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3 Chemical Stocks to Benefit from Strength in Housing and Auto

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Chemicals, as may be expected, are largely tied to industrial production. However, they do have application across various other markets, including in the wood, rubber, auto, housing and a host of other markets.

Because of their broad application across many industries and their nature as an additive, enhancement, protective coating, etc rather than the final product sold to customers, it’s necessary to get into the specifics of each player in order to understand how they may be faring in the current situation.

But the expansion in American manufacturing, GDP growth and upswing in the automotive market are positive indicators for the segment overall. So I’ve picked three stocks from the group that are seeing positive demand trends, upward revision in estimates while also being surprisingly cheap.

Koppers Holdings Inc. (KOP - Free Report)

Koppers Holdings, with corporate headquarters in Pittsburgh, Pennsylvania, is an integrated global provider of treated wood products, wood treatment chemicals and carbon compounds.

Their products and services are used in a variety of niche applications in a diverse range of end-markets, including the railroad, specialty chemical, utility, residential lumber, agriculture, aluminum, steel, rubber and construction industries.

Including their joint ventures, the company serves customers through a comprehensive global manufacturing and distribution network, with facilities located in North America, South America, Australasia, China and Europe.

Since its wood treatment business (Preformance Chemicals segment) is highly profitable, the company is focusing resources on expanding the business. The boom in home construction both on account of millennials setting up homes and the pandemic-induced demand for larger accommodation as well as strong repair/remodeling activity have proved very positive for this business. Since strength in this market is likely to remain for a while, it should be very positive for Koppers.

Its railroads business (Railroad and Utility Products & Services Segment) has had a rough year with some parts doing well and others suffering. Utility poles have however been seeing steady demand, with positive implications for KOP.

Despite regional variations, the seesawing in oil prices impacted its Carbon Materials & Chemicals business segment.

In the last quarter, the company topped the Zacks Consensus Estimate by 27.1% on revenue that was also 2.8% higher. The estimate for 2020 has moved up 42 cents (12.3%) since then. The 2021 estimate is up 44 cents (11.5%).

The shares carry a Zacks Rank #2, Value Score A, Growth Score A and Momentum Score F.

The shares are cheap, trading at 6.43X forward earnings, which is below the median value of 6.74X for the year.

Cabot Corporation (CBT - Free Report)

Boston, MA-based Cabot Corporation supplies specialty chemicals and performance materials to transportation, infrastructure, environment and consumer-focused companies across the world.

Through its Reinforcement Materials, Performance Chemicals and Purification Solutions segments, it offers rubber and specialty grade carbon blacks, specialty compounds, activated carbons, fumed metal oxides, inkjet colorants, aerogel and cesium formate drilling fluids.

The company has extensive operations in China, so the country’s quick rebound from the pandemic is a positive. However, it also has operations in several European countries, Canada and the U.S. where things didn’t go as smoothly.

Management is telling us that the demand situation has continued to improve however, with signs of recovery in the light vehicle (production expected to be down 3% in the September and December quarters compared to a 43% decline in the June quarter) and tire markets (sales estimated to decline 6% in the September quarter and 2% in the December quarter compared to a 31% decline in June). These two markets are particularly relevant for its sales growth.

Moreover, Chinese buying patterns are getting back to normal.

In the last quarter, the company topped the Zacks Consensus Estimate by 17.2% on revenue that was more or less in line with estimates. The estimate for 2021 has moved up 55 cents (20.1%) since then. The 2022 estimate is up 46 cents (13.9%).

The shares carry a Zacks Rank #1 (Strong Buy), Value Score D, Growth Score A and Momentum Score B.

The shares are cheap, trading at 12.43X forward earnings, which is below the median value of 13.73X for the year.

PPG Industries, Inc. (PPG - Free Report)

PPG Industries, based in Pennsylvania, is a global supplier of paints, coatings, chemicals, specialty materials, glass and fiber glass with manufacturing facilities and equity affiliates in about 70 countries. Performance Coatings and Industrial Coatings are its two operating segments.

The company is also poised to benefit from new innovations in the automotive market, specifically the electric, hybrid and autonomous vehicles segment. The recent agreement to acquire Ennis-Flint for $1.15 billion is expected to strengthen its offerings here.

In the last quarter, PPG beat the Zacks Consensus Estimate by a sliver on revenue that was 2.1% higher than estimates. The estimate for 2020 has moved up 37 cents (7.0%) since then. The 2021 estimate is up 31 cents (4.8%).

Recovering demand and cost savings from restructuring actions taken are the main drivers of its recent performance.

The shares carry a Zacks Rank #2, Value Score D, Growth Score B and Momentum Score C.

Share price appreciation prospects remain, since the stock is trading at 12.43X forward earnings, which is below the median value of 13.73X for the year.

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