The chemical industry shows promise due to rising demand from key sectors like automotive, construction, agriculture, healthcare, and electronics, particularly in emerging markets. Amid this backdrop, it could be wise to add robust chemical stocks BASF SE (BASFY), Nitto Denko Corporation (NDEKY), and Kuraray Co., Ltd. (KURRY) to one’s portfolio before May.
Lucrative investment opportunities in the chemical industry are driven by increased demand, government initiatives, a shift toward sustainability, and rapid technological advancements. This year, the industry anticipates growth from chemicals supporting the energy transition, with innovations in eco-friendly products and the adoption of data analytics and AI.
Consequently, digital technology is reshaping chemical manufacturing by enabling innovative materials and cost-effective formulations. The global chemical market is expected to hit $7.79 trillion by 2028, growing at a CAGR of 8.7%.
On top of it, specialty chemicals are in high demand for specific applications, boosting product strength, durability, and efficiency. The market is expected to grow at a 3% CAGR until 2032, driven by increased demand for agrochemicals, recycled plastics, and construction chemicals.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Chemicals picks, beginning with the third choice.
Stock #3: BASF SE (BASFY)
Headquartered in Ludwigshafen am Rhein, Germany, BASF operates as a chemical company worldwide. It operates through six segments: Chemicals, Materials, Industrial Solutions, Surface Technologies, Nutrition & Care, and Agricultural Solutions. The Chemicals segment provides petrochemicals and intermediates.
On April 22, 2024, BASFY and Vattenfall signed an agreement for BASFY to acquire a 49% stake in the Nordlicht offshore wind farms in the German North Sea, with a combined capacity of 1.6 gigawatts. The project will provide renewable energy for BASFY's production sites and Vattenfall's customers in Germany.
On February 9, 2024, BASFY announced it would divest its shares in two joint ventures in Korla, China, due to competitive pressures and high carbon footprints associated with the production processes. This move aligns with BASF's strategy to offer more sustainable products and address concerns related to its joint venture partner.
In terms of forward non-GAAP P/E, BASFY’s 13.22x is 20.3% lower than the 16.59x industry average. Its 0.95x forward EV/Sales is 45.5% lower than the 1.75x industry average. Likewise, its 7.89x forward EV/EBITDA is 9.6% lower than the 8.72x industry average.
BASFY's sales for the first quarter ended March 31, 2024, were €17.55 billion ($19.02 billion). The company's EBITDA amounted to €2.66 billion ($2.88 billion). Net income from shareholdings rose 25.6% to €229 million ($248.25 million). Additionally, its net income and adjusted earnings per share stood at €1.37 billion ($1.49 billion) and €1.68, respectively.
Analysts expect BASFY’s revenue for the quarter ending September 30, 2024, to increase 9.9% year-over-year to $18.30 billion. Its EPS for fiscal 2024 is expected to grow 31% year-over-year to $0.99. Over the past six months, BASFY's stock has gained 10.2% to close the last trading session at $13.13.
BASFY’s promising outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, and Stability. Within the B-rated Chemicals industry, it is ranked #9 out of 81 stocks. To see BASFY’s ratings for Growth, Momentum, Sentiment, and Quality, click here.
Stock #2: Nitto Denko Corporation (NDEKY)
Headquartered in Osaka, Japan, NDEKY primarily engages in the adhesive tapes business in Japan, the Americas, Europe, Asia, and Oceania. It provides tapes, surface protective films, sealing materials, membranes, FPD/touch panel-related products, gasket materials, semiconductor manufacturing process products, flexible printed circuit boards, and porous films/breathable materials.
In terms of forward EV/Sales, NDEKY’s 1.44x is 19% lower than the 1.78x industry average. Similarly, its 8.54x forward EV/EBIT is 37.2% lower than the 13.61x industry average. Moreover, its 6.03x forward EV/EBITDA is 30.9% lower than the 8.72x industry average.
For the fiscal year that ended on March 31, 2024, NDEKY reported revenue of ¥915.14 billion ($5.85 billion). Its net profit attributable to owners of the parent company and earnings per share amounted to ¥102.68 billion ($656.12 million) and ¥719.30, respectively.
Additionally, the company’s total current assets stood at ¥1.25 trillion ($7.99 billion) as of March 31, 2024, compared to ¥1.15 trillion ($7.37 billion) as of March 31, 2023.
Analysts expect NDEKY’s revenue for fiscal 2025 to increase 83.4% year-over-year to $6.02 billion. Over the past nine months, NDEKY’s stock has gained 17.4% to close the last trading session at $39.
NDEKY’s POWR Ratings reflect its bright outlook. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth, Value, and Stability. It is ranked #4 in the same industry. To see NDEKY’s Momentum, and Sentiment ratings, click here.
Stock #1: Kuraray Co., Ltd. (KURRY)
Headquartered in Tokyo, Japan, KURRY engages in the production and sale of resins, chemicals, fibers, activated carbon, and high-performance membranes and systems worldwide. It operates in five segments: Vinyl Acetate, Isoprene, Functional Materials, Fibers and Textiles, and Trading.
In terms of forward EV/EBITDA, KURRY’s 4.78x is 45.2% lower than the 8.72x industry average. Similarly, its 9.50x forward EV/EBIT is 30.2% lower than the 13.61x industry average. Moreover, its 4.78x forward EV/EBITDA is 45.2% lower than the 8.72x industry average.
During the fiscal first quarter that ended March 31, 2024, KURRY’s net sales increased 3.9% year-over-year to ¥192.18 billion ($1.23 billion). Its operating income and net income attributable to owners of the parent stood at ¥28.79 billion ($183.97 million) and ¥21.61 billion ($138.09 million), respectively, up 35% and 165.1% over the prior-year quarter. Also, its net income per share grew 165.1% year-over-year to ¥64.52.
For the quarter ending September 30, 2024, its revenue is expected to increase 3.6% year-over-year to $1.32 billion. Over the past year, the stock has gained 30.2% to close the last trading session at $36.75.
KURRY's POWR Ratings reflect solid fundamentals. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It is ranked first in the Chemicals industry. It has an A grade for Value, and Stability and a B for Growth, and Quality. Click here to see KURRY's Momentum, and Sentiment ratings.
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BASFY shares were trading at $13.05 per share on Thursday afternoon, up $0.03 (+0.19%). Year-to-date, BASFY has gained 2.07%, versus a 11.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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