The chemical industry is fuelled by increasing investment in automation and digitalization and a growing focus on the growth of specialty chemicals. Given the industry’s steady growth prospects, I think quality chemical stocks, Cabot Corporation (CBT), PPG Industries, Inc. (PPG), and NewMarket Corporation (NEU) could be hot investments for the coming month.
Rising global demand for chemicals, ongoing technological advancements, and increasing investment in automation and digitalization continue to influence the chemical market, and the outlook for manufacturing remains positive.
Value added in the chemicals market is projected to grow at a CAGR of 3.4% until 2028.
Moreover, global chemical production is growing due to reliance on emerging technologies such as Artificial Intelligence (AI) and Machine Learning (ML). These technologies empower advancements in materials, accelerate cost-effective formulations, enhance supply chain efficiency, and foster sustainability initiatives.
Apart from this, the growth of specialty chemicals can be attributed to the growing demand for pharmaceuticals, food and feed additives, and flavors and fragrances, among others. The global specialty chemicals market is anticipated to witness a CAGR of 5.1% until 2030.
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: Cabot Corporation (CBT)
CBT operates as a specialty chemicals and performance materials company. The company operates in two segments, Reinforcement Materials; and Performance Chemicals.
With a four-year average dividend yield of 2.73%, CBT pays an annual dividend of $1.60, which translates to a dividend yield of 2.38% on the current price level.
CBT’s trailing-12-month EBIT margin of 12.26% is 9.2% higher than the industry average of 11.23%. Its trailing-12-month levered FCF margin of 6.23% is 72.8% higher than the industry average of 3.61%.
For the second quarter that ended June 30, 2023, CBT’s net sales and other operating revenues came in at $968 million. Its gross profit came in at $223 million and net income stood at $90 million. EPS of common stock attributable to CBT came in at $1.43.
Street expects CBT’s revenue for the fiscal year 2023 to be $3.98 billion. Its EPS is expected to be $5.21 in the same year.
Over the past year, the stock has gained 6.7%, closing the last trading session at $69.34.
CBT’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.
CBT has a B grade for Value and Quality. It is ranked #15 in the 83-stock Chemicals industry.
Click here to access the additional CBT ratings (Growth, Momentum, Sentiment, and Stability).
Stock #2: PPG Industries, Inc. (PPG)
PPG manufactures and distributes paints, coatings, and specialty materials worldwide. The company operates through Performance Coatings and Industrial Coatings segments.
On September 14, PPG successfully concluded a $2.7 million expansion project at its Sumaré, Brazil-based powder coatings plant, boosting production capacity by 40%. This investment aligns with PPG’s strategy to enhance five powder coatings manufacturing units across the United States and Latin America.
On August 30, 2023, PPG announced the introduction of PPG LINQ Color software and the PPG MAGICBOX body shop assistant for smarter wireless mixing in automotive repair shops.
The advanced tools are the latest components of the PPG LINQ end-to-end digital solution for the global refinish industry that provides productivity and sustainability improvement for body shops.
With a four-year average dividend yield of 1.70%, PPG pays an annual dividend of $2.60, which translates to a dividend yield of 2.02% on the current price level.
PPG’s trailing-12-month gross profit margin of 39.33% is 39.4% higher than the industry average of 28.21%. Its trailing-12-month levered FCF margin of 5.55% is 54% higher than the industry average of 3.61%.
For the second quarter that ended June 30, 2023, PPG’s net sales increased 3.9% year-over-year to $4.87 billion. The net income and earnings per common share attributable to PPG grew 11.1% and 11.4% from the prior year’s quarter to $490 million and $2.06, respectively.
PPG’s revenue for the fiscal third quarter ending September 2023 is expected to grow 4.1% year-over-year to $4.65 billion. Its EPS is expected to increase 16.4% year-over-year to $1.93 in the same quarter. In addition, the company has topped the consensus EPS estimates in all the trailing four quarters.
PPG’s shares have gained 15.2% over the past year to close the last trading session at $130.56.
PPG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a B grade for Growth, Sentiment, and Quality. Within the same industry, it is ranked #9.
Beyond what is stated above, we’ve also rated PPG for Momentum, Stability, and Value. Get all PPG ratings here.
Stock #1: NewMarket Corporation (NEU)
NEU manufactures and sells petroleum additives. Its product range includes lubricant additives designed for vehicles and industrial applications. The company also offers fuel additives that improve the performance of gasoline, diesel, biofuels, and other fuels, catering to the government, OEMs, and individuals.
On August 3, NEU approved a quarterly dividend of $2.25 per share on the company’s common stock. This dividend will be payable on October 2, 2023.
With a four-year average dividend yield of 2.19%, NEU pays an annual dividend of $2, which translates to a dividend yield of 2.19% on the current price level.
NEU’s trailing-12-month EBIT margin of 17.13% is 52.6% higher than the industry average of 11.23%. Its trailing-12-month levered FCF margin of 9.99% is 177% higher than the industry average of 3.61%.
For the second quarter that ended June 30, 2023, NEU’s gross profit grew 24.2% year-over-year to $195.64 million. Its EBITDA increased 37.1% from the prior year’s quarter to $154.86 million. In addition, NEU’s net income and EPS stood at $99.62 million and $10.36, up 49.9% and 58.4% year-over-year, respectively.
Shares of NEU have gained 51.8% over the past nine months to close the last trading session at $463.03.
It’s no surprise that NEU has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
NEU has a B grade for Stability and Quality. It is ranked #4 in the same industry.
In addition to the POWR Ratings highlighted above, one can access NEU’s ratings for Value, Sentiment, Momentum, and Growth here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
PPG shares were trading at $130.82 per share on Friday morning, up $0.26 (+0.20%). Year-to-date, PPG has gained 5.48%, versus a 13.51% 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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