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Global Chemical Output Leaps for Ninth Straight Month: 5 Picks

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Global chemical production expanded for the ninth consecutive month in February as recovery that started in June 2020 continued to take hold, according to the latest American Chemistry Council (“ACC”) report. All chemical industry segments saw growth for the reported month.

Positive February Readings

The Washington, DC-based chemical industry trade group said that the Global Chemical Production Regional Index (“CPRI”) went up 1.4% in February on a monthly comparison basis. This follows a 2.2% rise in January. The growth reflects sustained recovery in activities after declining from January through May last year.

The Global CPRI, which is measured using a three-month moving average, measures chemical production volumes for 33 major nations, sub-regions and regions. It is comparable to the Federal Reserve Board production indices.

With respect to segments, production went up 1.1% in basic chemicals, 2.1% in specialty chemicals, 1.9% in agricultural chemicals and 0.8% in consumer products in February. By regions, output rose in Asia-Pacific and Former Soviet Union.

Global capacity ticked up 0.2% for the reported month and also expanded 1.9% on a year-over-year basis. Capacity utilization for the global chemical industry also increased 1 percentage point to 89.2% in February on the back of improved production.

Strong Demand, Manufacturing Upswing Buoy Chemicals

The chemical industry has rebounded strongly from the pandemic-led downturn on a recovery in industrial demand. The pandemic put a brake on industrial and manufacturing activities through the first half of 2020 due to the rollout of lockdowns and restrictions by governments around the world in the wake of the contagion. This led to a slump in demand for chemicals in key major markets, including automotive, construction and electronics.

The chemical industry also faced headwinds from elevated feedstock costs due to supply chain disruptions as a result of the health crisis. The companies in this space also grappled with higher logistics costs as disruptions associated with the pandemic impaired logistics globally.

However, with the easing of restrictions on business activities globally and an economic rebound in China — a top consumer of chemicals — demand for chemicals started to pick up from the third quarter of 2020 across major end-use industries.

Notably, business activities in China remain strong as the country continues its recovery to pre-pandemic levels, thanks to government’s strict virus containment actions. China’s industrial sector is gaining strength, supported by firm domestic demand, strong exports and government stimulus measures.

The recovery in China’s manufacturing sector continues to gather momentum on strong domestic consumption and growth in export orders buoyed by higher overseas demand. China’s official manufacturing purchasing managers’ index expanded to 51.9 in March from 50.6 in February, per National Bureau of Statistics. A reading above 50 indicates expansion in activity. The momentum in manufacturing is expected to continue on the heels of global economic recovery and China government’s efforts to boost domestic consumption.

Moreover, economic activities have recovered in the United States after slumping during much of spring amid virus-led lockdowns last year. The U.S. manufacturing sector has also recuperated from a sharp contraction in the early days of the pandemic, aided by a demand recovery and an upturn in the overall economy. U.S. manufacturing gathered further steam in March with activities hitting its highest level in more than 37 years on a surge in new orders, per the Institute for Supply Management.

The United States has also ramped up the national rollout of vaccines. Vaccination of a sufficient number of people will allow the U.S. economy to fully open up, which would provide further boost for the manufacturing sector. Notably, manufacturing activity is a key indicator for chemical demand. Thus, strength in manufacturing bodes well for the chemical industry.

Meanwhile, a strong rebound in automotive and construction, two major chemical-consuming markets, represents a tailwind for the chemical industry. The automotive sector has regained its mojo after the virus-led slump on the back of a rebound in customer demand. An uptick in automotive OEM production rates has led to a recovery in demand for chemicals in the automotive market. The construction sector has also bounced back strongly with the resumption of many projects, which were postponed earlier due to labor shortage and supply chain disruptions. Notably, strength is being witnessed in residential construction globally. As these major end-use markets recover, demand for chemicals is expected to go up moving forward.

5 Top Chemical Stocks to Scoop Up

The chemical industry has staged a strong comeback after bearing the brunt of coronavirus fallout. A strong revival in demand across major markets and strengthening manufacturing activities augur well for the industry. As such, it would be prudent to zero in on stocks in the space that have compelling prospects.

We highlight the following five stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) that are good options for investment right now. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dow Inc. (DOW - Free Report)

Michigan-based Dow sports a Zacks Rank #1. It is benefiting from cost synergy savings and productivity initiatives and its investment in high-return projects. The company focuses on maintaining cost and operational discipline. Its restructuring program is also expected to deliver margin benefits. Dow also remains committed to invest in attractive areas through highly accretive projects. It is also benefiting from higher demand for its materials across healthcare and packaging markets and a recovery across construction, automotive and appliances end markets.

Dow has expected earnings growth of 169.3% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 32.6% 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 21%. Its shares have also gained roughly 31% over the past six months.

Olin Corporation (OLN - Free Report)

Based in Missouri, Olin has a Zacks Rank #1. The company should benefit from its actions to improve its cost structure and efficiency and drive productivity through a number of projects. It is also expected to gain from cost and other benefits from its investment in the IT project. The Lake City U.S. Army ammunition contract should also drive sales and profitability of its Winchester segment.

The company has expected earnings growth of 385.2% for the current year. Moreover, the consensus estimate for current-year earnings has been revised 218.2% upward over the last 60 days. The company's shares have also surged around 134% over the past six months.

Westlake Chemical Corporation (WLK - Free Report)

Texas-based Westlake Chemical sports a Zacks Rank #1. The company should benefit from higher demand in its polyethylene business in specialty applications, especially food packaging, and strength in global demand for polyvinyl chloride resin. It is seeing strong demand in the downstream building products business on the back of new housing starts and spending on repair and remodeling activities. The company will also gain from its investment in capacity expansion projects, synergies of acquisitions, and actions to improve operating efficiency and reduce costs.

Westlake Chemical has expected earnings growth of 185.2% for the current year. The Zacks Consensus Estimate for the current year for the company has been revised 86.6% upward over the last 60 days. The stock has also gained roughly 27% over the over the past six months.

Celanese Corporation (CE - Free Report)

Texas-based Celanese has a Zacks Rank #1. It is expected to benefit from its productivity measures, investments in high-return organic projects and strategic acquisitions. The company is also seeing a recovery in demand across most of its end markets. Moreover, Celanese continues to actively pursue acquisitions, which are providing it opportunities for additional growth, investment and synergies.

The company has an expected earnings growth rate of 46.1% for 2021. The consensus estimate for current-year earnings has been revised 12.7% upward over the last 60 days. The company also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 15.2%. Moreover, its shares have gained around 30% over the past six months.

Cabot Corporation (CBT - Free Report)

Based in Massachusetts, Cabot carries a Zacks Rank #2. The company should gain from a recovery in demand from its automotive and tire customers from the pandemic-led slowdown, its disciplined execution of operations and targeted growth initiatives. Cabot is seeing strong volumes in the tire and automotive markets on the back of continued global recovery. The company should also benefit from the acquisition of Shenzhen Sanshun Nano New Materials. The acquisition significantly bolsters the market position and formulation capabilities of Cabot in the high-growth batteries market, especially in China.

Cabot has expected earnings growth of 92.8% for the current fiscal year. Moreover, the consensus estimate for current fiscal year earnings has been revised 13.6% upward over the last 60 days. The company’s shares are also up around 33% over the past six months.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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