The chemical business is growing due to the rising demand for chemicals used in consumer goods, infrastructure development, and industrial activities. Thus, I think it would be wise to buy chemical stocks, H.B. Fuller Company (FUL), Cabot Corporation (CBT), and NewMarket Corporation (NEU), which have strong growth prospects.
The chemicals market is expected to see strong growth in the next few years. It will grow to $7.79 trillion in 2028 at a CAGR of 8.7%. The anticipated growth in the chemicals market is expected to be propelled by the increasing demand for inorganic chemicals in the fertilizer industry. Also, this sector is integral to various industries, such as manufacturing, construction, agriculture, healthcare, and consumer goods.
Moreover, the chemical industry is broadly adopting AI to enhance processes and discoveries. AI aids chemists from research to production, using techniques like machine learning and deep learning to speed up drug discovery and materials development. Hence, AI in the chemical market is expected to reach $20.55 billion by 2033, growing at a CAGR of 31%.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Chemicals industry stocks, beginning with the third choice.
Stock #3: H.B. Fuller Company (FUL)
FUL formulates, manufactures, and markets adhesives, sealants, coatings, polymers, tapes, encapsulants, additives, and other specialty chemical products. It operates through three segments: Hygiene, Health and Consumable Adhesives; Engineering Adhesives; and Construction Adhesives.
In terms of the trailing-12-month gross profit margin, FUL’s 29.87% is 5.1% higher than the 28.41% industry average. Its 11.64% trailing-12-month EBIT margin is 12.2% higher than the 10.38% industry average. Likewise, the stock’s 3.29% trailing-12-month ROTA is 21.4% higher than the 2.71% industry average.
During the first quarter, which ended March 2, 2024, FUL’s net revenue increased marginally year-over-year to $810.42 million. The company’s gross profit and net income grew 11.4% and 41.6% year-over-year to $239.24 million and $30.99 million, respectively. Also, its income per common share attributable to FUL rose 41% from the prior-year quarter to $0.55.
Analysts expect FUL’s revenue for the second quarter (ending May 2024) to increase 1.7% year-over-year to $913.32 million. Its EPS is expected to increase 10.5% year-over-year to $1.03.
FUL’s revenue grew at a CAGR of 7% over the past three years. In addition, its total assets grew at a CAGR of 4.4% over the same time frame.
Over the past nine months, FUL’s stock has gained 18.1% to close the last trading session at $78.67.
FUL’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Stability, Growth, and Sentiment. FUL is ranked #15 among 81 stocks in the B-rated Chemicals industry.
Click here to access additional FUL ratings (Value, Momentum, and Quality).
Stock #2: Cabot Corporation (CBT)
CBT is a specialty chemicals and performance materials company with two segments: Reinforcement Materials and Performance Chemicals.
On May 13, 2024, CBT launched new REPLASBLAK universal circular black masterbatches with certified sustainable material. The new REPLASBLAK universal circular black masterbatches, developed with EVOLVE® Sustainable Solutions, should allow Cabot to consistently provide the high-performance, quality, and reliability demanded by the plastics industry for certified circular solutions on a large scale.
In terms of the trailing-12-month EBIT margin, CBT’s 15.24% is 46.9% higher than the 10.38% industry average. Its 19.10% trailing-12-month EBITDA margin is 16.2% higher than the 16.44% industry average. Likewise, the stock’s 12.51% trailing-12-month ROTA is 361.9% higher than the 2.71% industry average.
CBT’s net sales and other operating revenues for the second quarter ended March 31, 2024, were $1.02 billion. The company’s net income grew 18.3% year-over-year to $97 million. Its adjusted earnings per share increased 33.8% year-over-year to $1.78.
Analysts expect CBT’s revenue for the third quarter ending June 30, 2024, to increase 3.7% year-over-year to $1 billion. Its EPS for the same quarter is expected to grow 20.2% year-over-year to $1.71. Moreover, the company has surpassed EPS estimates in three of the trailing four quarters.
CBT’s revenue grew at a CAGR of 12.2% over the past three years. In addition, its total assets grew at a CAGR of 5.7% over the same time frame.
Shares of CBT have surged 43.5% over the past nine months to close the last trading session at $96.16.
CBT’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
CBT has a B grade for Growth, Quality, and Stability. It is ranked #9 in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have CBT ratings for Momentum, Sentiment, and Value. Get all CBT ratings here.
Stock #1: NewMarket Corporation (NEU)
NEU primarily engages in the manufacture and sale of petroleum additives. The company offers lubricant additives for use in various vehicle and industrial applications, including engine oils, transmission fluids, off-road powertrains, and hydraulic systems.
On April 25, 2924, NEU declared a quarterly dividend of $2.50 per share on the common stock of the Corporation, payable July 1, 2024.
The company pays $10 annually, which translates to a yield of 1.91% on the prevailing price level. Its four-year average dividend yield is 2.18%. Over the past three and five years, the company has raised its dividend payouts at a CAGR of 7.7% and 6.3%, respectively.
In terms of the trailing-12-month EBIT margin, NEU’s 19.95% is 92.2% higher than the 10.38% industry average. Its 23.05% trailing-12-month EBITDA margin is 40.3% higher than the 16.44% industry average. Likewise, the stock’s 12.64% trailing-12-month ROTA is 366.5% higher than the 2.71% industry average.
During the first quarter, which ended March 31, 2024, NEU reported net sales of $696.74 million. Its gross profit increased 9.3% from the previous-year quarter to $216.37 million. The company’s net income and EPS were $107.73 million and $11.23, up 10.4% and 11.3% year-over-year, respectively.
NEU’s revenue grew at a CAGR of 10.1% over the past three years. In addition, its total assets grew at a CAGR of 9.6% over the same time frame.
NEU’s stock has gained 30.7% over the past year to close the last trading session at $522.82.
NEU’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Growth, Stability, and Quality. Within the same industry, NEU is ranked #8.
Click here to access additional ratings of NEU for Value, Momentum, and Sentiment.
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CBT shares were trading at $94.46 per share on Tuesday afternoon, down $1.70 (-1.77%). Year-to-date, CBT has gained 14.16%, versus a 14.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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