Accounting for 18% of global chemical shipments, the United States is a world leader in chemical production and exports. The industry had a solid recovery from pandemic lows last year on rising industrial and agricultural demand in a recovering economy. With the easing of supply chain bottlenecks and rising manufacturing activity, the industry’s production volume is expected to increase this year.
Furthermore, a strong 2021 fourth-quarter GDP growth indicates a steady economic recovery this year. This should drive the demand for chemicals. In addition, the ongoing efforts to achieve decarbonization and sustainability goals brighten the industry’s long-term prospects. The global specialty chemicals market is expected to grow at a 6.2% CAGR to $894.14 billion by 2028.
Given the industry’s solid growth prospects, we think it could be wise to invest in fundamentally-sound chemical stocks BASF SE (BASFY), Dow Inc. (DOW), Asahi Kasei Corporation (AHKSY), and The Chemours Company (CC), which look undervalued at their current price levels.
BASF SE (BASFY)
BASFY is a Ludwigshafen am Rhein, Germany-based company that offers a variety of chemical products chemical, automotive, construction, agriculture, oil, plastics, electrical, electronics, furniture, and paper industries worldwide. The company operates through six segments–Chemicals; Materials; Industrial Solutions; Surface Technologies; Nutrition & Care; and Agricultural Solutions.
On Jan. 17, 2022, BASFY announced its plan to build a new hexamethylene diamine (HMD) plant in Chalampé, France, that will help increase BASFY’s annual HMD production capacity to 260,000 metric tons. This, along with the expansion of its polyamide 6.6 production in Freiburg, Germany, starting this year, should help BASFY meet the increasing demand for HMD and PA6.6.
BASFY’s sales revenue increased 42.4% year-over-year to €19.67 billion ($22.47 billion) in its fiscal 2021 third quarter, ended Sept. 30, 2021. The company’s gross profit came in at €4.91 billion ($5.60 billion), up 43.4% from the prior-year period. Its income from operations was €1.82 billion ($2.08 billion) for the quarter, compared to a €2.64 billion ($3.01 billion) loss in the prior-year period. While its adjusted net income increased 161.3% year-over-year to €1.43 billion ($1.64 billion), its adjusted EPS increased 160% to €1.56. As of Sept. 30, 2021, BASFY had €2.90 billion ($3.31 billion) in cash and cash equivalents.
The $1.70 consensus EPS estimate for its fiscal year 2021, ended Dec. 31, 2021, represents a 73.4% rise from the prior-year period. It surpassed the consensus revenue estimates in each of the trailing four quarters. Analysts expect BASFY’s revenue to rise 21.4% year-over-year to $86.72 billion. The stock has gained 9.6% in price year-to-date to close yesterday’s trading session at $19.21.
BASFY’s 7.05x forward EV/EBITDA is 9.2% lower than the 7.76x industry average. In terms of forward Price/Sales, BASFY is currently trading at 0.81x, which is 46% lower than the 1.49x industry average.
It is no surprise that BASFY has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Value and a B grade for Stability. Click here to see the additional ratings for BASFY’s Growth, Sentiment, Quality, and Momentum. BASFY is ranked #27 of 89 stocks in the A-rated Chemicals industry.
Dow Inc. (DOW)
DOW offers a range of science-based products and solutions for consumer care, infrastructure, and packaging markets worldwide. The Midland, Mich.-based company operates through Packaging & Specialty Plastics; Industrial Intermediates & Infrastructure; and Performance Materials and Coatings segments. It is also in the property and casualty insurance and reinsurance business.
On Jan. 25, 2022, DOW signed an exclusive agreement with Locus Performance Ingredients (Locus PI), a biotechnology company that makes biosurfactants and fermentation ingredients, to sell its line of high-performance sophorolipid biosurfactants in the global home care and personal markets. This should enable both companies to leverage their key expertise, address the growing demand for sustainable, biobased, and biodegradable ingredients, and accelerate the transition towards a low-carbon, circular economy.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, DOW’s net sales increased 34.2% year-over-year to $14.36 billion. The company’s non-GAAP pre-tax income came in at $2.12 billion for the quarter, indicating a 147.4% gain over the prior-year period. DOW’s non-GAAP net income came in at $1.61 billion, representing a 165.6% rise from the prior-year period. Its non-GAAP EPS increased 165.4% year-over-year to $2.15. DOW had $2.99 billion in cash and equivalents as of December 31, 2021.
DOW surpassed the consensus EPS estimates in each of the trailing four quarters. The company’s EPS is expected to grow at a 56.8% rate per annum over the next five years. The stock has gained 5.6% in price year-to-date to close yesterday’s trading session at $59.91.
In terms of forward EV/EBITDA, DOW is currently trading at 5.80x, which is 25.3% lower than the 7.76x industry average. And in terms of forward Price/Sales, DOW is currently trading at 0.82x, which is 45.3% lower than the 1.49x industry average.
DOW’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. DOW has an A grade for Value and a B grade for Quality. Click here to see additional ratings for DOW’s Growth, Momentum, Sentiment, and Stability. The stock is ranked #16 in the Chemicals industry.
