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Strong Demand, Manufacturing Upswing Buoy Chemicals: 5 Top Picks
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The chemical industry has rebounded strongly from the coronavirus-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.
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 last year across major end-use industries. The recovery gained further steam in the first quarter of 2021 on an upswing in global industrial activities.
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. Strength is being witnessed in residential construction globally, aided by lower interest rates. Notably, higher industrial demand provided a boost to sales volumes and the top line of chemical companies in the first quarter.
Meanwhile, business activities in China remain strong as the country’s economy is roaring back to pre-pandemic levels, thanks to government’s strict virus containment actions. China’s economy has largely shrugged off the fallout of the pandemic and posted record growth in the first quarter. China’s GDP grew 18.3% on a year-over-year basis in the first quarter on strong domestic and foreign demand and government stimulus measures.
The recovery in China’s manufacturing sector also continues to maintain the momentum on firm domestic consumption and healthy overseas demand. While the country’s official manufacturing purchasing managers’ index (“PMI”) eased slightly to 51 in May from 51.1 in April partly due to a surge in input costs and strains in supply chains, it remained in the expansion territory. A reading above 50 indicates expansion in activity.
Moreover, economic activities have picked up pace in the United States with the gradual reopening of the economy as the vaccination drive is in full swing. The U.S. manufacturing sector has witnessed a V-shaped recovery from a sharp contraction in the early days of the pandemic, aided by a strong demand recovery and an upturn in the overall economy. U.S. manufacturing continued to gather steam in May on a surge in demand notwithstanding raw material and labor shortages.
According to the Institute for Supply Management (“ISM”), the U.S. Manufacturing PMI clocked 61.2% in May, rising from 60.7% in April on a surge in new orders. New orders rose for the 12th straight month in May. ISM's New Orders Index registered 67% in May, rising from 64.3% a month ago. Out of the 18 manufacturing industries, 16 reported growth in new orders in May.
Inoculation 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. The new round of coronavirus stimulus has also given people more power to spend on goods. Notably, manufacturing activity is a key indicator for chemical demand. Thus, strength in manufacturing bodes well for the chemical industry.
5 Chemical Stocks to Snap Up
The chemical industry has staged a strong comeback after reeling under the effects of coronavirus. 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.
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 rate of 274.7% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 51.5% 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 26.5%. Its shares have also gained roughly 27% over the past six months.
Based in Missouri, Olin carries 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 rate of 473.3% for the current year. Moreover, the consensus estimate for current-year earnings has been revised 34.4% upward over the last 60 days. The company's shares have also surged around 108% over the past six months.
Univar Solutions Inc.
Illinois-based Univar has a Zacks Rank #1. The company is well placed to gain from consistent market expansion and acquisitions. It will benefit from significant synergies of the Nexeo Solutions acquisition. Moreover, Univar is focused on cost-cutting, expense management and productivity actions, which are helping the company minimize operational costs and boost margins.
The company has an expected earnings growth rate of 35.2% for the current year. The consensus estimate for current-year earnings has been revised 27.1% upward over the last 60 days. The company also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 30.9%. Moreover, its shares have popped around 46% over the past six months.
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 rate of 285.2% for the current year. The Zacks Consensus Estimate the current-year earnings has been revised 58.6% 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 319.6%. The stock has also gained roughly 24% over the over the past six months.
Based in Delaware, Chemours carries a Zacks Rank #2. Chemours is benefiting from increasing adoption of the Opteon platform and growing applications of fluoropolymers, especially in automotive, electronics and energy end-markets. The company’s cost-reduction program along with its productivity and operational improvement actions across its businesses are also expected to support margins.
Chemours has expected earnings growth rate of 51.5% for the current year. Moreover, the Zacks Consensus Estimate for earnings for the current year has been revised 12.8% 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 55.2%. The stock has also rallied around 36% over the past six months.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Image: Bigstock
Strong Demand, Manufacturing Upswing Buoy Chemicals: 5 Top Picks
The chemical industry has rebounded strongly from the coronavirus-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.
