The chemical industry's high importance in global manufacturing makes it a lucrative investment destination. Sectors such as automotive, construction, electronics, healthcare, and agriculture depend on chemicals differently.
The chemical industry is poised to grow due to the rising industrial activities worldwide. Therefore, it could be wise to invest in fundamentally strong and stable chemical stocks Linde plc (LIN), Fuchs SE (FUPBY), and Innospec Inc. (IOSP).
The U.S. government's initiative to enhance domestic biomanufacturing of plastics, chemicals, foods, fuels, and other products aims to strengthen the chemical industry and its position in the global biomanufacturing race.
Rising per capita disposable income and evolving consumer preferences have also boosted demand for end-user industries like pharmaceuticals, agrochemicals, and home/personal care products. As a result, the need for specialty chemicals has increased.
The global specialty chemicals market is expected to reach $882.60 billion by 2028, exhibiting a CAGR of 4.7%. Also, the global chemicals market is expected to grow at a CAGR of 8.4% to $6.37 trillion in 2026.
Furthermore, chemical companies are transforming to mitigate the environmental impact of chemical manufacturing by embracing sustainable and eco-friendly practices. This shift has given rise to green chemicals, witnessing a more than 5% surge in end-user demand.
The global market for green chemicals is expected to reach $3.3 billion by 2030, growing at a CAGR of 8%-10%.
Let’s take a closer look at the fundamentals of the featured stocks.
Linde plc (LIN)
Based in Woking, the United Kingdom, LIN operates as an industrial gas company worldwide. It offers atmospheric gases and processed gases. It serves a range of industries, including healthcare, chemicals and energy, manufacturing, metals and mining, food and beverage, and electronics.
On July 17, 2023, LIN announced that it had signed two major agreements in Brazil to secure more than two million megawatt hours per year of renewable energy. The supply has already begun from the Futura I Solar Complex and the Chuí Wind Farm, replacing nearly half of its existing power usage in Brazil.
These agreements will increase LIN's global active renewable energy by over 60%, and the company is on track to double its purchase of low-carbon energy by 2028.
On June 27, LIN announced that it had signed a series of contracts with Wanhua Chemical Group, expanding the companies' cooperation across multiple key sites in China.
In Fujian province, LIN will acquire three air separation units (ASUs) from Wanhua, including two ASUs that are currently under construction and expected to start up in 2024 and 2025, respectively. These plants will further enhance LIN's network density in Fujian province and foster future growth.
LIN’s trailing-12-month levered FCF margin of 14.41% is 305.4% higher than the 3.55% industry average. Its 13.46% trailing-12-month net income margin is 87.6% higher than the industry average of 7.18%.
In the fiscal first quarter ended March 31, 2023, LIN’s adjusted operating profit increased 15.8% year-over-year to $2.21 billion. The company’s adjusted net income increased 12.9% year-over-year to $1.69 billion. Its adjusted EBITDA increased 11.3% year-over-year to $2.96 billion.
In addition, its adjusted EPS came in at $3.42, representing an increase of 16.7% from the year-ago quarter.
LIN’s EPS and revenue for the second quarter that ended June 30, 2023, are expected to increase 12.4% and 2.9% year-over-year to $3.48 and $8.70 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 32% to close the last trading session at $381.60. Its 24-month beta is 0.81.
LIN’s promising prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to 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 a B grade for Stability, Growth, Sentiment, and Quality. It is ranked #9 in the 84-stock Chemicals industry.
To see LIN’s additional ratings of LIN for Value and Momentum, click here.
Fuchs SE (FUPBY)
FUPBY is a Germany-based company specializing in developing, producing, and distributing lubricants and related specialties for industry, automotive, and other sectors. Its portfolio of products includes engine oils, transmission fluids, hydraulic oils, metalworking fluids, greases, and many other lubricants.
FUPBY’s trailing-12-month asset turnover ratio of 1.41x is 89.7% higher than the industry average of 0.74x. Its trailing-12-month ROTA of 10.27% is 119.3% higher than the industry average of 4.68%.
FUPBY’s sales revenue increased 15.8% year-over-year to €936 million ($1.04 billion) in the fiscal first quarter that ended March 31, 2023. Its gross profit grew 10.3% from the prior-year quarter to €289 million ($321.83 million), and its EBIT rose 10.7% year-over-year to €103 million ($114.70 million). Also, the company’s EPS increased 12.5% from the year-ago value to €0.54.
The consensus EPS estimate of $0.60 for the fiscal year 2023 represents a 21.9% improvement year-over-year. The consensus revenue estimate of $4.03 billion for the current year represents a 12% increase from the previous year. The company has surpassed the consensus revenue estimates in three of the trailing four quarters, which is remarkable.
Over the past year, the stock has gained 46.1% to close the last trading session at $10.56. Its 24-month beta is 0.93.
FUPBY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Stability and a B for Growth and Quality. Within the Chemicals industry, it is ranked #7.
Click here to see FUPBY’s ratings for Value, Momentum, and Sentiment.
Innospec Inc. (IOSP)
IOSP is an international specialty chemicals company that develops, manufactures, blends, markets, and supplies specialty chemicals and products that are used as additives in various fuels. The company operates through three segments: Performance Chemicals; Fuel Specialties; and Oilfield Services.
IOSP’s trailing-12-month asset turnover ratio of 1.23x is 65.4% higher than the 0.74x industry average. Its trailing-12-month levered FCF margin of 5.08% is 43.1% higher than the 3.55% industry average.
IOSP pays an annual dividend of $1.38, which translates to a yield of 1.33% in the prevailing market price. Its dividend payment has grown at a CAGR of 10.1% over the past five years.
IOSP’s net sales increased 7.9% year-over-year to $509.60 million in the first quarter (ended March 31, 2023), while its gross profit rose 6.1% from the year-ago quarter to $147.80 million. The company’s net income and EPS amounted to $33.20 million and $1.33, respectively, in the same quarter.
Street expects IOSP’s revenue for the second quarter (ended June 30, 2023) to increase 6.1% year-over-year to $495.97 million. Moreover, the company has surpassed revenue estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 15.6% to close the last trading session at $105.50. It has a 24-month beta of 0.72.
Unsurprisingly, IOSP has an overall rating of B, equating to Buy in our proprietary POWR Ratings system.
The stock also has a B grade for Stability. It is ranked #16 in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have IOSP’s ratings for Growth, Value, Momentum, Sentiment, and Quality. Get all IOSP ratings here.
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LIN shares were trading at $380.94 per share on Friday morning, down $0.66 (-0.17%). Year-to-date, LIN has gained 17.65%, versus a 19.40% 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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