Asahi Kasei Corporation (AHKSY)
Headquartered in Tokyo, Japan, AHKSY manufactures, processes, and sells synthetic fibers and other industrial chemical products internationally. The company operates through three segments: Material; Homes; and Health Care. It produces cupra fiber, polyurethane fiber, styrene monomer, acrylonitrile, polyethylene, synthetic rubber, engineering resin, and more. It also engages in real estate and healthcare businesses.
On Oct. 21, 2021, AHKSY’s Tongue Petrochemical Corp., Ltd. (TSPC) subsidiary in South Korea acquired the widely recognized international certification ISCC PLUS for its acrylonitrile (AN) as a sustainable product and announced that it would begin production of AN using biomass propylene in February 2022. AHKSY’s production of AN using biomass propylene should witness growing demand going forward. This initiative should also enable both companies to reduce CO2 emissions across the AN supply chain in the coming years.
For its fiscal year 2021 half-year, ended Sept. 30, 2021, AHKSY’s net sales increased 19.4% year-over-year to ¥1.18 trillion ($10.23 billion). The company’s gross profit came in at ¥386.02 billion ($3.34 billion), representing a 19.6% year-over-year improvement. Its adjusted operating income was ¥113.14 billion ($980.05 million), representing a 47.4% rise from the prior-year period. AHKSY’s net income came in at ¥92.39 billion ($800.47 million) for the quarter, up 91.3% from the prior-year period. Its EPS increased 95.1% year-over-year to ¥65.79. As of September 30, 2021, the company had ¥208.96 billion ($1.81 billion) in cash and cash equivalents.
AHKSY surpassed Street revenue estimates in three of the trailing four quarters. The $21.43 billion consensus revenue estimate for fiscal 2021, ending March 31, 2022, indicates a 327.8% year-over-year improvement. The stock has gained 2.6% in price year-to-date and ended yesterday’s trading session at $19.28.
AHKSY’s 5.88x forward EV/EBITDA is 24.3% lower than the 7.76x industry average. In terms of forward Price/Sales, AHKSY is currently trading at 0.64x, which is 57.4% lower than the 1.49x industry average.
AHKSY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. AHKSY has an A grade for Value and Stability. Click here to see the additional ratings for AHKSY (Quality, Growth, Sentiment, and Momentum). The stock is ranked #12 in the Chemicals industry.
The Chemours Company (CC)
CC in Wilmington, Del., manufactures and distributes performance chemicals worldwide. The company produces titanium dioxide, refrigerants, industrial fluoropolymer resins, and industrial and specialty chemicals for gold producing, oil refining, agriculture, and other industries. It serves various industries, including electronics, communications, automotive, wire and cable, energy, oil and gas, and aerospace.
On Nov. 16, 2021, CC announced the launch of Glyclean D, a proven broad-spectrum disinfectant and cleaner, registered with the U.S. Environmental Protection Agency (EPA) to deactivate the SARS-CoV-2 virus, other viruses, and bacteria. Unlike harsh, corrosive chemicals, such as quats or bleach, Glyclean D is biodegradable and friendlier to people and the environment. CC should witness high demand in the coming months.
CC’s net sales for its fiscal 2021 third quarter, ended Sept. 30, 2021, increased 36.3% year-over-year to $1.68 billion. The company’s gross profit came in at $427 million, representing a 66.2% rise from the prior-year period. Its pre-tax income was $231 million for the quarter, up 285% from the prior-year period. While its non-GAAP net income increased 174.4% year-over-year to $214 million, its non-GAAP EPS grew 170.2% to $1.27. The company had $1.03 billion in cash and cash equivalents as of Sept. 30, 2021.
For its fiscal 2021, ended Dec. 31, 2021, analysts expect CC’s EPS to improve 107.1% from the prior-year period to $4.10. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $6.34 billion consensus revenue estimate for the same fiscal year represents a 27.5% year-over-year improvement. The company’s EPS is expected to grow at a 27% rate per annum over the next five years. The stock has declined 2.6% in price year-to-date and ended yesterday’s trading session at $32.70.
CC’s 6.30x forward EV/EBITDA is 18.8% lower than the 7.76x industry average. In terms of forward Price/Sales, CC is currently trading at 0.85x, which is 43.2% lower than the 1.49x industry average.
CC’s POWR Ratings reflect its solid prospects. It has an overall B rating, which equates to Buy in our proprietary rating system. The stock has an A grade for Value and a B grade for Growth and Quality.
In addition to the POWR Ratings grades we have just highlighted, the ratings for CC’s Sentiment, Stability, and Momentum are shown here. CC is ranked #15 in the Chemicals industry.
Note that CC is one of the few stocks handpicked by our Chief Value Strategist, Steve Reitmeister, currently in the POWR Value portfolio. Learn more here.
BASFY shares were trading at $19.42 per share on Tuesday morning, up $0.21 (+1.07%). Year-to-date, BASFY has gained 10.78%, versus a -6.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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