U.S. markets closed
  • S&P 500

    4,232.60
    +30.98 (+0.74%)
     
  • Dow 30

    34,777.76
    +229.23 (+0.66%)
     
  • Nasdaq

    13,752.24
    +119.39 (+0.88%)
     
  • Russell 2000

    2,271.63
    +30.21 (+1.35%)
     
  • Crude Oil

    64.82
    +0.11 (+0.17%)
     
  • Gold

    1,832.00
    +16.30 (+0.90%)
     
  • Silver

    27.57
    +0.09 (+0.32%)
     
  • EUR/USD

    1.2167
    +0.0098 (+0.82%)
     
  • 10-Yr Bond

    1.5770
    +0.0160 (+1.02%)
     
  • GBP/USD

    1.3990
    +0.0098 (+0.70%)
     
  • USD/JPY

    108.5400
    -0.5450 (-0.50%)
     
  • BTC-USD

    58,858.87
    +1,351.52 (+2.35%)
     
  • CMC Crypto 200

    1,480.07
    +44.28 (+3.08%)
     
  • FTSE 100

    7,129.71
    +53.54 (+0.76%)
     
  • Nikkei 225

    29,357.82
    +26.45 (+0.09%)
     

4 Chemical Specialty Stocks to Buy From a Rebounding Industry

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
Anindya Barman
·8 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

The Zacks Chemicals Specialty industry has bounced back from the pandemic-led stupor, thanks to a rebound in demand in key markets including automotive and construction. A recovery in global industrial and manufacturing activities bodes well for the industry.

Industry players like Celanese Corporation (CE), Ashland Global Holdings Inc. (ASH), Daqo New Energy Corp. (DQ) and Element Solutions Inc (ESI) are poised to benefit from the demand recovery. Strategic measures, including operating cost reductions, are also expected to help these companies tide over a still-challenging environment.

About the Industry

The Zacks Chemicals Specialty industry consists of manufacturers of specialty chemical products for a host of end-use markets such as textile, paper, automotive, electronics, personal care, energy, construction and agriculture. These chemicals (including catalysts, surfactants, speciality polymers, coating additives, pesticides and oilfield chemicals) are used based on their performance and have a specific purpose. They have applications in the manufacturing process of a vast range of products, including paints and coatings, cosmetics, petroleum products, inks and plastics.

What’s Shaping the Future of the Chemical Specialty Industry?

Revival in End-market Demand: Companies in the chemical specialty space faced the heat from subdued demand across certain major industries including construction and automotive for much of the first half of 2020 in the wake of the pandemic. Shutdowns and travel restrictions to blunt the spread of infection have paralyzed industrial and economic activities globally, sapping demand for specialty chemicals. However, with the reopening of the major economies around the world, demand for specialty chemicals started to pick up from the third quarter of 2020 on a rebound in global industrial and manufacturing activities. The automotive sector has made a speedy recovery following the pandemic-led slump on the back of a strong rebound in customer demand for new vehicles. Moreover, the construction sector has recovered on the restart of projects that were stalled earlier partly due to supply chain disruptions. Residential construction is picking up around the world, supported by lower interest rates. Notably, the U.S. housing sector has witnessed a strong recovery, backed by record-low borrowing costs and higher demand for new properties due to the rising trend of work from home in the wake of the pandemic. As these major markets recover, demand for specialty chemicals is expected to go up.

Strategic Actions to Aid Results: The companies in this space are executing a raft of self-help measures — including cost-cutting and productivity improvement, expansion into high-growth markets, restructuring, operational efficiency improvement, and actions to strengthen balance sheet and boost cash flows — in a bid to stay afloat amid pandemic-induced headwinds. Notably, the industry participants including Celanese, Ashland Global Holdings and Ecolab Inc. (ECL) are aggressively implementing actions to cut costs. The measures are likely to help these companies to sail through the ongoing challenges.

