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5 Chemical Stocks Poised to Maintain Winning Streak in 2021

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The chemical industry has gotten back on its feet following the crisis wrought by coronavirus, taking succour from a recovery in demand across major end-use industries from the pandemic-led slump.

The unprecedented lockdowns and restrictions by governments around the world in response to the pandemic halted industrial activities through the first half and gutted demand for chemicals in key end-use markets including automotive, construction and electronics. The industry also faced challenges from short supply of raw materials and higher logistics costs as the contagion put a crimp on supply chains globally and impaired logistics. Moreover, softer end-market demand along with a sharp contraction in oil prices exerted pressure on the product prices of chemical makers.

However, demand for chemicals started to improve from the third quarter, aided by a rebound in industrial and manufacturing activities globally from the coronavirus-led slowdown. Demand picked up with the easing of restrictions on business activities and an economic rebound in China — a top consumer of chemicals including ethylene, polyethylene and polyvinyl chloride.

Economic activities in China are gathering steam as the country continues its recovery from the pandemic-induced slumber. China’s industrial sector is gradually returning to pre-pandemic levels, supported by strengthening domestic demand and government stimulus measures.

China's manufacturing activities are picking up pace on strengthening demand and government’s containment measures. The country’s construction sector is also gaining momentum on Beijing’s infrastructure spending push.

Notably, the recovery in China’s manufacturing sector gathered momentum in November on growth in new export orders buoyed by strong overseas demand. Strong domestic demand also boosted manufacturing orders in November. China’s official manufacturing purchasing managers’ index expanded to 52.1 in November from 51.4 in October, per the National Bureau of Statistics. A reading above 50 indicates expansion in activity. The momentum in manufacturing in expected to continue on the heels of government’s efforts to boost consumption and a supportive monetary policy.

Meanwhile, recovery in construction and automotive markets has spurred up demand for chemicals. The automotive industry has gotten back into gear following the virus-led slump riding on a revival in consumer demand. Pent-up demand and the shift toward private transportation amid the pandemic are driving new car sales globally. The resumption of many projects, which were stalled earlier due to pandemic-induced labor shortage and supply chain disruptions, also supported the rebound in the construction sector.

Economic activities have also recovered in the United States after slumping during much of spring amid pandemic-led lockdowns. Notably, the U.S. automotive sector has regained its mojo after reeling under the effects of the contagion, thanks to a rebound in customer demand. U.S. auto sales have rebounded after reaching a pandemic-induced nadir in April. The recovery has been fueled by cheap borrowing costs and increasing inclination toward private transportation. U.S. automakers are ramping up production to replenish lean vehicle inventories at dealerships. A rebound in automotive OEM production rates has led to a recovery in demand for chemicals in the automotive market.

The U.S. housing sector has also witnessed a recovery. The sector’s upturn has been backed by low mortgage rates and higher demand for new properties due to the rising trend of working from home amid the pandemic.

Moreover, the U.S. manufacturing sector has rebounded from a sharp contraction in the early days of the pandemic on the return of demand and a recovery in the overall economy. While the U.S. Manufacturing Purchasing Managers’ Index eased to 57.5% in November from 59.3% in October, per the Institute for Supply Management, it remained in the expansion territory. The November figure indicated an expansion in the overall economy for the seventh straight month following a contraction in April. New orders also grew for the sixth month in a row in November. The rebound in manufacturing activities bodes well for the chemical industry as manufacturing is a key indicator for chemical demand.

Meanwhile, chemical companies are benefiting from higher demand for chemicals and materials across healthcare and packaging markets, thanks to coronavirus. With a surge in the number of coronavirus cases globally, demand for health, hygiene and safety products, including PPE and disinfectants has grown by leaps and bounds.

5 Chemical Stocks Set to Run Higher

The chemical industry is on the mend after bearing the brunt of coronavirus fallout. A rebound in China, demand upturn across major markets and recovering manufacturing activities augur well for the industry heading into 2021. Based on strong fundamentals and healthy earnings growth prospects, we have shortlisted stocks that are expected to continue their winning streak in 2021.

