The chemical industry is poised for significant expansion, propelled by robust demand across crucial sectors. As the industry seems to be in a bright spot, loading up on quality chemical stocks Fuchs SE (FUPBY), Mitsubishi Chemical Group Corporation (MTLHY), and NewMarket Corporation (NEU) could be wise.
The U.S. chemical industry, fundamental to domestic manufacturing, produces an expansive array of end-products, ranging from common consumer necessities to essential industrial manufacturing and construction elements. This makes their influence profound on micro and macroeconomic scales.
The U.S. chemical industry, contributing over a quarter to the nation's GDP, has recently exhibited robust financial performance – reaching levels not seen in more than two decades, thanks to high demand.
Additionally, fresh governmental policies and incentives encouraging investments in energy transition have fostered increased manufacturing activity reliant on chemicals and materials. It is pertinent to note that the chemical industry underpins over 75% of emission-reducing technologies.
Moreover, digital technology is transforming the strategic landscape for chemical manufacturers. Chemical producers will likely employ various digital tools to innovate materials and expedite cost-effective formulations by evaluating, optimizing, and assimilating ingredient recipes and domain knowledge.
The global chemical market is anticipated to reach $6.85 trillion by 2027, growing at a CAGR of 7.8%.
Given the industry tailwinds, it's time to examine the fundamentals of the three stocks to buy in the Chemicals industry, starting with the third in line.
Stock #3: Fuchs SE (FUPBY)
Headquartered in Mannheim, Germany, FUPBY develops, produces, and sells lubricants and related specialties in Europe, the Middle East, Africa, the Asia Pacific, and North and South America.
On September 14, FUPBY opened a new manufacturing facility in Ba Ria-Vung Tau, Vietnam. The company, which has maintained a significant presence in Vietnam since 2013, bolstered its potential in the quickly-growing region by investing approximately €9 million ($9.85 million) in the high-tech plant.
This strategic expansion is expected to empower FUPBY Vietnam to satisfy the escalating demand for lubricants in the area more effectively and to adapt swiftly to the local market requirements.
The inauguration of this high-tech factory signals FUPBY's plans to broaden and diversify its product portfolio in Vietnam, a move coherently reflecting the robust growth opportunities inherent to the country's market.
FUPBY pays an annual dividend of $0.29 per share, translating to a dividend yield of 2.75%. Its four-year average yield is 2.79%. Its dividend payments have grown at CAGRs of 3.9% and 1.7% over the past three and five years, respectively.
FUPBY’s trailing-12-month ROCE, ROTC, and ROTA are 15.22%, 12.14%, and 10.96% are 96.7%, 122.2%, and 209.7% higher than the industry averages of 7.74%, 5.47%, and 3.54%, respectively. Its trailing-12-month asset turnover ratio of 1.37x is 95.5% higher than the industry average of 0.70x.
In the fiscal third quarter that ended September 30, 2023, FUPBY’s sales revenues stood at €876 million ($958.29 million), while its gross profit increased 5.1% year-over-year to €288 million ($315.06 million).
For the same quarter, profit attributable to shareholders of FUPBY and earnings per share stood at €77 million ($84.23 million) and €0.58, up 10% and 16% from the prior-year quarter, respectively.
As of September 30, 2023, FUPBY’s current assets stood at €1.37 billion ($1.49 billion), compared to €1.32 billion ($1.44 billion) as of December 31, 2022.
Street expects FUPBY’s revenue and EPS in the fiscal year ending December 2023 to increase 6.3% and 14.6% year-over-year to $3.82 billion and $0.57, respectively. The company surpassed consensus revenue estimates in three of the trailing four quarters, which is impressive.
FUPBY’s shares have gained 22.3% over the past year to close the last trading session at $10.70. Over the past three months, the stock gained 6.5%.
FUPBY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and a B for Sentiment and Quality. Within the 83-stock Chemicals industry, it is ranked #4.
Click here to see FUPBY’s ratings for Growth, Value, and Momentum.
Stock #2: 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.
On September 1, MTLHY acquired ISCC PLUS certification, an international certification system for sustainable products that assures that recycled raw materials and biomass raw materials are properly managed in the supply chain, including product manufacturing.
The company pays an annual dividend of $1.10 per share, translating to a dividend yield of 3.40% on the current share price. Its four-year average yield is 4.12%.
MTLHY’s trailing-12-month asset turnover ratio of 0.74x is 5.9% higher than the industry average of 0.70x, while its trailing-12-month cash per share of $1.88 is 20.6% higher than the industry average of $1.56.
In the six months that ended September 30, 2023, MTHLY’s revenues and gross profit stood at ¥2.15 trillion ($14.54 billion) and ¥562.36 billion ($3.80 billion), respectively. For the same period, net income attributable to owners of the parent and earnings per share stood at ¥67.21 billion ($454.59 million) and ¥45.22, respectively.
As of September 30, 2023, MTLHY’s total current assets stood at ¥2.34 trillion ($15.83 billion), compared to ¥2.15 trillion ($14.54 billion) as of March 31, 2023.
For the fiscal third quarter ending December 2023, MTLHY’s revenue is expected to be $7.52 billion. Street expects MTLHY’s revenue for the fiscal year ending March 2024 to increase significantly year-over-year to $29.54 billion.
The stock has gained 11.5% over the past six months to close its last trading session at $32.27. Over the past year, it has gained 29.2%.
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 additional POWR Ratings for Growth, Momentum, and Sentiment for MTLHY, click here.
Stock #1: NewMarket Corporation (NEU)
NEU manufactures and sells 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 October 26, NEU’s board of directors declared a quarterly dividend of $2.25 per share on the company's common stock, payable on January 2, 2024. The company has paid dividends for 16 consecutive years, which justifies its shareholder payback abilities.
Its annualized dividend rate of $9 per share translates to a dividend yield of 1.74% on the current share price. Its four-year average yield is 2.20%. NEU’s dividend payments have grown at CAGRs of 4.6% and 4.4% over the past three and five years, respectively.
NEU’s trailing-12-month asset turnover ratio of 1.18x is 68.3% higher than the industry average of 0.70x. Its trailing-12-month net income and levered FCF margins of 14.57% and 13.90% are 144.5% and 238.5% higher than the industry averages of 5.96% and 4.11%, respectively.
In the fiscal third quarter that ended September 30, 2023, NEU’s net sales stood at $667.15 million, while gross profit increased 36% year-over-year to $201.71 million. For the same quarter, net income and earnings per share stood at $111.25 million and $11.60, up 76% and 83.5% from the prior-year quarter, respectively.
As of September 30, 2023, NEU’s total current liabilities stood at $332.20 million, compared to $423.89 million as of December 31, 2022.
The stock has gained 66% year-to-date to close its last trading session at $516.42. Over the past six months, it has gained 29.6%.
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.
NEU has a B grade for Stability, Sentiment, and Quality. It is ranked first within the same industry.
Beyond what we have highlighted above, one can see the additional ratings of NEU for Growth, Value, and Momentum here.
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MTLHY shares were unchanged in premarket trading Wednesday. Year-to-date, MTLHY has gained 29.50%, versus a 19.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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