This year, the global chemical industry is witnessing significant growth, driven by heightened sustainability efforts and a surge in demand across diverse sectors. Additionally, innovative service models are playing a crucial role in furthering the expansion of the industry.
Therefore, investors could consider investing in the top chemical stocks, Shin-Etsu Chemical Co., Ltd. (SHECY), H.B. Fuller Company (FUL), and Covestro AG (COVTY), for profits and stability.
The global chemical industry is poised for significant growth, reaching $24.40 trillion by 2024, driven by demand and sustainability efforts, with companies focusing on cost reduction and efficiency improvements for competitiveness.
Besides, this year, the projected value added in the global chemicals market is $1.03 trillion, with an output projected at $6.99 trillion, and an estimated 229.10 thousand enterprises operating within the sector.
Increasing demand across construction, water treatment, electronics, pharmaceuticals, and food additives sectors is propelling growth in the global specialty chemicals market, especially in water treatment, automotive, electronics, and personal care products segments. The global specialty chemicals market is anticipated to witness a CAGR of 5.2% from 2024 to 2030.
In addition, the demand for chemical distribution is growing due to increased consumption across industries, with distributors linking producers to smaller clients globally, especially in emerging markets, fostering industry growth. The global chemical distribution market is anticipated to grow at a CAGR of 6.3% from 2024 to 2030.
Considering these conducive trends, let’s examine the fundamentals of three Chemicals stock picks, beginning with the third one.
Stock #3: Shin-Etsu Chemical Co., Ltd. (SHECY)
Based in Tokyo, Japan, SHECY provides a wide range of infrastructure, electronics, and functional materials, alongside processing and specialized services. Its offerings include cellulose derivatives, silicones, rare earth magnets, and compound semiconductors, serving diverse industries.
On December 5, 2023, SHECY announced that it had completed the repurchase of 1.50 million common shares within the specified period of November 16, 2023, to December 5, 2023.
SHECY’s trailing-12-month net income margin of 23.96% is 307.5% higher than the industry average of 5.88%. Its trailing-12-month cash from operations of $5.85 billion is significantly higher than the $432.26 million industry average.
In the first three quarters ended December 31, 2023, SHECY reported net sales of ¥1.82 trillion ($12.32 billion). The company's cost of sales decreased 7.1% year-over-year to ¥1.11 trillion ($7.49 billion). Its operating income and net income amounted to ¥559.53 billion ($3.78 billion) and ¥440.99 billion ($2.98 billion), respectively.
For the fiscal year ending March 31, 2024, the company expects net sales of ¥2.30 trillion ($15.54 billion). Its operating income and net income attributable to owners of parent for the same fiscal year are expected to be ¥700 billion ($4.73 billion) and ¥520 billion ($3.51 billion), respectively. In addition, it expects net income per share to be ¥257.60.
SHECY’s revenue is expected to grow 175.3% year-over-year to $16.43 billion for the fiscal year ending March 2024. Its shares have gained 34% over the past year and 33.5% over the past nine months to close the last trading session at $19.71. It gained 1.3% intraday. The stock has a 24-month beta of 0.97.
SHECY’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, equating 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.
SHECY has a B grade for Stability and Quality. Within the Chemicals industry, it is ranked #29 among 84 stocks.
To see SHECY’s additional POWR Ratings for Growth, Value, Momentum, and Sentiment, click here.
Stock #2: H.B. Fuller Company (FUL)
FUL produces adhesives, sealants, coatings, and specialty chemicals for global markets, serving diverse industries. Its offerings span hygiene, engineering, and construction applications, meeting the needs of both consumer and industrial sectors.
On January 24, 2024, FUL declared a regular quarterly cash dividend of $0.205 per share of common stock, payable on February 21, 2024. The company pays $0.82 annually, which translates to a yield of 1.08% on the prevailing price level. Its four-year average dividend yield is 1.17%.
The company has raised its dividend payouts at a CAGR of 8.1% and 12% over the past three and five years, respectively. Moreover, the company boasts a 4-year record for consecutive years of dividend growth.
FUL’s trailing-12-month levered FCF margin of 8.90% is 92.1% higher than the industry average of 4.63%. Its trailing-12-month cash per share of 3.32 is 115.2% higher than the 1.54 industry average.
During the fourth quarter, which ended December 2, 2023, FUL’s adjusted net revenue stood at $902.88 million. The company's adjusted net income attributable to FUL and EBITDA grew 29.1% and 22.4% year-over-year to $74.39 million and $172.60 million, respectively. Also, its adjusted income per common share attributable to FUL rose 26.9% from the prior-year quarter to $1.32.
Adjusted EBITDA for fiscal 2024 is expected to be in the range of $610 million to $640 million. Also, the company expects its adjusted EPS for the same fiscal year to be in the range of $4.15 to $4.45.
Street anticipates FUL’s revenue and EPS to grow 1.7% and 15.2% year-over-year to $822.84 million and $0.63, respectively, for the fiscal first quarter ending February 2024.
FUL’s shares have gained 15.1% over the past nine months and 9.9% over the past three months to close the last trading session at $76.18.
FUL’s POWR Ratings reflect its robust prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
FUL has a B grade for Growth and Stability. Within the same industry, it is ranked #25.
In addition to the POWR Ratings stated above, one can access RL’s additional Value, Momentum, Sentiment, and Quality ratings here.
Stock #1: Covestro AG (COVTY)
Based in Leverkusen, Germany, COVTY provides high-tech polymer materials and solutions globally through its Performance Materials and Solutions & Specialties segments. It caters to industries including automotive, construction, electronics, and healthcare.
On January 30, 2024, COVTY and Siemens Aktiengesellschaft (SIEGY) signed a strategic supplier agreement for the next five years, valued at a high double-digit million-euro amount, simplifying collaboration and emphasizing sustainability in the chemical industry.
COVTY’s trailing-12-month cash from operations of $1.54 billion is 256.8% higher than the industry average of $432.26 million. Its trailing-12-month cash per share of 5.89 is 282.2% higher than the 1.54 industry average.
In the third quarter, which ended September 30, 2023, COVTY generated sales and gross profit of €3.57 billion ($3.84 billion) and €557 million ($599.69 million), respectively. The company's EBITDA amounted to €277 million ($298.23 million). Moreover, its free operating cash flow grew 833.3% year-over-year to €308 million ($331.61 million).
For the fiscal year 2023, the company anticipates an EBITDA of around €1.10 billion ($1.18 billion).
Analysts expect COVTY’s revenue to grow 2.6% year-over-year to $16.04 billion for the fiscal year ending December 2024. Its EPS for the same fiscal year is expected to be $1.18.
The stock has gained 16.1% over the past nine months to close the last trading session at $25.72. The stock has a 24-month beta of 0.77.
COVTY’s optimistic fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
COVTY has a B grade for Value and Stability. Within the same industry, it is ranked #24.
Click here for COVTY’s additional Growth, Momentum, Sentiment, and Quality ratings.
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SHECY shares were trading at $19.79 per share on Thursday morning, up $0.08 (+0.41%). Year-to-date, SHECY has declined -5.31%, versus a 4.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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