On most occasions, factors driving oil and gold prices overshadow what’s happening in the U.S. chemical industry, which is predominantly part of the basic materials sector. But this space does carry a lot of weight. It’s a $526 billion business segment that accounts for nearly 10% of all U.S. exports and 12% of the world’s chemicals. Thus, ignoring this business segment will not be a judicious decision, especially, when it is well positioned to expand at a steady clip in 2019 following healthy growth last year.
Solid global growth scenario, an uptick in manufacturing activity, increase in exports, balanced chemical inventories, strong demand from end-use markets and encouraging shale gas economies to name a few are widely expected to boost the U.S. chemical industry this year. Investors, thus, should make the most of the growth trends in the U.S. chemical industry and consider sound chemical stocks that look poised for an upward movement.
Specialty Chemical Industry to Rise and Shine
According to the American Chemistry Council (ACC), U.S. based chemical manufacturers are at an advantage due to abundant energy and feedstock supplies. A staggering 333 projects valued at $202 billion have been announced in recent times across a broad range of industrial sectors. This development, in turn, increased total chemical production volume (excluding pharmaceuticals) by 3.1% in 2018. It is further expected to grow 3.6% in 2019. In fact, total chemical production volume is projected to increase at a healthy rate of 3.1% and 2.2% in 2020 and 2021, respectively. At the same time, basic chemical production is anticipated to increase 2.1% in 2018, 4.8% in 2019 and 4.3% in 2020.
The ACC report stated that a strong export market and rise in business investment spending have boosted demand in end-use markets for the U.S. chemical industry. Most of such end-use markets include light vehicles and housing segments.
Some skeptics may argue that light vehicle sales have dropped from the robust pace witnessed in 2015-16 but ACC predicts that such sales not only increased to 17.1 million in 2018 but will also rise to 16.8 million in 2019. And when it comes to the housing industry, with 1.27 million starts in 2018 and further 1.34 million in 2019, there is surely enough growth opportunity in the near future.
ACC added that demand for specialty chemicals is expected to grow in line with industrial and construction sector gains in the years ahead. Specialty chemical production is expected to pick up by 2.2% this year, with oilfield and electronic chemicals, coatings, adhesives, cosmetic chemicals, and flavors and fragrances leading such gains.
Martha Moore, ACC senior director of policy analysis and economics and another co-author of the council report summed up by saying that “growth rates in U.S. chemistry over the next five years are expected to surpass average growth over the previous 20 years. Provided that access to export markets remains open to our producers, expanding global demand will be met by shale-advantaged chemistry sourced from the U.S.”
Buy These 4 Specialty Chemical Stocks Now
Banking on the aforesaid positives, investors who want to trade leading names in the U.S. chemical industry should consider these four specialty chemical stocks that possess a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Ingevity Corporation NGVT manufactures and sells specialty chemicals and carbon materials in the United States. The stock, currently, has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has advanced 1.6% in the past 60 days. The company’s projected earnings growth rate for the current year is 49.2%, while the Chemical - Specialty industry is expected to gain 12%.
Quaker Chemical Corporation KWR develops, produces, and markets various formulated chemical specialty products. Quaker Chemical Corporation was founded in 1918 and is headquartered in Conshohocken, PA. The stock, currently, has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 4.9% in the past 60 days. The company’s projected earnings growth rate for the current year is 19.2%, while the Chemical - Specialty industry is expected to gain 12%.
Ferro Corporation FOE produces specialty materials in the United States. The stock, currently, has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased 4.4% in the past 90 days. The company’s projected earnings growth rate for the current year is 20.9%, while the Chemical - Specialty industry is expected to gain 12%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Flexible Solutions International Inc. FSI develops, manufactures, and markets specialty chemicals that slow the evaporation of water. The stock, currently, has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings soared 44.4% in the past 90 days. The company’s projected earnings growth rate for the current year is more than 100%, while the Chemical - Specialty industry is expected to gain 12%.
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