4 Top Specialty Chemical Stocks to Buy on Demand Strength
An upswing in demand across key end-markets such as construction and automotive instills optimism in the specialty chemical space. ASIX, HWKN, ICL and...
The specialty chemical industry has rebounded from the crisis wrought by coronavirus, taking succour from an uptick in demand in key markets including automotive and construction. The upturn in global industrial and manufacturing activities bodes well for the industry.
With the reopening of the major economies around the world, demand for specialty chemicals has started to pick up on a rebound in global economic activities. Business 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 and the spread of the highly contagious Delta variant, the U.S. manufacturing sector remains in the expansion territory, aided by strong demand for goods and an upturn in the overall economy. The sector has staged a strong rebound from the coronavirus blues with activities showing a V-shaped recovery.
U.S. manufacturing activities picked up in August on a surge in demand notwithstanding continued supply-chain disruptions and labor shortages. The U.S. Manufacturing Purchasing Managers’ Index clocked 59.9% in August, rising from 59.5% in July on a surge in new orders, per the Institute for Supply Management. A reading above 50 indicates expansion in activity. New orders rose for the 15th straight month in August indicating solid demand for manufacturing products.
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 demand amid labor and raw material shortages.
Three-quarters of U.S. adults have already received at least one vaccine shot. 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 bode well for the specialty chemical industry. Automotive, construction, textile, food & beverages, electronics, energy and agriculture are among the top markets for specialty chemicals.
The automotive sector has made a speedy recovery after hitting a major speed bump due to the pandemic in 2020, courtesy of a strong rebound in customer demand for new vehicles, low auto loan interest rates and rising preference for private transportation in the wake of the pandemic. Specialty chemicals makers saw strong demand in automotive in the second quarter of 2021 despite the negative impact on the global auto production due to continued microchip shortage.
A resilient construction sector is also driving demand for specialty chemicals such as paints and coatings. 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.
Although the specialty chemical industry is exposed to headwind from a spike in raw material and logistics costs due to coronavirus and weather-related events, higher demand across these key markets is expected to help the industry to continue the momentum through the back half of 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. 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%.
ICL Group Ltd ICL: The Israel-based company carries a Zacks Rank #2. It is benefiting from the strength in its specialties businesses and an upside in commodity prices. The company is seeing higher demand across consumer electronics, textiles, automotive and construction markets. Higher end-market demand and prices are expected to drive its performance. A recovery in end markets is likely to drive sales of its bromine compounds and phosphorous and magnesia-based products. Solid demand for electric vehicles and energy storage is also expected to drive demand for its phosphate and bromine-based specialty products.
The company has expected earnings growth of 135% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 11.9% upward over the last 60 days. The company beat the Zacks Consensus Estimate in each of the trailing four quarters at an average of 93.5%.
Sensient Technologies Corporation SXT: The Wisconsin-based company has a Zacks Rank #2. It is benefiting from strong growth in its food colors and flavor product lines and its ongoing transition to more value-added solutions. It is seeing a strong rebound in the personal care business on the back of a resumption in travel and social activities. The recent acquisition of Flavor Solutions is also in sync with its goal to expand its value-added flavor technologies. The buyout expands the company’s flavor portfolio.
The company has expected earnings growth of 12.5% for the current year. The consensus estimate for current-year earnings has been revised 0.6% upward over the last 60 days.
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