Despite macroeconomic headwinds, the chemical industry is expected to witness significant growth and expansion in the long run, driven by strong demand for chemicals from several end-use industries and the integration of innovative digital technologies to revolutionize the space.
Considering the chemical industry’s bright growth prospects, investors could add fundamentally sound chemical stocks NewMarket Corporation (NEU), ChromaDex Corporation (CDXC), and FutureFuel Corp. (FF) to their watchlist now.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the chemical industry.
The chemical industry plays a vital role in U.S. manufacturing. It supports key sectors, including automotive, agriculture, healthcare, construction, textiles and apparel, and electronics. The U.S. chemical industry is responsible for more than 25% of the total GDP, supporting the production of almost all commercial and household goods and making it essential for economic growth.
Several macroeconomic headwinds, including higher costs, rising interest rates, volatile energy prices, and the fracturing of trading patterns indicating economic uncertainty, took a toll on the chemical industry in 2022. Last year’s disruption helped the industry to position itself to lead the coming materials’ transformation.
Global chemical producers increasingly use digital technologies like artificial intelligence (AI) and machine learning (ML) to empower materials innovation, expedite low-cost formulations, improve supply chains, and promote sustainability. For instance, ML in chemical manufacturing mainly powers predictive analytics, automated processes, robotics, and predictive maintenance.
In addition, AI could facilitate the chemical industry by adapting the production process. AI forecasting allows for changes at every stage of the production of a molecule. Also, it can predict future material costs.
Furthermore, the Inflation Reduction Act (IRA), signed into law by President Joe Biden in August last year, would offer numerous opportunities for the chemical industry in the U.S. By 2030, it is estimated that the IRA would drive the installation of 950 million solar panels, 120,000 wind turbines, and 2,300 grid-scale battery plants.
Moreover, chemical companies could promote their products as a solution to the IRA’s aims to reduce emissions.
According to a report by The Business Research Company, the global chemicals market is expected to reach $6.85 trillion in 2027, growing at a 7.8% CAGR.
Amid this backdrop, adding robust chemical stocks NEU, CDXC, and FF to your watchlist could be wise.
Let’s take a closer look at the fundamentals of these stocks.
NewMarket Corporation (NEU)
NEU engages in the manufacture and sale of petroleum additives. The company provides lubricant additives for use in various vehicle and industrial applications, engine oil additives, and industrial additives designed for products for industrial applications and industrial specialty applications. It operates in North America, Latin America, the Asia Pacific, Europe, Africa, and India.
On April 27, NEU’s Board of Directors declared a quarterly dividend of $2.25 per share on the common stock of the Corporation, an increase of $0.15 from the last quarterly dividend of $2.10 per share. The dividend is payable on July 3, 2023, to NEU shareholders of record at the close of business on June 15, 2023.
NEU pays a $9 per share dividend annually, translating to a 2.26% yield on the current price level. The company’s dividend payments have grown at a CAGR of 4.1% over the past five years, and its four-year average dividend yield is 2.16%.
NEU’s trailing-12-month EBIT margin of 15.43% is 34% higher than the 11.51% industry average. Likewise, its 11.33% trailing-12-month net income margin is 59.1% higher than the industry average of 7.12%. Also, the stock’s trailing-12-month levered FCF margin of 6.85% is 92.8% higher than the industry average of 3.55%.
For the first quarter that ended March 31, 2023, NEU’s total revenue increased 6.1% year-over-year to $702.79 million, while its gross profit grew 27.6% from the year-ago value to $198.04 million. In addition, the company’s EBITDA came in at $155.89 million, up 40.6% year-over-year.
Furthermore, the company’s net income rose 64.5% year-over-year to $97.58 million, and its EPS was $10.09, an increase of 75.5% from the prior-year quarter.
Shares of NEU have gained 28% over the past six months and 33.3% over the past year to close the last trading session at $399.20.
NEU’s strong outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NEU has a B grade for Growth, Value, Stability, and Quality. It is ranked #3 out of 84 stocks in the Chemicals industry.
Click here to see the additional ratings of NEU for Momentum and Sentiment.
ChromaDex Corporation (CDXC)
CDXC operates as a bioscience company focusing on developing healthy aging products. The company operates through three segments: Consumer Products; Ingredients; and Analytical Reference Standards and Services.
In terms of the trailing-12-month gross profit margin, CDXC’s 59.19% is 6% higher than the 55.84% industry average. Likewise, the stock’s trailing-12-month asset turnover ratio of 1.45x is 314.9% higher than the industry average of 0.35x.
For the first quarter that ended March 31, 2023, CDXC’s total net sales increased 30.7% year-over-year to $22.56 million. The increase in net sales was primarily driven by growth in sales of Tru Niagen® and growth in Niagen® ingredient sales. The company’s gross profit grew 28.4% year-over-year to $13.52 million.
In addition, the company’s cash inflow from operating activities was $2.79 million, compared to a cash outflow of $7.20 million in the previous year’s quarter. Also, as of March 31, 2023, its cash and cash equivalents stood at $23.14 million, compared to $20.44 million as of December 31, 2022.
Analysts expect CDXC’s revenue for the fiscal year (ending December 2023) to increase 16.8% year-over-year to $84.13 million. Also, the company’s revenue for the fiscal year 2024 is expected to grow 16.3% year-over-year to $97.87 million. Moreover, it topped the consensus EPS estimates in three of the trailing four quarters, which is impressive.
Over the past three years, CDXC’s revenue increased at a 15.2% CAGR. Also, the company’s total assets grew at a 14.7% CAGR over the same time frame.
The stock has gained 11.1% over the past month and 8.8% over the past six months to close the last trading session at $1.60.
CDXC’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
CDXC has an A grade for Growth and a B for Value and Quality. The stock is ranked #4 of 84 stocks in the Chemicals industry.
Beyond what we stated above, we also have CDXC’s ratings for Stability, Sentiment, and Momentum. Get all CDXC ratings here.
FutureFuel Corp. (FF)
FF manufactures and sells diversified chemical, bio-based fuel, and bio-based specialty chemical products in the United States. The company operates in two segments: Chemicals; and Biofuels. The Chemicals segment offers various custom chemicals and performance chemicals. The Biofuels segment is involved in the production and sale of biodiesel and petrodiesel blends.
FF’s trailing-12-month net income margin of 11.38% is 59.8% higher than the industry average of 7.12%. Likewise, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 17.08%, 9.94%, and 13.04% compare to the industry averages of 10.68%, 6.12%, and 4.68%, respectively.
FF’s revenue increased 75.5% year-over-year to $74.18 million in the first quarter that ended March 31, 2023. The company’s income from operations and net income were $18.25 million and $21.08 million, compared to an operating loss and net loss of $9.61 million and $12.39 million in the same period in 2022. Its EPS was $0.48, compared to a loss per share of $0.28 in the prior-year quarter.
Analysts expect FF’s EPS to increase by 10% per annum over the next five years. The company’s revenue grew at CAGRs of 26.8% over the past three years.
Shares of FF have gained 14% over the past year to close the last trading session at $8.33.
FF’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system.
FF has a B grade for Growth, Value, and Quality. The stock is ranked #6 in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see FF’s ratings for Momentum, Stability, and Sentiment here.
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NEU shares were unchanged in premarket trading Wednesday. Year-to-date, NEU has gained 29.84%, versus a 14.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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