US Specialty Chemical Volume Growth Speeds Up in July: 4 Picks
U.S. specialty chemical volumes went up 1.1% in July as the industry continues its recovery. ASIX, HWKN, MTX and AGFS are worth betting on right now.
The U.S. specialty chemical industry started the third quarter on a positive note with volumes expanding at a faster pace in July as recovery continues on the heels of an economic rebound, according to the latest report from the American Chemistry Council (“ACC”).
Pace of Growth Accelerates in July
The Washington, DC-based chemical industry trade group said that U.S. specialty chemicals market volumes rose 1.1% in July on a monthly comparison basis. This follows a 0.3% increase a month ago. Volumes are now off 2.4% from the pre-pandemic levels, the ACC noted.
Of the 28 specialty chemical segments monitored by the ACC, 23 saw growth in July, an improvement from the expansion of 13 witnessed in June. Activities declined in four segments while remaining flat in one.
Per the ACC, the overall specialty chemicals volumes went up 10.1% on a year-over-year basis in July. Volumes stood at 103.7% of their average 2017 levels in July, which is equivalent to 3.45 million metric tons. Growth was witnessed in all 28 segments on a year-over-year basis in July.
The recovery in volumes has been V-shaped since last year. Volumes were up 3.9% year-to-date entering the third quarter, the trade group noted.
After a solid start to 2021, the winter storm hurt U.S. specialty chemicals volumes in February. The storm in the U.S. Gulf Coast curbed chemical production in that region and other parts of the country due to raw material and supply chain disruptions as well as power outages. However, activities started to recover from March.
Demand Upswing, Manufacturing Strength Bode Well
The U.S. specialty chemical industry reeled under the effects of the virus crisis for much of the first half of 2020. Shutdowns and travel restrictions to blunt the spread of infection paralyzed industrial and economic activities, leading to a slump in demand for specialty chemicals across major end-use markets.
However, economic activities have picked up pace in the United States with the gradual reopening of the economy as the vaccination drive is in full swing. Despite the ongoing supply-chain problems, the U.S. manufacturing sector remains in the expansion territory, aided by strong demand for goods and an upturn in the overall economy.
The accelerated deployment of vaccines coupled with the sizable coronavirus stimulus have led to a surge in consumer spending. Businesses are struggling to keep up with strong pent-up demand amid labor and raw material shortages.
Inoculation of a sufficient number of people will allow the U.S. economy to fully open up, which would provide further boost for the manufacturing sector. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods.
An upswing in demand in key end-use markets also augur well for the industry. The automotive sector has gotten back into the groove after the virus-led slump last year, helped by strong demand, low auto loan interest rates and rising preference for private transportation in the wake of the pandemic. Specialty chemicals makers witnessed strong demand in automotive in the second quarter of 2021 despite the negative impact on the global auto production due to continued semiconductor supply shortages.
The resumption of several projects that were stalled earlier due to pandemic-induced disruptions has also supported the revival in the construction sector. Residential construction is picking up, supported by lower interest rates and higher demand for new properties due to the rising trend of work from home amid the pandemic.
The ACC expects U.S. chemical volumes to rise this year on a recovery in end-use markets and export customers from the pandemic-led slowdown. The trade group expects specialty chemicals volumes to expand 3.8% in 2021.
4 Stocks to Snap Up
The specialty chemical industry is riding on a rebound in industrial and manufacturing activities. An upturn in demand across major end-markets represents a tailwind for the industry. As such, it would be prudent to zero in on stocks in the space that have compelling prospects.
We highlight the following four stocks with a solid Zacks Rank that are good options for investment right now. Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities.
You can see the complete list of today’s Zacks #1 Rank stocks here.
AdvanSix Inc. ASIX: New Jersey-based AdvanSix sports a Zacks Rank #1. The company is expected to benefit from improved end-market conditions and growth of its differentiated products. It is seeing a recovery in demand across a number of markets including automotive, building & construction, electronics and packaging. Higher demand is expected to drive its volumes. Strong agricultural industry fundamentals also bode well.
The company has expected earnings growth of 160.4% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 34.7% upward over the last 60 days. The company beat the Zacks Consensus Estimate in each of the trailing four quarters at an average of 50.7%.
Hawkins, Inc. HWKN: The Minnesota-based company has a Zacks Rank #2. It is seeing strong growth in its Water Treatment unit riding on strength across pools, resort and fitness center end markets. Acquisitions of ADC and C&L Aqua are also contributing to its performance. Higher demand for health and immunity products is driving its Health and Nutrition segment. The company’s Industrial segment is also benefiting from higher sales of agricultural, pharmaceutical and food ingredient products.
Hawkins has expected earnings growth of 24.9% for the current fiscal year. Moreover, the consensus estimate for earnings for the current fiscal has been revised 19.9% upward over the last 60 days. The company also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 25.7%.
Minerals Technologies Inc. MTX: The New York-based company carries a Zacks Rank #2. It should gain from its global growth initiatives and efforts to improve its balance sheet. The recent buyout of Normerica also bolsters its position in the North America cat litter market. Strong end-market demand along with new product development, cost control, productivity improvements and pricing initiatives will also support its performance.
The company has expected earnings growth of 25.3% for the current year. Moreover, the Zacks Consensus Estimate for current-year earnings has been revised 0.6% upward over the last 60 days. The company beat the Zacks Consensus Estimate in each of the trailing four quarters at an average of 7.7%.
AgroFresh Solutions, Inc. AGFS: The Pennsylvania-based company carries a Zacks Rank #2. The company should benefit from its focus on growth through diversification and progress in cost optimization initiatives. It is also seeing strong growth in fungicides & disinfectants and coatings businesses. Actions to improve product mix and operations are also likely to support its performance.
The company has expected earnings growth of 62.7% for the current year. The consensus estimate for the current year has been revised 9.6% upward over the last 60 days.
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