For this, we have taken the help of the Zacks Stock Screener to choose stocks that have a market cap of more than $1 billion and currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Our research shows that stocks with a Zacks Rank #1 or 2 offer the best investment options. Moreover, these stocks have gained more than 20% this year.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Here are the five chemical stocks that meet the criteria:

The Chemours Company CC: Based in Delaware, Chemours is a leading provider of performance chemicals sporting a Zacks Rank #1. The company is expected to benefit from improved customer demand for refrigerants, especially in the automotive sector on a rebound in automotive OEM production rates. It should also benefit from increasing adoption of the Opteon platform and growing applications of fluoropolymers, especially in automotive, electronics and energy end-markets. Moreover, the company stands to gain from its efforts to reduce costs.

Chemours has expected earnings growth of 48.9% for 2021. Moreover, the Zacks Consensus Estimate for earnings for the next year has been revised 26.6% 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 54.1%. The stock has also rallied around 43% so far this year.

Covestro AG COVTY: Germany-based Covestro makes and markets high-quality polymers for various industries worldwide and carries a Zacks Rank #2. The company is likely to gain from a recovery in volumes across Europe and China. It is seeing higher volumes across polycarbonates and coatings adhesive specialty businesses in medical applications. The company is also expected to benefit from the recent rebound in automotive and construction end-use markets. Its cost-saving actions are also expected to lend support to its margins.

The company has expected earnings growth of 41.5% for 2021. The consensus estimate for earnings for 2021 has been revised 40.6% upward over the last 60 days. The company has also delivered an earnings surprise of 16.4%, on average, over the trailing four quarters. The stock is also up around 35% year to date.

Element Solutions Inc ESI: 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. The company, currently carrying a Zacks Rank #2, is expected to gain from healthy demand in its high-end electronics business and a strong rebound in the automotive industry. It is also implementing a number of cost-containment measures, including reduction of traveling costs. These actions are likely to lend support to its bottom line.

The company has expected earnings growth of 16.7% for 2021. The Zacks Consensus Estimate for earnings for 2021 has also been revised 15.5% 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 18.4%. Its shares have also popped roughly 52% year to date.

Quaker Chemical Corporation KWR: Pennsylvania-based Quaker Chemical, carrying a Zacks Rank #2, makes and markets a range of formulated specialty chemical products for various heavy industrial and manufacturing applications. The company's combination with Houghton International, Inc. and the acquisition of the operating divisions of Norman Hay plc are expected to drive its top line. It is also expected to benefit from cost-saving actions, integration synergies, improvement in product margins, and healthy cash flows in a challenging environment.

Quaker Chemical has expected earnings growth of 48.7% for 2021. The consensus estimate for 2021 earnings has been revised 3.9% 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 50.3%. Moreover, its shares have rallied around 52% so far this year.

Shin-Etsu Chemical Co., Ltd. SHECY: This Japan-based company is engaged in the production and distribution of polyvinyl chloride (“PVC”) and silicon wafers. The company, carrying a Zacks Rank #2, is expected benefit from a recovery in PVC demand in North America and a spike in pricing. The company’s silicones business will also gain from a recovery in demand for automotive applications, new production launches and efforts to boost its market presence.

The company has expected earnings growth of 22.3% for the next fiscal year. The consensus estimate for earnings for the next fiscal has also been revised 8.6% upward over the last 60 days. Moreover, the company’s shares have shot up around 57% year to date.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?
 
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>


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Element Solutions Inc (ESI) : Free Stock Analysis Report
 
Quaker Chemical Corporation (KWR) : Free Stock Analysis Report
 
ShinEtsu Chemical Co. (SHECY) : Free Stock Analysis Report
 
The Chemours Company (CC) : Free Stock Analysis Report
 
Covestro AG Sponsored ADR (COVTY) : Free Stock Analysis Report
 
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