The chemical industry experienced a drop in volumes due to the global pandemic affecting production. However, the industry has rebounded since then. As per Statista, the U.S. chemical industry’s production volume is expected to increase by 4.3% in 2022.
In addition, the U.S. chemical industry, with a balance of trade surplus in excess of $20 billion, is a major player contributing 21% of the GDP to the U.S. economy. The industry continues to witness strong demand from both specialty and commodity sectors, thus keeping the prices steady and profitable during the year.
Moreover, the global specialty chemicals market size was estimated to be $607.63 billion in 2021 and is projected to $747.63 billion by 2028, exhibiting a CAGR of 3% from 2022 to 2028.
Against this backdrop, we think fundamentally strong chemical stocks Dow Inc. (DOW), American Vanguard Corporation (AVD), and Sisecam Resources LP (SIRE) are ideal investments now.
However, given the supply chain challenges, the fundamentally weak stock, Gevo, Inc. (GEVO), might be best avoided.
Stocks to Buy:
Dow Inc. (DOW)
DOW provides materials science solutions for packaging, infrastructure, mobility, and consumer applications. It operates through Packaging & Specialty Plastics; Industrial Intermediates & Infrastructure; and Performance Materials & Coatings segments.
On October 13, DOW declared a dividend of 70 cents per share, payable to shareholders on December 9, 2022. This marks the 445th consecutive dividend paid by the company or its affiliates since 1912, reflecting upon the company’s strong cash generation ability.
On September 23, DOW announced its partnership with Lion Corporation to launch recyclable refill bags for Shokubutsu Monogatari’s shower cream in Thailand. This agreement to develop easy-to-recycle refill bags should enable DOW to expand its customer base in new markets.
For the nine months ended September 30, cash provided by operating activities increased 21.7% year-over-year to $5.40 billion. Total current liabilities came in at $12.32 billion on September 30, 2022, compared to $13.23 billion on December 31, 2021. Its operating EPS came in at $1.11 for the third quarter.
The consensus revenue estimate of $57.22 billion in the fiscal year ending December 2022 reflects a 4.1% improvement year-over-year. Its consensus EPS is estimated to be $6.42 for the same year. Additionally, DOW has surpassed the Street’s EPS estimates in three of the trailing four quarters.
The stock has gained 10% over the past month to close the last trading session at $51.55. It has gained 2.8% over the past five days.
DOW’s POWR Ratings reflect its promising outlook. According to our proprietary rating system, it has an overall B rating, which translates to a Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and a B for Quality. It is ranked #32 out of 87 stocks in the B-rated Chemicals industry.
To see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for DOW, click here.
American Vanguard Corporation (AVD)
AVD develops, produces, and markets specialty chemicals globally for agricultural, commercial, and consumer purposes. It sells its products through national distribution corporations, buying groups or co-operatives, sales offices, salesforce executives, sales agents, and wholly-owned distributors.
On November 2, AVD announced that its Brazilian subsidiary was granted product registration for the use of Counter insecticide on soybeans in Brazil. This is expected to generate greater profitability and provide crops with protection and nutrition in an environmentally sustainable manner.
On September 12, AVD declared a cash dividend in the amount of $0.025 per share on its common stock, which was payable to shareholders on October 7, 2022. This reflects the shareholder return ability of the company.
For the third fiscal quarter ended September 30, AVD’s net sales increased 3.3% from the year-ago value to $152.12 million. Its gross profit rose 7.6% year-over-year to $61.38 million, while its operating income grew 25.7% year-over-year to $11.24 million. In addition, its earnings per common share grew 27.8% year-over-year to $0.23.
AVD’s EPS is expected to grow 78.1% year-over-year to $0.29 in the fiscal fourth quarter ending December 2022. Its revenue estimate of $165.45 million represents a 4.2% increase from the prior-year period.
The stock has gained 43.8% over the past year to close its last trading session at $22.54. Moreover, it gained 5.2% over the past three months.
AVD’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating translates to a Strong Buy in our proprietary rating system.
The stock also has a B for Growth, Sentiment, and Quality. In the Chemicals industry, it is ranked #2.
Beyond the POWR Rating grades highlighted above, AVD ratings for Value, Momentum, and Stability can be viewed here.
Sisecam Resources LP (SIRE)
SIRE engages in the trona ore mining and soda ash production businesses internationally. It processes trona ore into soda ash, which is a raw material in flat glass, container glass, chemicals, paper, and other consumer and industrial products.
On October 28, SIRE declared its quarterly cash distribution of $0.50 for the third quarter of 2022, which was payable to unitholders on November 17, 2022. This reflects the company’s shareholder return ability.
For the fiscal third quarter ended September 30, SIRE’s net sales increased 40.5% year-over-year to $190.50 million. Its net income grew 101.9% from the prior-year period to $31.10 million, while the adjusted EBITDA attributable to SIRE rose 69.2% year-over-year to $20.30 million. Net income per limited partner unit rose 111.1% year-over-year to $0.76.
The stock has gained 35.2% year-to-date to close its last trading session at $22.30. It has gained 3.2% intraday.
SIRE’s promising outlook is reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
It also has an A grade for Growth and Quality and a B for Value, Stability, and Sentiment. SIRE is ranked first in the same industry.
Click here to see the additional POWR Ratings for SIRE (Momentum).
Stock to Avoid:
Gevo, Inc. (GEVO)
GEVO operates as a renewable fuel company through its four segments: Gevo; Agri-Energy; Renewable Natural Gas; and Net-Zero. GEVO commercializes gasoline, jet fuel, and diesel fuel to achieve zero carbon emissions and reduce greenhouse gas emissions.
On October 25, GEVO announced a new sustainable aviation fuel (SAF) sales agreement with Qatar Airways for the purchase of 5 million gallons per year of SAF for five years from GEVO’s future commercial operations. However, the company’s delivery of SAF under this agreement is expected to begin in 2028.
In the fiscal third quarter ended September 30, GEVO’s loss from operations rose 196.4% year-over-year to $43.67 million, while its comprehensive loss came in at $43.70 million for the quarter, increasing 204.1% year-over-year. Non-GAAP adjusted net loss per share increased 171.4% year-over-year to $0.19.
Analysts expect GEVO’s EPS for the fiscal year ending December 2022 to decline 10% year-over-year to a negative $0.33.
The stock has declined 65.3% over the past year and 44.6% over the past six months to close the last trading session at $2.10.
GEVO’s poor prospects are reflected in its POWR Ratings. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
GEVO is also rated an F for Value, Quality, and Stability and a D for Sentiment. It is ranked #85 in the same industry.
Click here to get the POWR Ratings for Growth and Momentum for GEVO.
DOW shares were trading at $51.55 per share on Thursday afternoon, down $0.02 (-0.04%). Year-to-date, DOW has declined -5.83%, versus a -14.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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