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U.S. Chemicals Set for An Upswing in 2022: 5 Top Stocks to Buy

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The American chemical industry expanded in 2021 despite a tough year, thanks to a rebound in demand for chemicals, and is poised for an upswing in 2022, according to the newly released “Year-End 2021 Chemical Industry Situation and Outlook” by the American Chemistry Council (“ACC”).

The Washington, DC-based chemical industry trade group said that a surge in post-lockdown consumer spending boosted demand for chemicals and other goods and materials, driving U.S. chemical production in 2021. The rebound is being witnessed across many chemistry end markets, buoyed by stimulus, savings and a shift in demand patterns toward goods notwithstanding challenges from supply chain snarls and unfavorable weather events.

Although risks persist for the global economy, the U.S. chemical industry is on course for a strong 2022, per the ACC. The trade group noted that the supply chain constraints appear to be easing. With the resumption of manufacturing activities and restocking of inventories, the domestic chemical industry is set to accelerate on the back of strong consumer demand.

This scenario bodes well for U.S. chemical stocks. Companies like Olin Corporation (OLN - Free Report) , Kronos Worldwide, Inc. (KRO - Free Report) , The Chemours Company (CC - Free Report) , Tronox Holdings plc (TROX - Free Report) and Univar Solutions Inc. (UNVR - Free Report) are poised to benefit from the positive outlook.

While the U.S. chemical industry reeled under the effects of trade tensions and the coronavirus pandemic over the past two years, the industry had been prepared for strong production gains this year, the ACC noted. However, freezing temperatures and power outages in the U.S. Gulf Coast associated with winter storm Uri knocked out a wide swath of chemical capacity while some other facilities saw shutdowns or curtailed operations due to raw material constraints. Hurricane Ida also disrupted production of several basic chemicals for more than a month. Supply chain disruptions in major end markets also contributed to weaker demand for some chemicals.

The ACC envisions total domestic chemical production volumes (barring pharmaceuticals) to rise 4.3% in 2022, following a 1.4% growth this year. Basic chemicals production is also forecast to climb 5.1% after a 1.8% growth in 2021. Specialty chemicals volumes are projected to expand 4.1% (following a 2.6% growth in 2021) while volumes for plastic resins are expected to jump 6% in 2022 after a modest 0.4% growth this year.

U.S. industrial production is also predicted to increase 4% in 2022 after a 5.5% expansion in 2021. The growth is expected to be driven by a recovery in demand for goods.

While U.S. chemical imports and exports witnessed a strong rebound this year, the pace of recovery slowed in the back half of the year, hurt by logistics disruptions and port delays.  Production outages along the Gulf Coast due to adverse weather also affected chemical exports. The ACC expects U.S. chemical exports to rise 7.3% to $162 billion in 2022 from $151 billion in 2021. Imports are predicted to climb 7.1% to $136 billion in 2022 from $127 billion this year. This will result in a trade surplus of $26 billion in 2022, up from $24 billion in 2021.

On the chemical end-use market front, U.S. vehicles sales are projected rise to 16 million units in 2022 from 15.3 million this year. Housing starts rose to 1.58 million in 2021, the highest level in 15 years, supported by low mortgage rates and remote work, the trade group noted. However, housing starts are predicted to ease to 1.56 million in 2022 as constraints on building materials, land and labor along with affordability challenges are expected to constrict growth over the near term. Notably, light vehicles and housing are major end markets for chemicals.

5 Chemical Stocks Worth a Wager

The U.S. chemical industry is poised for an upturn next year on strong end-market demand and an upswing in chemical exports. Amid such a backdrop, it would be prudent to invest in chemical stocks with compelling prospects if you are looking to reap solid returns from your portfolio in 2022.

We highlight the following five stocks with 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.

Olin: Based in Missouri, Olin flaunts a Zacks Rank #1. It is benefiting from the Lake City U.S. Army ammunition contract, productivity actions and investment in the Information Technology (IT) project. Its Winchester segment is benefiting from the Lake City contract, which is driving sales in this unit. OLN also remains committed to improve its cost structure and efficiency and also 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.

Olin has an expected earnings growth rate of 4.2% for 2022. The Zacks Consensus Estimate for OLN's earnings for 2022 has been revised 30.8% upward over the last 60 days. It also has an expected long-term earnings per share growth rate of 56%.

Kronos Worldwide: Texas-based Kronos sports a Zacks Rank #1. It is benefiting from higher demand for titanium dioxide (TiO2). Higher demand in European and North American markets are likely to drive its TiO2 sales volumes. KRO is also gaining from an uptick in TiO2 selling prices, supported by strong consumer demand and rising costs. New product development, a solid customer base and effective marketing strategies are also working in the company’s favor.

Kronos has an expected earnings growth rate of 28.9% for 2022. The consensus estimate for KRO's earnings for 2022 has been revised 28.9% upward over the last 60 days.

Chemours: Delaware-based Chemours sports a Zacks Rank #1. It is gaining from a rebound in demand from the pandemic-led lows, strong execution and cost-reduction and pricing actions. CC is seeing demand revival across its end markets and regions on the global macroeconomic recovery. Strong market demand is contributing to higher volumes and improved pricing. It is benefiting from strong demand in refrigerants across most regions and is also witnessing strong adoption of the Opteon platform in all markets. The company’s cost-reduction program along with its productivity and operational improvement actions across its businesses are expected to support margins.

Chemours has an expected earnings growth rate of 8.2% for 2022. The Zacks Consensus Estimate for CC's earnings for 2022 has been revised 10.6% upward over the last 60 days. Chemours beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 34.2%.

Tronox: Connecticut-based Tronox carries a Zacks Rank #2. It is benefiting from higher sales volumes of TiO2 and zircon. Higher customer demand on the back of the ongoing economic recovery is supporting volume growth. Higher TiO2 and zircon prices are also aiding its performance. TROX's regional pricing initiatives are contributing to pricing gains.

Tronox has an expected earnings growth rate of 13.3% for 2022. The consensus estimate for TROX's earnings for 2022 has been revised 10.3% upward over the last 60 days. The company beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missed once. It has a trailing four-quarter earnings surprise of roughly 15.5%, on average.

Univar: Illinois-based Univar carries a Zacks Rank #2. It is benefiting from higher prices, strategic acquisitions, market expansion, cost minimization and a robust liquidity position. UNVR remains committed to cost-cutting, expense management and productivity actions that are helping it minimize operational costs and boost margins. The acquisition of Nexeo Solutions has also further enhanced the company’s capabilities and accelerated its ability to create significant value for customers, supplier partners, employees and shareholders.

Univar has a projected earnings growth rate of 1% for 2022. UNVR's consensus estimate for 2022 has been revised 4.3% upward over the last 60 days. It beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 24.1%.