Due to robust demand across multiple key industries, the chemical industry is on track for remarkable growth. As the industry seems to be in a bright spot, loading up on fundamentally robust chemical stocks Fuchs SE (FUPBY), Mitsubishi Chemical Group Corporation (MTLHY), and Kuraray Co., Ltd. (KURRY) with an overall rating of A (Strong Buy) in our proprietary POWR Ratings system, could be wise.
Before we delve into the fundamentals of these stocks, let's briefly discuss the factors influencing the chemical industry’s upward trajectory.
Recognized as a bedrock of American manufacturing, the chemical industry generates a vast portfolio of end-products, ranging from everyday consumer essentials to key components for manufacturing and construction operations. Consequently, its impact is significant from both micro and macroeconomic perspectives.
The U.S. chemical industry contributes over a quarter to the country's GDP, and its omnipresent influence underpins production across the entire commercial and household goods spectrum, making it indispensable for economic growth.
In response to the escalating race in global biomanufacturing, the chemical industry's prospects are shored up by initiatives from the U.S. government to fortify domestic manufacturing of products such as plastics, chemicals, foods, and fuels using biological processes.
Significant strides are also expected in leveraging advanced technologies, anticipated to redefine the industry landscape. ABI Research forecasts chemical industries to spend $4.4 billion on these technologies by 2023, which would snowball to $7.4 billion by 2031, specifically on digitalization of plant operations.
These technologies promise to inaugurate material advancements and cost-effective formulations, elevate supply chain efficiencies, and galvanize sustainability endeavors. The global chemical market is anticipated to reach $6.85 trillion by 2027, growing at a CAGR of 7.8%.
In light of these encouraging trends, let's look at the fundamentals of the three best Chemicals stocks, beginning with number 3.
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 ($9.66 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. Additionally, 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 2.99%. Its four-year average yield is 2.77%. 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 15.30%, 12.04%, and 10.85% are 80.5%, 115.1%, and 171.2% higher than the industry averages of 8.48%, 5.60%, and 4%, respectively. Its trailing-12-month asset turnover ratio of 1.42x is 96.5% higher than the industry average of 0.72x.
FUPBY’s sales revenue increased 6.5% year-over-year to €886 million ($950.86 million) in the fiscal second quarter that ended June 30, 2023. Its gross profit grew 8.8% from the prior-year quarter to €285 million ($305.86 million), while its EBIT rose 11.5% year-over-year to €97 million ($104.10 million). Also, the company’s earnings per share increased 11.4% from the year-ago value to €0.49.
The consensus revenue and EPS estimates of $3.96 billion and $0.59 for the fiscal year ending December 2023 represent 9.9% and 20.1% improvements year-over-year. The company surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.
FUPBY’s shares have gained 49.4% over the past year to close the last trading session at $9.85. Over the past three months, the stock gained 2.8%.
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 Quality. Within the 83-stock Chemicals industry, it is ranked #5.
Click here to see FUPBY’s ratings for Growth, Value, Momentum, and Sentiment.
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.
MTLHY pays an annual dividend of $1.10 per share, translating to a dividend yield of 3.23%. Its four-year average yield is 4.37%.
MTLHY’s trailing-12-month asset turnover ratio of 0.78x is 7.4% higher than the 0.72x industry average. Also, its trailing-12-month EBIT and EBITDA margins of 6.99% and 12.90% are 25.5% and 8.8% higher than its five-year average of 5.57% and 11.85%, respectively.
During the fiscal first quarter that ended June 30, 2023, MTHLY’s net sales stood at ¥1.06 trillion ($7.22 billion), while its operating income stood at ¥69.74 billion ($474.61 million), up 2.6% year-over-year. Its net income grew 4.7% year-over-year to ¥55.82 billion ($379.88 million). The company’s earnings per share stood at ¥28.61.
In addition, as of June 30, 2023, its assets stood at ¥5.99 trillion ($40.78 billion), compared to ¥5.77 trillion ($39.29 billion) as of March 31, 2023.
Analysts expect MTLHY’s revenue for the fiscal year ending March 2024 to grow significantly year-over-year to $30.34 billion. For the fiscal second quarter ending September 2023, its revenue is expected to come at $7.54 billion.
The stock has gained 39.7% over the past year to close the last trading session at $33.97. Over the past six months, it gained 21.5%.
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 also has an A grade for Value and Stability and a B for Quality. Within the same industry, it is ranked #4.
To see additional POWR Ratings for Growth, Momentum, and Sentiment for MTLHY, click here.
Stock #1: Kuraray Co., Ltd. (KURRY)
Headquartered in Tokyo, Japan, KURRY engages in the manufacture and sale of chemicals. It operates through five business segments: Vinyl Acetate segment; Isoprene segment; Functional Materials segment; Textile segment; and Trading segment.
On August 9, KURRY paid its shareholders ¥25 per share dividends. It pays an annual dividend of $1.04 per share, translating to a dividend yield of 2.93%. Its four-year average yield is 3.74%.
On the same date, the company announced its decision to boost ethylene vinyl alcohol copolymer (EVAL) production in the U.S. and Europe. A total of 5,000 tons/year will be added to the capacity of U.S. and European bases of operation in 2024, with another 5,000 tons/year to be added in 2026. The 10,000-tons/year total capacity increase would boost global production capacity from 103,000 tons/year to 113,000 tons/year.
Its trailing-12-month gross profit and EBITDA margins of 32.18% and 20.66% are 13.9% and 19.5% higher than the industry averages of 28.25% and 17.29%, respectively. Its trailing-12-month ROTC and ROTA of 5.70% and 4.13% are 1.8% and 3.3% higher than the industry averages of 5.60% and 4%, respectively.
For the fiscal second quarter of 2023, KURRY’s net sales stood at ¥381 billion ($2.60 billion), up 6.4% year-over-year. Its gross profit and operating income stood at ¥119.83 billion ($815.44 million) and ¥40.97 billion ($278.80 million), up 8.2% and 7.6% from the year-ago quarter, respectively.
Its net income stood at ¥22.04 billion ($149.99 million). For the same quarter, net cash provided by operating activities grew % year-over-year to ¥57.62 billion ($392.08 million).
KURRY’s revenue for the fiscal third quarter ending September 2023 is expected to come at $1.42 billion, up 6.4% year-over-year, whereas, for the fiscal year ending December 2023, it is expected to increase 185.2% year-over-year to $5.50 billion.
The stock gained 58.4% over the past year to close its last trading session at $35.41. Over the past three months, the stock gained 25.1%.
KURRY’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
KURRY has an A grade for Stability and a B for Growth and Value. It is ranked #3 within the Chemicals industry.
Click here for the additional POWR Ratings for KURRY (Momentum, Sentiment, and Quality).
What To Do Next?
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MTLHY shares were trading at $33.97 per share on Tuesday morning, up $1.50 (+4.62%). Year-to-date, MTLHY has gained 36.32%, versus a 16.19% 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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