Input Cost Pressure a Concern: Specialty chemical makers faces headwind from short supply of raw materials as a result of coronavirus. The closure of a large number of factories to stem the spread of the outbreak disrupted the global supply chain. This has affected the availability of key raw materials for the chemical specialty industry and pushed up prices of these inputs. Some of the companies are also facing challenges from elevated logistics costs. The supply disruption is likely to continue to affect chemical specialty companies over the short haul.

Zacks Industry Rank Indicates Upbeat Prospects

The Zacks Chemicals Specialty industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #82, which places it at the top 32% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a bright near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms S&P 500

The Zacks Chemicals Specialty industry has outperformed the Zacks S&P 500 composite over the past year, but lagged the broader Zacks Basic Materials sector over the same period.

The industry has gained 56% over this period compared with the S&P 500’s rise of 53.8% and the broader sector’s increase of 78.3%.

One-Year Price Performance

Industry’s Current Valuation

On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing chemical stocks, the industry is currently trading at 30.02X, above the S&P 500’s 17.89X and the sector’s 9.49X.

Over the past five years, the industry has traded as high as 35.71X, as low as 14.57X, with a median of 22.68X, as the chart below shows.

Enterprise Value/EBITDA (EV/EBITDA) Ratio

Enterprise Value/EBITDA (EV/EBITDA) Ratio

4 Chemical Specialty Stocks to Keep a Close Eye on

Celanese: Texas-based Celanese is a leading producer of differentiated chemistry solutions and specialty materials used in most major industries and consumer applications. 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, sporting a Zacks Rank #1 (Strong Buy), has expected earnings growth of 46.1% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 17.2% 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 15.2%. Moreover, its shares have rallied around 32% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: CE

Ashland Global Holdings: Kentucky-based Ashland is a leading specialty chemicals company serving a vast range of consumer and industrial markets. The company’s restructuring actions have provided it with a profitable and diverse business portfolio focused on high-quality markets and better positioned it for future growth. The company is also taking a number of actions including reduction of operating costs to boost profitability. Cost-reduction measures are expected to support its margins in fiscal 2021. Its industrial businesses are also witnessing strong demand recovery.

Ashland, flaunting a Zacks Rank #1, has expected earnings growth of 83.2% for the current fiscal year. Moreover, the consensus estimate for earnings for the current fiscal has been revised 27% upward over the last 60 days. Its shares have also gained around 23% over the past six months.

Price and Consensus: ASH

Daqo New Energy: China-based Daqo New Energy, sporting a Zacks Rank #1, is a leading producer of high-purity polysilicon. The company is expected to gain from higher production and sales volumes for polysilicon. Its facilities are currently running with increased efficiency, which is likely to drive production volumes. The company’s efforts to improve its cost structure are also likely to lend support to its margins. Its energy efficiency efforts and enhanced manufacturing efficiencies are contributing to lower costs.

The company has expected earnings growth of 204.1% for the current year. Moreover, the Zacks Consensus Estimate for current-year earnings has been revised 39.8% upward over the last 60 days. Its shares have also soared around 86% over the past six months.

Price and Consensus: DQ

Element Solutions: Based in Florida, Element Solutions is a leading specialty chemicals provider offering innovative and differentiated solutions to its customers across a vast spectrum of industries. It is expected to gain from healthy demand in its high-end electronics business and the strong rebound in the automotive industry. The company also remains focused on growing through strategic acquisitions. It is implementing a number of cost-containment measures including reduction of traveling costs. These actions are likely to lend support to its margins.

The company, carrying a Zacks Rank #2 (Buy), has expected earnings growth of 24% for the current year. The consensus estimate for earnings for the current year has also been revised 6.3% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 15.9%. Its shares have also surged roughly 57% over the past six months.

Price and Consensus: ESI

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?

Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

Access Zacks Top 10 Stocks for 2021 today >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Element Solutions Inc. (ESI) : Free Stock Analysis Report

Ecolab Inc. (ECL) : Free Stock Analysis Report

DAQO New Energy Corp. (DQ) : Free Stock Analysis Report

Celanese Corporation (CE) : Free Stock Analysis Report

Ashland Global Holdings Inc. (ASH) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research