Yahoo Finance 4 Top Chemical Stocks to Buy As Destocking Has Run Its Course
The chemical industry is poised to benefit from an uptick in demand in certain key markets, including consumer durables and building & construction, as the unprecedented customer inventory de-stocking that started in late 2022 and plagued the industry through the first quarter of 2024 is largely complete.
In addition to the expected demand rebound, strategic measures, including operating cost reduction and price hike actions along with declining raw material costs, bode well for the industry. Stocks like DuPont de Nemours, Inc. DD, Axalta Coating Systems Ltd. AXTA, Cabot Corporation CBT and Kronos Worldwide, Inc. KRO are good choices for investment as they are expected to benefit from the demand upturn.
The chemical space bore the brunt of the demand slowdown in certain major markets in 2023, which continued through first-quarter 2024. The downturn in the building & construction market and the de-stocking in consumer electronics played spoilsport, leading to demand destruction in these key markets. In North America, uncertainties surrounding the U.S. housing market weighed on building & construction. Notably, the housing market bore the brunt of interest rate hikes last year. The demand slowdown in industrial and consumer durables hurt the volumes of chemical companies.
Lower consumer spending due to inflationary pressures in Europe and a slow recovery in China also impacted demand. Moreover, a slower recovery in economic activities in China following the lifting of the restrictions related to the resurgence in COVID-19 infections hurt chemical demand in that country. The slowdown in Europe, resulting from the war in Ukraine and weaker consumer spending due to high levels of inflation, led to softer demand in that region. The energy and feedstock inflation resulted in reduced industrial production and consumer spending in Europe.
Nevertheless, customer inventory de-stocking has largely ended, leading to low inventory levels. This should result in an uptick in chemical demand and volumes, with a meaningful improvement expected in the second half of 2024. The de-stocking was primarily driven by high inflation and the lingering impacts of the pandemic that affected customer spending.
Demand for chemicals in the automotive market has picked up, aided by an uptick in automotive production on an improved supply of semiconductors. The resolution to the six-week United Auto Workers strike also led to a rebound in chemical demand in automotive. Moreover, chemical companies are seeing a recovery in demand across the construction and electronics markets. Demand in healthcare and packaging markets also remains steady.
Moderating raw material and energy costs driven by the easing of supply-chain disruptions is also expected to act as a tailwind. Meanwhile, industrial production is picking up pace in China on a recovery in external demand, underscoring improving conditions in the world’s second-largest economy. However, the recovery in domestic demand in China remains slow due to the protracted crisis in real estate. Easing inflation on a decline in energy prices is also likely to support demand recovery in Europe.
4 Chemical Stocks Worth a Bet
A rebound in end-market demand, moderating raw material and energy costs, and the absence of customer inventory destocking augur well for the chemical industry.
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.
DuPont: Delaware-based DuPont is benefiting from innovation-driven investment focused on several high-growth areas. It remains focused on driving growth through innovation and new product development. The acquisition of Spectrum Plastics Group has also strengthened DuPont’s position in stable and fast-growing healthcare end markets. DuPont is also benefiting from cost synergy savings and productivity improvement actions. Its planned separation into three independent, publicly traded companies is also expected to drive significant growth opportunities.
DuPont, sporting a Zacks Rank #1, has expected earnings growth of 4.3% for 2024. The Zacks Consensus Estimate for DD’s earnings for 2024 has been revised upward by 4.3% over the last 60 days. It beat the Zacks Consensus Estimate for earnings in each of the last four quarters at an average of roughly 9%.
Axalta Coating Systems: Pennsylvania-based Axalta is benefiting from the strength in refinish and light vehicle businesses, which is offsetting the weakness in industrial markets. The acquisition of CoverFlexx Group will enhance Axalta's refinish business by incorporating CoverFlexx's extensive range of automotive refinish and aftermarket coatings, including primers, basecoats, clearcoats and various detailing products. Axalta has also strategically expanded its portfolio by acquiring Andre Koch AG, a well-established Refinish distribution partner headquartered in Switzerland. Moreover, AXTA has raised its full-year 2024 earnings and free cash flow outlook based on strong first-quarter results and strategic actions to drive earnings.
Axalta, carrying a Zacks Rank #1, has expected earnings growth of 26.8% for 2024. The Zacks Consensus Estimate for AXTA’s 2024 earnings has been revised upward by 5.9% over the last 60 days.
Cabot: Massachusetts-based Cabot is seeing strong results in its Reinforcement Materials segment driven by higher volumes in Asia and Europe, pricing and mix improvements, and the strength in the replacement tire market. Demand in the Performance Chemicals unit has also improved as de-stocking has ended. CBT’s strong cash generation also facilitates a balanced capital allocation approach that emphasizes strategic investments, long-term earnings growth and shareholder returns while preserving a solid investment-grade balance sheet.
Cabot, a Zacks Rank #2 stock, has expected earnings growth of 26% for fiscal 2024. The Zacks Consensus Estimate for CBT’s earnings for fiscal 2024 has been revised upward by 3% over the last 60 days.
Kronos Worldwide: Texas-based Kronos is expected to gain from higher demand for titanium dioxide (TiO2). Stronger demand for TiO2 in primary markets of Europe and North America is likely to drive its sales volumes. KRO is also expected to benefit from easing pricing pressure. Reduced energy costs, along with cost-reduction initiatives are expected to support margins.
Kronos Worldwide, carrying a Zacks Rank #2, has expected earnings growth of 297.7% for 2024. The Zacks Consensus Estimate for KRO’s earnings for 2024 has been revised upward by 157.6% over the last 60 days.
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DuPont de Nemours, Inc. (DD) : Free Stock Analysis Report
Kronos Worldwide Inc (KRO) : Free Stock Analysis Report
Cabot Corporation (CBT) : Free Stock Analysis Report
Axalta Coating Systems Ltd. (AXTA) : Free Stock Analysis Report
