 2026 earnings has moved up 1.9% over the past 60 days. PRM currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: PRM
Quaker Chemical: Based in Pennsylvania, Quaker Chemical (doing business as Quaker Houghton) is a global developer, producer and marketer of industrial process fluids and related specialty chemicals. The company continues to outpace underlying markets through new business wins, with momentum in the Asia-Pacific and improving traction in the Americas as prior disruptions ease. KWR is leaning on self-help actions, including a global transformation program to simplify operations and reduce structural costs, while integration and cross-selling broaden the portfolio. Acquisitions remain a steady contributor to consolidated sales growth, with Dipsol a key driver in the Asia-Pacific.
Quaker Chemical has expected earnings growth of 11.8% for the current year. The consensus estimate for KWR’s current-year earnings has been revised 1.7% higher over the past 60 days. Quaker Chemical, carrying a Zacks Rank #2, has an expected long-term earnings per share growth rate of 18.9%.
Price and Consensus: KWR
Element Solutions: Florida-based Element Solutions is a leading specialty chemicals provider, offering innovative and differentiated solutions to its customers across a vast spectrum of industries. ESI is poised for growth, driven by strong execution and strategic positioning in the electronics sector. The company is benefiting from strength in the electronics market. ESI is seeing strong organic growth in its Electronics segment. The Micromax acquisition has strengthened its position to build an industry-leading Electronics portfolio. High-value end markets are contributing to a favorable product mix, while the ongoing pricing and productivity initiatives are boosting margins.
Element Solutions has an expected earnings growth rate of 21.5% for 2026. The Zacks Consensus Estimate for ESI’s 2026 earnings has been stable the past 60 days. ESI surpassed the Zacks Consensus Estimate in each of the trailing four quarters at an average of roughly 6.3%. ESI currently carries a Zacks Rank #3 (Hold).
Price and Consensus: ESI