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5 Top Specialty Chemical Stocks to Buy on End-Market Strength

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·8 min read
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The specialty chemical industry has bounced back from coronavirus-led stupor, thanks to a strong rebound in demand in key markets including automotive and construction. The upswing in global industrial and manufacturing activities bodes well for the industry.

The industry reeled under the effects of significant demand contraction during the first half last year as a result of a slowdown in industrial activities amid the global health crisis. Shutdowns and travel restrictions to blunt the spread of infection paralyzed industrial and economic activities globally, squeezing demand for specialty chemicals across major end-use markets.

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.

Notably, specialty chemicals that include catalysts, surfactants, specialty polymers and coating additives have application in the manufacturing process of a vast range of products, including paints and coatings, cosmetics, petroleum products, inks and plastics. Automotive, construction, textile, food & beverages, electronics, energy and agriculture are among the top markets for these chemicals.

The automotive sector has made a speedy recovery after hitting a major speed bump due to the pandemic in 2020, courtesy of a strong rebound in customer demand for new vehicles. Global automotive production has rebounded from shutdowns last year due to significant disruptions in supply chains resulting from coronavirus.

Notably, U.S. auto sales started to rebound in the second half of 2020 after hitting a coronavirus-induced low in April 2020. Notwithstanding the semiconductor crunch, U.S. vehicle sales have also witnessed a year-over-year rise this year. Economic recovery, strong pent-up demand, low auto loan interest rates and increasing preference for private transportation due to health, safety and social distancing concerns have contributed to a pick-up in U.S. auto sales. The new round of coronavirus stimulus has also given people more spending power.

The National Automobile Dealers Association (“NADA”) is optimistic about new-vehicle sales for 2021 despite challenges from production disruptions due to chip shortages and lower resin supply for auto parts manufacturing as well as low inventory levels. NADA now expects U.S. new-vehicle sales to rise 12.7% year over year to 16.3 million units in 2021, up from 15.5 million units it expected earlier.

Moreover, a resilient construction sector is driving demand for specialty chemicals such as paints and coatings. 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.

Meanwhile, the U.S manufacturing sector has staged a strong rebound from the coronavirus blues with activities showing a V-shaped recovery on an upturn in the overall economy and strong demand. U.S. manufacturing continued to gather steam in May on a surge in new orders despite raw material and labor shortages. Meanwhile, the United States has ramped up the national rollout of vaccines. Vaccination of a sufficient number of people will allow the U.S. economy to fully open up, which would augur well for the manufacturing sector.  Notably, manufacturing activity is a key indicator for chemical demand.

5 Stocks to Snap Up

The specialty chemical industry is poised to run higher on a strong rebound in industrial and manufacturing activities. An upturn in demand across major end-markets represents a tailwind for the industry. As such, it would be prudent to zero in on stocks in the space that have compelling prospects.

We highlight the following five 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.

Valvoline Inc. VVV

Kentucky-based Valvoline sports a Zacks Rank #1. Improving miles driven trends, following the easing of pandemic-related restrictions are expected to drive its top line. The company should also benefit from its cost-reduction program, strategic acquisitions and investments in the expansion of its Quick Lubes network. The recent realignment of its business segments also enhances its ability to leverage its strong brand equity and product platforms to capture growth opportunities across its segments.

Valvoline has expected earnings growth rate of 21% for the current fiscal year. It has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 20.7%. Moreover, the Zacks Consensus Estimate for earnings for the current year has been revised 7.2% upward over the last 60 days. The company’s shares are also up around 31% over the past three months.

Element Solutions Inc ESI

Based in Florida, Element Solutions carries a Zacks Rank #2. 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 also implementing a number of cost-containment measures including reduction of traveling costs. These actions are likely to lend support to its margins.

The company has an expected earnings growth rate of 42.7% for the current year. The consensus estimate for the current year has also been revised 15.1% upward over the past 60 days. The company also surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 13.6%. Its shares have also rallied roughly 25% over the past three months.

Ingevity Corporation NGVT

South Carolina-based Ingevity has a Zacks Rank #2. Ingevity is gaining from growth in its applications driven by regulations and technology adoption. It is benefiting from higher sales in China as automakers in the country have completed the implementation of the China 6 standard. The company is also taking certain cost-reduction measures in the wake of the pandemic to boost profitability. The buyout of Capa caprolactone has also enabled Ingevity with a new technology platform to drive revenue and earnings growth.

The company has an expected earnings growth rate of 9% for the current year.  Moreover, the Zacks Consensus Estimate for current-year earnings has been revised 4.7% upward over the last 60 days. The company also surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 49.2%. Its shares have also gained around 13% over the past three months.

Axalta Coating Systems Ltd. AXTA

Pennsylvania-based Axalta has a Zacks Rank #2. It will benefit from cost savings through the implementation of its global restructuring initiative (including streamlining of workforce) and other cost-reduction actions in response to the pandemic. Improving global traffic volumes and continued easing of restrictions are also likely to aid its refinish business. Moreover, the recovery in global automotive production augurs well for the company’s mobility coatings business.

The company has an expected earnings growth rate of 54.1% for the current year. The consensus estimate for current-year earnings has been revised 6.2% upward over the last 60 days. The company surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 28.6%. Moreover, its shares have gained around 10% over the past three months.

Quaker Chemical Corporation KWR

Pennsylvania-based Quaker Chemical carries a Zacks Rank #2. The company's combination with Houghton International, Inc. and the acquisition of the operating divisions of Norman Hay plc as well as the recent Coral Chemical buyout 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.

Quaker Chemical has an expected earnings growth rate of 52.7% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 3.8% 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 54.2%.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


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
 
Quaker Chemical Corporation (KWR) : Free Stock Analysis Report
 
Axalta Coating Systems Ltd. (AXTA) : Free Stock Analysis Report
 
Ingevity Corporation (NGVT) : Free Stock Analysis Report
 
Valvoline Inc. (VVV) : Free Stock Analysis Report
 
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