Record-high inflation and supply chain bottlenecks have been limiting the growth of the basic materials industry. However, increasing infrastructure-related activities, such as repairing roads, bridges, and ports with the reopening of the economy, should drive the growth of companies in this space.
President Biden’s $1 trillion infrastructure spending bill is also expected to boost the basic materials industry’s growth. According to the U.S. Census Bureau, construction spending increased 7.9% year-over-year to $1,463.2 billion during the first 11 months of 2021.
Therefore, we think it could be wise to bet on quality basic materials stocks Westlake Chemical Corporation (WLK), Olin Corporation (OLN), The Chemours Company (CC), and Mechel PAO (MTL), which hold solid growth prospects. These stocks are currently trading at discounts to their peers.
Westlake Chemical Corporation (WLK)
Houston, Tex.-based WLK, together with its subsidiaries, manufactures and markets basic chemicals, vinyls, polymers, and building products worldwide. It operates through two segments: Vinyls and Olefins.
On Nov. 24, 2021, WLK announced that it had agreed with Hexion Inc. to acquire Hexion’s global epoxy business for approximately $1.2 billion. WLK President and CEO Albert Chao said, “We look forward to welcoming the Hexion epoxy employees to the Westlake family and realizing the tremendous opportunities to grow the combined businesses.”
WLK’s net sales were $3.06 billion for the third quarter, ended Sept.30, 2021, up 61% year-over-year. Its net income came in at $607 million, up 964.9% year-over-year. And its EPS was $4.69, up 942.2% year-over-year.
Its 1.35x forward EV/Sales is 24.8% lower than the 1.79x industry average.
Analysts expect WLK’s revenue to be $12.53 billion in fiscal 2022, representing an 11% year-over-year rise. The company’s EPS is expected to increase 31.9% per annum over the next five years. It surpassed the Street’s EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 21.9% in price to close yesterday’s trading session at $98.84. It is currently trading 9.3% below its 52-week high of $109.01, which it hit on January 18, 2022.
WLK’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #5 of 90 stocks in the A-Rated Chemicals industry. Click here to see the additional ratings for WLK (Momentum and Stability).
Olin Corporation (OLN)
OLN manufactures and distributes chemical products in the United States, Europe, and internationally. The Clayton, Miss., company operates through three segments: Chlor Alkali Products and Vinyls; Epoxy; and Winchester.
On Oct.21, 2021, Scott Sutton, Chairman, President, and CEO, said, "Solid quarterly adjusted EBITDA was achieved despite production interruptions from hurricanes, raw material cost volatility, and supply-chain disruptions. Our third quarter performance continues to demonstrate the resilience of our unique winning model that adapts in real-time to prioritize 'value first' amid a backdrop of improving structural fundamentals.”
For its fiscal 2021 third quarter, ended Sept. 30, 2021, OLN’s sales came in at $2.34 billion, up 62.8% year-over-year. While its Chlor Alkali Products and Vinyls sales were $1.06 billion, up 40.7% year-over-year, its net income came in at $390.7 million, versus a $736.8 million loss in the previous period. The company’s EPS was t $2.38, compared to a $4.67 loss per share.
Its 1.23x forward EV/Sales is 31.5% lower than the 1.79x industry average.
OLN’s revenue is expected to be $9.15 billion in its fiscal 2022, representing a 3.6% year-over-year rise. The company’s EPS is expected to increase 2.3% year-over-year to $8.84 for its fiscal year 2022. It surpassed the Street’s EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 95.4% in price to close yesterday’s trading session at $49.52. The stock is currently trading 23.5% below its 52-week high of $64.76, which it hit on November 15, 2021.
OLN has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The stock has a B grade for Growth, Value Sentiment, and Quality. Within the Chemicals industry, it is ranked #8. Click here to see the additional POWR Ratings for Momentum and Stability for OLN.
Note that OLN is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
The Chemours Company (CC)
Wilmington, Del.-based CC provides performance chemicals in North America, the Asia Pacific, Europe, the Middle East, Africa, and Latin America. It operates through four segments: Titanium Technologies, Thermal & Specialized Solutions, Advanced Performance Materials, and Chemical Solutions.
On Nov. 4, 2021, CC President and CEO Mark Newman said, "Our strong top line, bottom line and cash results in the quarter demonstrate the strength of this business and the progress we are making towards better quality of earnings and higher shareholder returns. I am confident that we have the right business strategies, an inspired group of leaders and empowered employees to consistently deliver across cycles and over time."
CC’s net sales increased 36.3% year-over-year to $1.68 billion in its fiscal third quarter, ended Sept. 30, 2021. Its net income came in at $214 million, up 181.6% year-over-year, and its EPS increased 176.1% year-over-year to $1.27.
Its 1.32x forward EV/Sales is 26.2% lower than the 1.79x industry average.
Analysts expect CC’s revenue to increase 5.3% year-over-year to $6.68 billion in its fiscal year 2022. The company’s EPS is estimated to increase 10.7% to $4.55 for its fiscal 2022. And it surpassed the EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 22.2% in price to close yesterday’s trading session at $33.02. CC is currently trading 15.1% below its 52-week high of $38.87, which it hit on June 9, 2021.
It is no surprise that CC has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Value and a B grade for Growth and Quality.
CC is ranked #13 in the Chemicals industry. Click here to see CC’s Momentum, Stability, and Sentiment grade.
Note that CC is one of the few stocks handpicked by our Chief Value Strategist, Steve Reitmeister, currently in the POWR Value portfolio. Learn more here.
Mechel PAO (MTL)
Based in Moscow, Russia, MTL, and its subsidiaries are in the mining, steel, and power businesses in Russia, Asia, Europe, the Commonwealth of Independent States, the Middle East, the United States, and internationally. Its segments are Mining, and Steel and Power.
On Nov. 18, 2021, MTL’s CEO, Oleg Korzhov, said “Our facilities receive new equipment and implement repairs and reconditioning programs. We launched a new project in our mining division, which will help us to increase our Group’s integration into iron ore with a fairly low level of capital investment.”
MTL’s revenue from contracts with customers came in at ₽287.82 billion ($3.65 billion) for the nine months ended September 30, 2021, up 46.7% year-over-year. The company’s gross profit was ₽127.43 billion ($1.62 billion), up 78.5% year-over-year. Furthermore, its profit for the period was ₽54.96 billion ($698.04 million), versus a ₽15.66 billion ($198.87 million) loss for the same period.
Its 1.06x forward EV/Sales is 40.8% lower than the 1.79x industry average.
Over the past year, the stock has gained 39.4% in price to close yesterday’s trading session at $2.63. The stock is currently trading 49.3% below its 52-week high of $5.19.
MTL has an overall A grade, which equates to Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B grade for Growth, Value, Momentum, and Sentiment. MTL is ranked #2 of 34 stocks in the A-Rated Steel industry. Click here to see additional ratings for MTL (Stability).
Note that MTL is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
WLK shares were trading at $99.76 per share on Wednesday morning, up $0.92 (+0.93%). Year-to-date, WLK has gained 2.71%, versus a -7.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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