4 Chemical Stocks Worth a Bet Despite Demand Worries
The chemical industry is grappling with a slowdown in demand in certain markets and consumer inventory destocking. Lower consumer spending due to inflationary pressures in Europe and a slow recovery in China are impacting demand.
While the industry is buffeted by demand headwinds, strategic measures, including operating cost reductions and aggressive price hikes along with declining raw material costs bode well. Stocks like Hawkins, Inc. HWKN, Koppers Holdings Inc. KOP, Quaker Chemical Corporation KWR and Avient Corporation AVNT are good choices for investment in the current scenario.
Companies in the chemical space are facing headwinds from a slowdown in certain key markets. The sluggishness in the building & construction market and destocking in consumer electronics are key concerns. In North America, uncertainties surrounding the U.S. housing market are weighing on building & construction. Softer demand in industrial and consumer durables is hurting chemical volumes. Weaker global economic activities have led to a higher level of uncertainity, which may affect chemical volumes over the near term.
A slower recovery in economic activities in China following the lifting of the restrictions related to the resurgence in COVID-19 infections is hurting chemical demand in that country. Global industrial activities have been affected by the weaker demand recovery in China. The slowdown in Europe, resulting from the war in Ukraine and weaker consumer spending due to high levels of inflation and rising interest rates, has also led to softer demand in that region. The ongoing weakness in these key regions is likely to impact demand for chemicals.
Nevertheless, demand for chemicals in the automotive market remains healthy, aided by a recovery in automotive production on an improved supply of semiconductors. Moreover, demand in packaging and healthcare remains strong. The companies in this space are also seeing a recovery in demand across the aerospace and energy markets. A rebound in drilling activities on the back of an uptick in oil prices has led to the demand recovery in the energy space.
Chemical companies are taking a host of strategic measures, including cost-cutting and productivity improvement, operational efficiency improvement and actions to strengthen the balance sheet and boost cash flows. In particular, the industry participants are aggressively implementing actions to bring down costs. The industry players are also raising selling prices to counter inflation. Such moves are likely to help the industry sustain margins amid the prevailing challenges. A decline in raw material and energy costs driven by the easing of supply-chain disruptions also augurs well for the chemical industry for the remainder of 2023.
4 Stocks to Buy
We highlight the following four stocks with a solid Zacks Rank that are good options for investment right now. Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Hawkins: Minnesota-based Hawkins is seeing strong growth in its Water Treatment segment, reflecting the company's strategic emphasis on the water treatment sector, including the successful integration of recent acquisitions, such as EcoTech Enterprises. These moves have solidified the company's position in the water treatment market. Its judicious pricing strategy to counter cost inflation is also supporting results. HWKN also remains committed to enhancing shareholders’ value.
Hawkins, carrying a Zacks Rank #1, has expected earnings growth of 18.9% for the current fiscal year. The Zacks Consensus Estimate for HWKN’s earnings for the current fiscal has been revised 32.3% upward over the last 60 days. It beat the Zacks Consensus Estimate for earnings in each of the last four quarters at an average of 25.6%.
Koppers: Pennsylvania-based Koppers remains steadfast in its commitment to expanding and optimizing its business operations while progressing steadily toward its long-term financial objectives. It is expected to benefit from strong volumes for utility poles and wood preservatives in both residential and industrial sectors, strategic pricing improvements in the rail business and the remarkable resilience demonstrated by the Carbon Materials and Chemicals segment in effectively managing unforeseen market disruptions.
Koppers, carrying a Zacks Rank #2, has expected earnings growth of 7.5% for the current year. The consensus estimate for current-year earnings for KOP has been revised 1.1% upward over the last 60 days. The company beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 21.7%.
Quaker Chemical: Pennsylvania-based Quaker Chemical is expected to benefit from cost-saving and pricing actions, integration synergies, new business wins, improvement in product margins, and healthy cash flows. The acquisition of the operating divisions of Norman Hay plc and the Coral Chemical buyout is expected to drive its top line.
Quaker Chemical, carrying a Zacks Rank #2, has expected earnings growth of 27.1% for the current year. The Zacks Consensus Estimate for current-year earnings for KWR has been revised 0.8% upward over the last 60 days. The company beat the Zacks Consensus Estimate in each of the trailing four quarters. In this time frame, it has delivered an average earnings surprise of roughly 20%.
Avient: Ohio-based Avient, carrying a Zacks Rank #2, is benefiting from the strength in composites and sustainable solutions, diversified end markets, favorable margins in its segments, lower raw material costs and cost-reduction actions. The buyout of the protective materials business of DSM (including the Dyneema brand) is also expected to contribute to its performance. Dyneema expanded AVNT’s portfolio of advanced composite and engineered fiber materials and provided new opportunities for growth.
The Zacks Consensus Estimate for Avient’s current-year earnings has been revised 0.4% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in three of the trailing four quarters. In this time frame, AVNT has delivered an average earnings surprise of roughly 11.1%.
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Koppers Holdings Inc. (KOP) : Free Stock Analysis Report
Quaker Houghton (KWR) : Free Stock Analysis Report
Hawkins, Inc. (HWKN) : Free Stock Analysis Report
Avient Corporation (AVNT) : Free Stock Analysis Report