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 last year across major end-use industries. The recovery gained further steam in the first quarter of 2021 on an upswing in global industrial activities.
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. Strength is being witnessed in residential construction globally, aided by lower interest rates. Notably, higher industrial demand provided a boost to sales volumes and the top line of chemical companies in the first quarter.
Meanwhile, business activities in China remain strong as the country’s economy is roaring back to pre-pandemic levels, thanks to government’s strict virus containment actions. China’s economy has largely shrugged off the fallout of the pandemic and posted record growth in the first quarter. China’s GDP grew 18.3% on a year-over-year basis in the first quarter on strong domestic and foreign demand and government stimulus measures.
The recovery in China’s manufacturing sector also continues to maintain the momentum on firm domestic consumption and healthy overseas demand. While the country’s official manufacturing purchasing managers’ index (“PMI”) eased slightly to 51 in May from 51.1 in April partly due to a surge in input costs and strains in supply chains, it remained in the expansion territory. A reading above 50 indicates expansion in activity.
Moreover, economic activities have picked up pace in the United States with the gradual reopening of the economy as the vaccination drive is in full swing. The U.S. manufacturing sector has witnessed a V-shaped recovery from a sharp contraction in the early days of the pandemic, aided by a strong demand recovery and an upturn in the overall economy. U.S. manufacturing continued to gather steam in May on a surge in demand notwithstanding raw material and labor shortages.
According to the Institute for Supply Management (“ISM”), the U.S. Manufacturing PMI clocked 61.2% in May, rising from 60.7% in April on a surge in new orders. New orders rose for the 12th straight month in May. ISM's New Orders Index registered 67% in May, rising from 64.3% a month ago. Out of the 18 manufacturing industries, 16 reported growth in new orders in May.
Inoculation 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. The new round of coronavirus stimulus has also given people more power to spend on goods. Notably, manufacturing activity is a key indicator for chemical demand. Thus, strength in manufacturing bodes well for the chemical industry.
5 Chemical Stocks to Snap Up
The chemical industry has staged a strong comeback after reeling under the effects of coronavirus. 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 rate of 274.7% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 51.5% 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 26.5%. Its shares have also gained roughly 27% over the past six months.
Olin Corporation (OLN - Free Report)
Based in Missouri, Olin carries 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 rate of 473.3% for the current year. Moreover, the consensus estimate for current-year earnings has been revised 34.4% upward over the last 60 days. The company's shares have also surged around 108% over the past six months.
Univar Solutions Inc.
Illinois-based Univar has a Zacks Rank #1. The company is well placed to gain from consistent market expansion and acquisitions. It will benefit from significant synergies of the Nexeo Solutions acquisition. Moreover, Univar is focused on cost-cutting, expense management and productivity actions, which are helping the company minimize operational costs and boost margins.
The company has an expected earnings growth rate of 35.2% for the current year. The consensus estimate for current-year earnings has been revised 27.1% upward over the last 60 days. The company also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 30.9%. Moreover, its shares have popped around 46% 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 rate of 285.2% for the current year. The Zacks Consensus Estimate the current-year earnings has been revised 58.6% 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 319.6%. The stock has also gained roughly 24% over the over the past six months.
The Chemours Company (CC - Free Report)
Based in Delaware, Chemours carries a Zacks Rank #2. Chemours is benefiting from increasing adoption of the Opteon platform and growing applications of fluoropolymers, especially in automotive, electronics and energy end-markets. The company’s cost-reduction program along with its productivity and operational improvement actions across its businesses are also expected to support margins.
Chemours has expected earnings growth rate of 51.5% for the current year. Moreover, the Zacks Consensus Estimate for earnings for the current year has been revised 12.8% 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 55.2%. The stock has also rallied around 36% over the past six months.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Click here for the 4 trades >>