The Chemicals Industry is a very broad umbrella housing companies that supply chemicals covering agricultural, fertilizer, crop protection and consumer product applications; basic chemicals like organic, inorganic, plastic resins, synthetic rubber, manufactured fibers; and specialty and other chemicals.
These are sold into a very diverse number of end markets including construction, oil & gas extraction, food/beverages/tobacco, textiles, apparel, structural panels, paper, printing, petroleum refining, rubber/[plastic products, iron & steel, fabricated metal products, computers, semiconductors/electronics, appliances, motor vehicles/parts, aircraft/parts, and furniture.
Therefore, general economic growth is positive for this industry while recessionary conditions are unfavorable. So naturally, with the U.S. economy shrinking 3.5% in 2020, this industry suffered. And the 6%+ projected growth for this year will be positive for the industry overall.
The American Chemistry Council, in its recently released report, forecasts that total chemical production will increase 12.3% in 2021, with basic chemicals growing 14.2% and specialty chemicals 10.6%. Both bulk petrochemicals/organic and inorganic are to increase 15.2%. Plastic resins (benefiting from PPE and other protective gear), synthetic rubber and manufactured fiber will all return to growth.
Agricultural chemical production is expected to grow 9.3%. Bolstered by sales of cleaning and disinfecting products, consumer product production (estimated to have dropped just 6.8% last year) is expected to grow by 9.3% in 2021.
The ACC expects shipments to rise 8.1% in 2021 and 8.2% in 2022, growing at a CAGR of 6.5% through 2025.
The strongest end markets this year are expected to be motor vehicles/parts, appliances, aircraft/parts and semiconductors/electronics in that order. All these markets are expected to see double-digit growth in chemical consumption. Iron & steel with over 9% expected growth is close behind.
What’s more, after a decline in 2020, capital spending will grow 11.9% this year to $30.6 billion, with around 30% going toward plastic resins, 27% for bulk petrochemicals and intermediates, 15% for consumer products, 10% for inorganic chemicals, 7% for specialties other than coatings, 4% each for synthetic rubber and agricultural chemicals, 2% for coatings, and 1% for manufactured fibers.
This capex will cater to the general industrial equipment (41% of total spend), special industrial machinery (18%), instrumentation (14%), manufacturing structures (9%), other machinery/equipment (6%), computing/communications equipment (5%), fabricated equipment (5%) and other markets (2%).
Since capex will come down notably in 2022, it’s clear that industry participants expect a strong recovery in industrial and manufacturing operations here on out. The industry also appears to be preparing for an increased sales into the technology sector.
Given the strong outlook for the year and expected momentum over the next few years, it makes sense to add stocks from this industry to your portfolio.
Here are a few that look good now-
Arkema SA ARKAY
French company Arkema SA is engaged in the manufacturing and marketing of vinyl products, industrial chemicals, and performance products like functional additives, specialty chemicals and technical polymers. They are used in air conditioning or refrigeration; chemical processing, coating, construction; packaging; automotive & transportation.
Other applications include adhesives and sealants, agriculture & agrochemicals, consumer goods, electronics, foams, solvents and aerosols, health, hygiene & beauty, oil & gas, energy, pharmaceuticals, pulp & paper, rubber, sports & leisure, etc.
The shares carry a Zacks Rank #2 and VGM Score A, a strong indication of their attractiveness. The company is currently expected to grow revenue by 11.3% and earnings by 46.3% this year. 2022 is also expected to be a growth year, but we’ll know more when the company reports on Jul 29.
In the meantime, it’s worth noting that the 2021 earnings estimate has gone from $7.53 90 days ago to $8.42 a month later, only to be raised again to $8.53 7 days ago. This is a clear indication of positive analyst sentiment. The 2022 estimate has also gone the same route.
Brenntag AG BNTGY
Germany-based Brenntag AG supplies chemicals into the nutrition, pharma, personal care, water treatment and lubricants markets; home, industrial and institutional markets, as well as coatings and constructions, polymers, and rubber material science markets.
Its value-added services include just-in-time delivery, product mixing, blending, repackaging, inventory management and drum return handling, as well as technical and laboratory services for specialty chemicals. Brenntag operates through the North America, Latin America, EMEA and Asia Pacific segments.
The shares carry a Zacks Rank #2 and VGM Score B. There is a very strong growth outlook for the next two years with revenue expected to grow 12.8% and 7.5% in 2021 and 2022. Earnings growth is expected to be much stronger at 21.7% and 22.0%, respectively.
The 2021 estimate dipped by a penny 60 days ago but has since moved up 5 cents to 84 cents. The 2022 estimate has steadily climbed (up 11 cents in the last 90 days) to $1.02.
It reports on Aug 5.
