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The chemical industry is gaining momentum after being stuck in a rut for a spell. The industry’s upturn is backed by improved macroeconomic conditions and a revival of demand across major chemical end-use markets.
The chemical industry reeled under the effects of the coronavirus pandemic during the first half of 2020. The pandemic put brakes on industrial activities globally, squeezing demand for chemicals across key end-markets. Nevertheless, an economic rebound in China, a top consumer of chemicals, and a return of economic activities across the world augur well for the industry for the remainder of 2020.
With the easing of restrictions on business activities globally, demand for chemicals has recovered of late across major end-use industries such as construction and automotive. The global economy is gradually pulling out of its coronavirus-induced slumber as businesses reopen following lockdowns and restrictions. Moreover, recent positive manufacturing data from the United States, Eurozone and China indicates that the global manufacturing recovery remains on track.
Economic activities in China are picking up speed as the country continues its recovery from the pandemic-led slowdown. Notably, the recovery in the country’s manufacturing gathered momentum in September on government stimulus to boost consumption and strong growth in new export orders driven by a rebound in overseas demand. China’s official manufacturing purchasing managers’ index (“PMI”) expanded to 51.5 in September from 51 in August, per National Bureau of Statistics. A reading above 50 indicates expansion in activity.
Moreover, the U.S. manufacturing sector kept the momentum going in September although activities rose at a slightly slower pace than that of August. According to the Institute for Supply Management (“ISM”), the U.S. Manufacturing PMI clocked 55.4% in September compared with 56% in August. The September figure indicates an expansion in the overall economy for the fifth straight month following a contraction in April.
Out of the 18 manufacturing industries, 14 reported growth in September. Among the six largest manufacturing industries, Food, Beverage & Tobacco Products remained the best-performing sector with Fabricated Metal Products and Chemical Products notching strong growth, per ISM. New orders also grew for the fourth month in a row in September.
Moreover, the U.S. automotive sector is recuperating following the virus-led slump on the back of a strong rebound in customer demand for new vehicles partly supported by low auto loan interest rates. The U.S. housing sector has also witnessed a solid recovery with new home sales hitting a 14-year high in August. The sector’s rebound has been backed by record-low mortgage rates and higher demand for new properties due to the rising trend of working from home amid the pandemic.
Meanwhile, the Eurozone manufacturing sector continued to recover in September with growth reaching the highest level in more than two years notwithstanding a resurgence in coronavirus infections and the reimposition of some restrictions. IHS Markit’s final Eurozone manufacturing PMI came in at 53.7 in September, rising from 51.7 in August. The region’s growth in September was led by an upswing in manufacturing activity in Germany.
Activities in the bloc’s manufacturing sector were fueled by faster order book growth and stronger exports, per IHS Markit. New orders rose for the third straight month in September and also grew at the sharpest pace since February 2018.
Manufacturing activity is a key indicator for chemical demand. As such, the upturn in global manufacturing bodes well for the chemical industry.
5 Chemical Growth Plays
The chemical industry is on the mend after bearing the brunt of coronavirus fallout. A rebound in China and recovering manufacturing activities around the world are expected to bring good tidings in the final quarter of 2020. As such, it would be prudent to zero in on stocks in the space that have healthy prospects.
Growth investors look for stocks with aggressive earnings or revenue growth potential, which should lead to higher stock prices. With the help of our Style Score System, we have picked five stand-out chemical stocks that have compelling prospects and might offer solid investment returns.
Our research shows that stocks with Growth Style Score of A or B when combined with Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ashland Global Holdings Inc. ASH
Kentucky-based Ashland has a Zacks Rank #1 and a Growth Score of B. The Zacks Consensus Estimate for earnings for the current fiscal year has been revised 2.5% upward over the last 60 days. The company also has an expected long-term earnings per share growth rate of 10.7%. The stock is also up around 42% over the past six months.
Koppers Holdings Inc. KOP
This Pennsylvania-based company has a Zacks Rank #2 and a Growth Score of A. It has delivered an earnings surprise of 25.1%, on average, over the trailing four quarters. The consensus estimate for current-year earnings has been revised 4.6% upward over the last 60 days. The company has also seen its shares rally 112% over the past six months.
Flexible Solutions International Inc. FSI
Canada-based Flexible Solutions has a Zacks Rank #2 and a Growth Score of A. It has expected earnings growth of 106.3% for the current year. The Zacks Consensus Estimate for the current year has been revised 32% upward over the last 60 days. The company has also delivered an earnings surprise of 35.6%, on average, over the trailing four quarters. Its shares have also shot up roughly 78% over the past six months.
Orion Engineered Carbons S.A. OEC
Texas-based Orion Engineered Carbons has a Zacks Rank #2 and a Growth Score of B. The consensus estimate for the current year has been revised 29.9% upward over the last 60 days. The company has also delivered an earnings surprise of 5.5%, on average, over the trailing four quarters. Its shares have also surged 105% over the past six months.
Brenntag AG BNTGY
The Germany-based company has a Zacks Rank #2 and a Growth Score of B. It has expected earnings growth of 2.9% for the current year. The Zacks Consensus Estimate for the current year has been revised 7.7% upward over the last 60 days. The stock is also up around 62% over the past six months.
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