4 Chemical Stocks That Have More Than Doubled in 2021
Driven by the industry's strong rebound on the back of an upswing in demand, a few chemical stocks have performed well year to date. Notable among them are OLN, ASIX,...
The chemical industry has witnessed a strong rebound in 2021 from the crisis wrought by coronavirus, courtesy of an uptick in demand across major end-use industries such as automotive, construction, healthcare and electronics. The industry bore the brunt of demand shocks for much of the first half of last year as global industrial activities were halted amid the pandemic.
However, with the reopening of the major economies around the world, demand for chemicals started to pick up from the third quarter of 2020 on a rebound in economic activities worldwide. The recovery has continued on a global upswing in manufacturing and industrial activities.
Several chemical companies have delivered handsome returns this year on the back of the positive momentum in the industry. Notable among them are Olin Corporation OLN, AdvanSix Inc. ASIX, Green Plains Inc. GPRE and Lithium Americas Corp. LAC.
The companies in the chemical place are benefiting from strong demand and higher prices. Demand for both commodity and specialty chemicals remains healthy in key end-use markets. Higher demand and prices are driving sales volumes, top lines and margins.
Chemical makers are seeing higher demand from the automotive market notwithstanding the chip shortage, which continues to affect automotive builds globally. The automotive industry has witnessed a recovery after last year’s virus-led slump on the back of strong pent-up demand. Strength is also being witnessed in residential construction globally, supported by lower interest rates and higher demand for new properties due to the rising work-from-home trend. Companies in the chemical space are also benefiting from higher demand across healthcare and packaging markets, thanks to coronavirus. These companies are seeing a recovery in demand across the aerospace and energy markets.
The upswing in manufacturing activities is also a major driving force behind the strong recovery of the U.S. chemical industry this year. Despite continued supply-chain disruptions and labor constraints, the U.S. manufacturing sector has kept the momentum going, 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 expanded in November on an uptick in new orders. The U.S. Manufacturing Purchasing Managers’ Index registered 61.1% in November, rising from 60.8% in October, reflecting expansion in the overall economy for the 18th straight month, per the Institute for Supply Management. A reading above 50 indicates expansion in activity. New orders rose for the 18th consecutive month in November, indicating higher demand for manufacturing products.
The manufacturing sector is a major driver for the chemical industry, which touches around 96% of manufactured goods. As such, the strength in the sector augurs well for the U.S. chemical industry.
The American Chemistry Council earlier this month said that it expects the U.S. chemical industry to accelerate next year on the back of strong consumer demand, aided by the resumption of manufacturing activities and restocking of inventories. The trade group envisions total domestic chemical production volumes (barring pharmaceuticals) to rise 4.3% in 2022, following a 1.4% growth this year.
However, chemical companies are grappling with raw material cost inflation as well as higher supply chain and logistics costs. Supply chain disruptions due to coronavirus and weather-related events have led to a spike in raw material costs. Supply tightness continues for a number of key raw materials.
Hurricane Ida dealt another blow to the supply chain. Force majeures and plant shutdowns associated with Ida further squeezed the supply of raw materials, including ethylene and propylene and pushed up their prices, the impacts of which had been witnessed in third-quarter 2021. The effects of supply chain and logistic bottlenecks, worsened by the unfavorable weather events globally and the resurgence of coronavirus infections, are expected to continue through the balance of 2021 and into 2022.
Nevertheless, actions to raise selling prices of chemical products to counter the cost inflation and tightness in the supply chain, productivity improvement measures and operational efficiency improvement are likely to help the chemical industry sustain margins.
4 Significant Gainers of 2021
Driven by the industry’s upward momentum, a few chemical stocks have performed well year to date. Below we discuss four such stocks, which have seen their prices pop more than 100% this year.
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Olin: Based in Missouri, Olin flaunts a Zacks Rank #1 (Strong Buy). It is benefiting from the Lake City U.S. Army ammunition contract, productivity actions and investment in the Information Technology (IT) project. Its Winchester segment is benefiting from the Lake City contract, which is driving sales in this unit. OLN also remains committed to improving its cost structure and efficiency, and also driving productivity through a number of projects. It is also expected to gain from cost and other benefits from its investment in the IT project. You can see the complete list of today’s Zacks #1 Rank stocks here.
Driven by these factors, OLN’s shares have shot up 127.3% year to date. Olin has an expected earnings growth rate of 4.2% for 2022. The Zacks Consensus Estimate for 2022 earnings has moved up 22.2% in the past 60 days.
AdvanSix: New Jersey-based AdvanSix sports a Zacks Rank #1. It is benefiting from improved end-market conditions and growth of its differentiated products. ASIX is seeing a recovery in demand across a number of markets, including automotive, building & construction, electronics and packaging. Higher demand is driving its volumes. Strong agricultural industry fundamentals also bode well. Favorable market conditions and tight industry supply support demand for nylon in North America. Strong demand for chemical intermediates is also being witnessed across several markets. Higher prices are also contributing to its top-line growth.
These factors have resulted in ASIX’s share price rally of 121.7% this year. AdvanSix has a projected earnings growth rate of 3.9% for 2022. The consensus estimate for earnings for 2022 for ASIX has moved up 10.8% in the past 60 days.
Green Plains: Nebraska-based Green Plains carries a Zacks Rank #3 (Hold). It remains focused on executing its transformation plan. The ongoing deployment of Ultra-High Protein technology is expected to boost contributions of its high-protein initiative. GPRE is also making notable progress in its key areas of growth — renewable corn oil, clean sugar technology, carbon capture and sequestration initiatives.
These factors have contributed to Green Plains’ share price appreciation of 171.4% year to date. GPRE has an expected earnings growth rate of 190.3% for 2022.
Lithium Americas: Canada-based Lithium Americas carries a Zacks Rank #3. It remains focused on advancing two significant lithium projects — Cauchari-Olaroz and Thacker Pass. Lithium Americas remains committed to advancing these projects to address the rising global demand for lithium. LAC will also benefit from its recently announced acquisition of Millennial Lithium for $400 million. The buyout reinforces the company’s growth pipeline and provides a compelling growth opportunity close to its Cauchari-Olaroz lithium brine project in Argentina along with significant synergies. The company’s recently increased strategic interest in Arena Minerals also strengthened its long-term resource development plans in Argentina.
These factors have contributed to Lithium Americas’ share price rally of 133.4% this year. LAC has an expected earnings growth rate of 92.3% for 2022.
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