The chemical industry plays a crucial part in diverse applications across several end-use industries. Given the industry’s steady growth prospects, investors could buy chemical stocks Hawkins, Inc. (HWKN), Orion S.A. (OEC), and Oil-Dri Corporation of America (ODC).
The U.S. chemical industry is a $486 billion enterprise that is responsible for more than a quarter of the U.S. GDP. The industry supports the production of almost all commercial and household goods and is essential to economic growth. The US chemical industry is the world’s second-largest chemical producer, and 13% of the world’s chemicals come from the US.
The global specialty chemicals market is anticipated to witness a CAGR of 5.2% until 2030. This is attributed to a growing demand for construction, water treatment, and electronics chemicals, along with advancements in process technology and trade liberalization. The growth is also attributed to growing demand for pharmaceuticals, food and feed additives, and flavors and fragrances, among others.
Advancements in digital technology are transforming the strategic landscape for chemical manufacturers. Producers are expected to use various digital tools to create innovative materials and streamline efficient formulations – evaluating, optimizing, and incorporating ingredient recipes and proprietary knowledge.
Consequently, the global chemical market is anticipated to grow at a CAGR of 8.8% until 2032.
With these favorable trends in mind, let's delve into the fundamentals of the three best Chemicals stocks, beginning with the third choice.
Stock #3: Hawkins, Inc. (HWKN)
HWKN operates as a specialty chemical and ingredients company in the United States. It operates through three segments: Industrial, Water Treatment, and Health and Nutrition.
HWKN’s trailing-12-month asset turnover ratio of 1.46x is 114.8% higher than the industry average of 0.70x, while its trailing-12-month net income margin of 7.91% is 35.3% higher than the industry average of 5.85%.
For the fiscal third quarter that ended December 31, 2023, HWKN’s sales stood at $208.50 million. Its operating income increased 21% year-over-year to $18.47 million Its net income increased 38.8% year-over-year to $14.89 million and EPS increased 38.5% year-over-year to $0.72.
Street expects revenue to be $217.5 million for the fiscal fourth quarter ending March 2024. Its EPS is expected to grow at 24% year-over-year to $0.68 for the same quarter. The company surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 45.1% over the past nine months to close the last trading session at $59.08.
HWKN’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a C grade for Value, Growth, Quality, Stability and Sentiment. It is ranked #29 in the 84-stock Chemicals industry.
Beyond what is stated above, we’ve also rated HWKN for Momentum. Get all HWKN ratings here.
Stock #2: Orion S.A. (OEC)
OEC manufactures and sells carbon black products. It operates in two segments, Specialty Carbon Black and Rubber Carbon Black. The company offers post-treated specialty carbon black grades for coatings and printing applications; high purity carbon black grades for the fiber industry; and conductive carbon black grades for polymers, coatings, and battery electrodes.
On January 22, 2024, OEC announced it had completed upgrading its air emissions control technology at all four of its U.S. carbon black plants, the biggest sustainability-related initiative in the company’s history.
The stock’s trailing-12-month EBIT margin of 11.65% is 1.2% higher than the industry average of 11.511%. Its levered FCF margin of 10.08% is 127.7% higher than the 4.42% industry average.
For the fiscal third quarter that ended September 30, 2023, OEC’s net sales came in at $466.20 million. Its adjusted EBITDA came in at $77.30 million. Additionally, the company’s adjusted net income came in at $28.90 million, while adjusted EPS stood at $0.49.
The consensus revenue estimate of $421.69 million for the fiscal fourth quarter ending December 2023. Likewise, the consensus EPS estimate of $0.34 for the same quarter is estimated to grow 29% year-over-year to $0.34. Moreover, the company surpassed the consensus EPS estimates in each of four trailing quarters.
Shares of OEC have gained 13.3% over the past three months to close the last trading session at $22.68.
It’s no surprise that OEC has an overall rating of B, which equates to Buy in our proprietary rating system.
OEC has a B grade for Value and Quality. It is ranked #19 in the same industry.
In addition to the POWR Ratings highlighted above, one can access OEC’s ratings for Stability, Sentiment, Momentum, and Growth here.
Stock #1: Oil-Dri Corporation of America (ODC)
ODC develops, manufactures, and markets sorbent products in the United States and internationally. It operates in two segments, Retail and Wholesale Products Group, and Business to Business Products Group.
For the fiscal first quarter that ended October 31, 2023, ODC’s net sales increased 13.1% year-over-year to $111.44 million. Its gross profit grew 38.9% from the year-ago value to $30.99 million. Additionally, net income and net income per share grew 105.4% and 100% from the prior year’s quarter to $10.74 million and $1.61, respectively.
Shares of ODC have gained 50.4% over the past nine months, closing the last trading session at $63.22.
ODC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
ODC has a B grade for Growth, Stability, and Sentiment. It is ranked #15 in the same industry.
Click here to access the additional ODC ratings (Momentum, Quality, and Value).
What To Do Next?
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HWKN shares were trading at $59.41 per share on Wednesday afternoon, up $0.33 (+0.56%). Year-to-date, HWKN has declined -15.63%, versus a 4.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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