A surge in demand from key end-use sectors such as automotive, construction, agriculture, healthcare, and electronics, particularly in emerging markets, is bolstering the chemical industry. So, investors could consider investing in robust chemical stocks Brenntag SE (BNTGY), PPG Industries, Inc. (PPG), and Mitsubishi Chemical Group Corporation (MTLHY) for solid gains this year.
Post-pandemic, government policies such as the Infrastructure Investment and Jobs Act and the Creating Helpful Incentives to Produce Semiconductors and Science Act have injected significant funds and incentives into sectors crucial for the energy transition, including electric vehicles, clean energy, semiconductors, lithium-ion batteries, and solar panels.
Despite soft overall chemical demand in 2023, demand for chemicals and materials supporting the energy transition is anticipated to grow in 2024 and beyond due to the positive effects of these initiatives on the economy.
Moreover, continuous innovation and research and development efforts have led to the introduction of novel and environmentally friendly chemical products, providing chemical companies with a competitive edge. On top of it, the chemical industry is leveraging data analytics and AI to gain valuable insights from vast datasets. Also, the concept of digital twins, creating virtual replicas of physical assets and processes, is gaining traction in the chemical industry.
As a result, the global chemical market is anticipated to grow at a CAGR of 8.8% until 2032.
Furthermore, the specialty chemicals market is experiencing growth propelled by rising demand for specialty chemicals in the agrochemical sector, recycled plastics, and construction chemicals. The specialty chemicals market is estimated to grow at a CAGR of 7% until 2027.
With these favorable trends in mind, let’s delve into the fundamentals of the three Chemicals stock picks, beginning with the third choice.
Stock #3: Brenntag SE (BNTGY)
Based in Essen, Germany, BNTGY purchases and supplies various industrial and specialty chemicals and ingredients internationally. The company operates in two segments, Brenntag Essentials and Brenntag Specialties.
BNTGY’s trailing-12-month ROTA of 6.52% is 30.6% higher than the industry average of 4.99%, and its trailing-12-month levered FCF margin of 7.14% is 19.4% higher than the industry average of 5,98%.
BNTGY pays $0.44 annually as dividends, which translates to a yield of 1.65% at the current price. Its four-year average dividend yield is 2.21%. The company has raised its dividend payouts at a CAGR of 15.8% over the past three years.
BNTGY’s net sales for the fiscal third quarter that ended September 30, 2023, came in at €4.09 billion ($4.51 billion). Profit attributable to BNTGY shareholders and earnings per share came in at €176.30 million ($194.58 million) and €1.18, respectively. The company’s free cash flow increased 27% year-over-year to €441.60 million ($487.38 million).
BNTGY’s revenue is expected to rise 4.4% year-over-year to $19.48 billion in the fiscal year 2024.
The stock has gained 18.7% over the past three months to close the last trading session at $18.32.
BNTGY’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 POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade in Momentum and Stability. It is ranked #17 in the 84-stock Chemicals industry.
Click here to see the other ratings of BNTGY (Growth, Value, Sentiment, and Quality).
Stock #2: PPG Industries, Inc. (PPG)
PPG manufactures and distributes paints, coatings, and specialty materials worldwide. The company operates through Performance Coatings and Industrial Coatings segments.
PPG’s trailing-12-month gross profit of 40.30% is 41.3% higher than the industry average of 28.53%. Its trailing-12-month levered FCF margin of 7.03% is 71.1% higher than the industry average of 4.11%.
On December 12, PPG paid a regular quarterly dividend of 65 cents per share. Its annual dividend of $2.60 yields 1.74% at the current price level. Its four-year average dividend yield is 1.72%. The company has consistently raised its dividend payouts for the past 51 years.
In the fiscal third quarter that ended September 30, 2023, PPG’s net sales increased 3.9% year-over-year to $4.64 billion. The adjusted net income and adjusted earnings per share attributable to PPG grew 25.4% and 24.7% from the prior year’s quarter to $493 million and $2.07, respectively.
Analysts expect PPG’s EPS and revenue to grow 22.4% and 1.9% year-over-year to $1.49 and $4.26 billion in the fiscal fourth quarter ended December 2023. Also, the company topped the consensus EPS estimates in each of the four trailing quarters, which is notable.
Over the past year, the stock has surged 18.3% to close the last trading session at $149.55.
It’s no surprise that PPG has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Growth, Quality, and Sentiment. Within the same industry, it is ranked #9.
In addition to the POWR Ratings stated above, one can access PPG’s ratings for Momentum, Value, and Stability here.
Stock #1: Mitsubishi Chemical Group Corporation (MTLHY)
Headquartered in Tokyo, Japan, MTLHY provides performance products, chemicals, industrial materials and gases, health care products, and other products internationally. It is also involved in environmental and recycling-related activities and provides warehousing and semiconductor-related services.
MTLHY’s trailing-12-month asset turnover ratio of 0.74x is 6% higher than the industry average of 0.70x. Its trailing-12-month cash per share of $1.88 is 20.6% higher than the industry average of $1.56.
The company pays an annual dividend of $1.09 per share, translating to a dividend yield of 3.50% on the current share price. Its four-year average yield is 4.09%.
During the six months that ended September 30, 2023, MTHLY’s revenues and gross profit stood at ¥2.15 trillion ($15.24 billion) and ¥562.36 billion ($3.99 billion), respectively. Net income attributable to owners of the parent and earnings per share stood at ¥67.21 billion ($476.42 million) and ¥45.22, respectively.
As of September 30, 2023, MTLHY’s total current assets stood at ¥2.34 trillion ($16.59 billion), compared to ¥2.15 trillion ($15.24 billion) as of March 31, 2023.
Street expects MTLHY’s revenue for the fiscal year ending March 2024 to increase significantly year-over-year to $31.22 billion.
The stock has gained 5.5% over the past six months to close its last trading session at $31.04. Over the past year, it has soared 20.9%.
MTLHY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
MTLHY has a B grade for Value, Stability, and Quality. Within the same industry, it is ranked #3.
To see MTLHY’s additional Growth, Momentum, and Sentiment ratings, click here.
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PPG shares were trading at $147.39 per share on Tuesday morning, down $2.16 (-1.44%). Year-to-date, PPG has declined -1.44%, versus a -0.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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