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US Chemicals Set for Solid Growth Despite Supply Chaos: 5 Picks

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The American chemical industry is poised to have its best year in more than a decade in 2022 notwithstanding the ongoing supply-chain snafus, according to the newly released “Mid-Year 2022 Chemical Industry Situation and Outlook” by the American Chemistry Council (“ACC”). The industry is expected to deliver solid growth this year riding on firm demand across several end markets, inventory rebuilding and the competitive advantage in natural gas-based chemistries.

The Washington, DC-based chemical industry trade group said that the solid expansion in chemical output in 2022, which follows several years of weak growth associated with trade tensions, the coronavirus pandemic and disruptive weather events, will be driven by growth across all chemistries.

This scenario bodes well for U.S. chemical stocks. Companies like Huntsman Corporation (HUN - Free Report) , Albemarle Corporation (ALB - Free Report) , Kronos Worldwide, Inc. (KRO - Free Report) , The Chemours Company (CC - Free Report) and Univar Solutions Inc. (UNVR - Free Report) are poised to benefit from the positive outlook.

The ACC envisions total domestic chemical output to rise 4.1% in 2022, following a 1.6% growth last year. Basic chemicals production is also forecast to climb 4.3% with bulk petrochemicals and organics, plastic resins and inorganic chemicals are expected to rack up the biggest gains. Specialty chemicals output is projected to expand 6.2% driven by strong demand and restocking. Capital spending is projected to climb 12.3% to $34.5 billion in 2022.

While the global economy remains hamstrung by supply chain issues and inflation, made worse by the Russia-Ukraine conflict and pandemic-related lockdowns in China, slower growth in consumer spending and shifting consumption patterns away from goods will help ease some pressure, the ACC noted.  The trade group expects industrial production to increase 3.9% in 2022.

Meanwhile, U.S. chemical trade witnessed a strong rebound in 2021, increasing 26.8% year over year to $281.4 billion. Chemical exports climbed 22.3% while imports went up 32.7% last year, driven by petrochemicals trade. The ACC expects nominal chemical exports to rise 13.3% to $173.5 billion in 2022. Imports are predicted to climb 19.7% this year.

On the chemical end-use market front, vehicles sales are projected to tick up to 15.1 million units in 2022. Light vehicles remain challenged by the semiconductor shortage. Notwithstanding the recovery in vehicle assemblies, shipping constraints and disruptions to supply chains for vehicles and parts are limiting supply, the ACC noted. The trade group expects pent-up demand to support sales once supply-chain bottlenecks ease.

The ACC also sees housing starts to rise to 1.65 million in 2022 after increasing to 1.60 million in 2021. While higher prices and mortgage rates are headwinds to further expansion, gains in employment, wages, and household formations are supportive factors. 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 upswing this year on strong end-market demand despite the headwinds from supply-chain disruptions. Amid such a backdrop, it would be prudent to invest in chemical stocks with compelling growth prospects.

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

Huntsman: Texas-based Huntsman remains focused on growing its downstream specialty and formulation businesses. The company's Polyurethanes segment is well positioned for strong upside in the long term on the back of its focus on ramping up its high-value differentiated downstream portfolio. HUN should also gain from significant synergies of acquisitions. Its strong liquidity and balance sheet leverage gives it adequate flexibility to continue to develop and expand its core businesses through acquisitions and internal investments.

Huntsman has an expected earnings growth rate of 26.8% for the current year. The Zacks Consensus Estimate for HUN's current-year earnings has been revised 11.7% upward over the last 60 days. The company beat the Zacks Consensus Estimate for earnings in each of the last four quarters at an average of 12.6%.

Albemarle: North Carolina-based Albemarle is benefiting from higher volumes in its lithium business on continued recovery in global economic activities. Healthy customer orders and plant productivity improvements are supporting volumes. Higher lithium prices due to tight market conditions are also supporting its performance. Its bromine business is also gaining from higher demand, a rebound in certain end markets, higher pricing and cost-saving actions. ALB is seeing strong demand for flame retardants. The company is also strategically executing its projects aimed at boosting its global lithium derivative capacity. It remains focused on investing in high-return projects to drive productivity. Albemarle is also benefiting from cost-saving and productivity initiatives.

Albemarle has an expected earnings growth rate of 203.7% for the current year. The consensus estimate for ALB’s current-year earnings has been revised 100.5% 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 22.5%.

Kronos Worldwide: Texas-based Kronos is gaining 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 110.2% for the current year. The consensus estimate for KRO's current-year earnings has been revised 60.9% upward over the last 60 days.

Chemours: Based in Delaware, Chemours is benefiting from a rebound in demand from the coronavirus-led downturn, strong execution and its cost-cutting actions. It is witnessing increasing adoption of the Opteon platform. Demand for Opteon remains strong in mobile and stationary applications. CC’s cost-reduction program along with its productivity and operational improvement actions across its businesses are also expected to support margins.

Chemours has an expected earnings growth rate of 30.5% for the current year. The Zacks Consensus Estimate for earnings for the current year has been revised 15.2% upward over the last 60 days. CC beat the Zacks Consensus Estimate in three of the trailing four quarters. In this time frame, it has delivered an average earnings surprise of roughly 28.7%.

Univar: Illinois-based Univar is benefiting from market share gains, operational execution, acquisitions, 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. The buyout of Brazilian ingredients and specialty chemicals distributor Sweetmix is also anticipated to drive growth for the company’s Food Ingredients portfolio in Brazil and generate growth and cost synergies.

Univar has a projected earnings growth rate of 46.9% for the current year. UNVR's consensus estimate for the current year has been revised 23.9% upward over the last 60 days. It beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 29.7%.