Cabot Corp. CBT
This Zacks #2 ranked specialty chemicals and performance materials company is headquartered in Boston and generates revenue from across the world. Its primary end markets are transportation, infrastructure, environment and consumer. Its major products include rubber and specialty grade carbon blacks, specialty compounds, activated carbons, fumed metal oxides, inkjet colorants, aerogel and cesium formate drilling fluids.
Cabot has a VGM Score A, indicating that its risk profile fits almost any kind of investor. And its growth estimates clearly show why. The company is expected to grow revenue and earnings by 20.3% and 137.5% this year and by another 4.5% and 5.1% in 2022.
Estimates for both 2021 and 2022 (ending September) have increased steadily through the last 90 days. The 2021 estimate is up 93 cents (23.2%) and the 2022 estimate is up 90 cents (21.0%). CBT reports on Aug 9.
The Chemours Company CC
Wilmington, DE-based The Chemours Company is a leading provider of performance chemicals for plastics and coatings, refrigeration and air conditioning, mining and general industrial manufacturing and electronics manufacturers. The company's major products include titanium dioxide (TiO2), refrigerants, industrial fluoropolymer resins and sodium cyanide. The company has 26 manufacturing sites catering to around 4,000 customers across North America, Latin America, Asia-Pacific and Europe.
#2 ranked Chemours has a VGM Score A. It is currently expected to grow revenue and earnings by a respective 18.2% and 66.7% in 2021. In the following year, it will grow these numbers 6.5% and 14.2%. And that isn’t all. Chemours has seen notable increase in earnings estimates for both years: 24.1% in 2021 and 17.9% in 2022. It reports on Jul 29.
Dow Inc. DOW
One of the largest chemical suppliers in the world, Dow has the broad portfolio of higher-value functional polymers, significant low-cost global feedstock positions, global footprint and market reach, and manufacturing sites across every geographic region that place it in an advantageous position against competitors. Its Packaging & Specialty Plastics segment uses proprietary catalyst and manufacturing process technologies to deliver higher performing and sustainable plastics to the food and specialty packaging, industrial and consumer packaging markets.
It offers coatings & performance monomers and consumer solutions under the Performance Materials & Coatings segment. The Industrial Intermediates & Infrastructure segment offers industrial solutions, polyurethanes and construction chemicals.
The Zacks Rank #1 (Strong Buy) company has a VGM Score B. It is expected to grow its earnings a whopping 359.6% this year. Although growth will be negative next year, 2022 expected earnings of $5.96 will be well over 2020’s $1.66. Plus, DOW’s estimates have been soaring of late. The 2021 estimate is up $3.08 (67.7%) in the last 90 days. The 2022 estimate is up $1.69 (39.6%). The company reports on Jul 22.
Huntsman Corp. HUN
Woodlands, TX-based Huntsman Corp. is among the world's largest manufacturers of differentiated and commodity chemical products used in number of applications including aerospace, automotive, construction products, adhesives, personal care and hygiene, durable and nondurable consumer products, digital inks, electronics, medical, packaging, coatings and construction, power generation, refining and textile chemicals.
The Zacks Rank #2 company with a VGM Score B is expected to grow revenue and earnings 22.0% and 185.7%, respectively. It’s also expected to grow another 3.7% and 8.9%, respectively in 2022. Estimates have also been upwardly mobile in the last 90 days with the 2021 estimate going from $2.21 to $2.80 and the 2022 estimate going from $2.59 to $3.05. HUN reports on Jul 30.
LyondellBasell Industries N.V. LYB
Houston, TX-based LyondellBasell Industries N.V. is among the leading plastics, chemical and refining companies globally with operations across 18 countries.
The Zacks Rank #1 company has a VGM Score B. it is expected to grow its revenue and earnings by a respective 50.6% and 218.5% this year. Growth will be negative the next year but numbers will remain way above 2020 levels. The estimate revision trend shows a $4.57 (34.4%) increase for 2021 and a $3.22 (27.1%) increase for 2022. LYB reports on Jul 30.
Methanex Corp. MEOH
Headquartered in Vancouver, Canada, Methanex Corporation is the world’s largest supplier of methanol to North America, Asia-Pacific, Europe and Latin America. Around two-thirds of all methanol demand is used to produce traditional chemical derivatives including formaldehyde, acetic acid and a variety of other chemicals. The remaining one-third of methanol demand comes from energy related applications. Methanol is also used to produce methyl tertiary-butyl ether (MTBE), a gasoline component, and an emerging application is for methanol demand into olefins.
The Zacks Rank #2 company with VGM Score of A is expected to grow earnings 341.4% this year on revenue growth of 42.4%. Like some of the others, it is also expected to see something of a drop-off in the following year, as the market stabilizes. The company’s 2021 estimate is up 66.4% in the last 90 days. The 2022 estimate is up 8.7%. Methanex reports on Jul 28.
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