The chemicals industry is poised to remain buoyed in the foreseeable future, thanks to its diverse applications and the ongoing adoption of advanced technologies. Moreover, an escalating shift toward sustainability and Industry 4.0 appears to boost prospects for this sector further.
Therefore, quality chemical stocks Kuraray Co., Ltd. (KURRY), LyondellBasell Industries N.V. (LYB), and Cabot Corporation (CBT), currently trading at discounted valuations, could be solid portfolio additions now.
The chemical industry displays resilience, driven by robust demand for chemicals used in different sectors for transforming raw materials into valuable products that meet society’s needs.
Contributing to over a quarter of the U.S.'s gross domestic product (GDP), the U.S. chemical industry is an indispensable factor in nearly all commercial and domestic goods manufacturing processes. The industry is responsible for converting raw materials into over 70,000 diverse products, which are distributed to around 750,000 end users nationwide.
Moreover, new governmental strategies and incentives advocating for investment in energy transition have incited an upsurge in manufacturing activities reliant on chemicals and materials. Over 75% of technologies reducing emissions are embedded in the chemical industry.
Furthermore, the shift toward digital technology is changing the strategic landscape for chemical manufacturers. The chemical industry is embracing Industry 4.0 by incorporating advanced digital technologies like blockchain, green chemistry, the Internet of Things (IoT), Artificial Intelligence (AI), and machine learning into their operational framework. This would increase efficiency, reduce costs, and allow for predictive maintenance needs.
The global chemical market is projected to reach $7.79 trillion by 2028, growing at a CAGR of 8.7%.
In light of these encouraging trends, let's look at the fundamentals of the three Chemicals stocks, starting with the third in line.
Stock #3: Kuraray Co., Ltd. (KURRY)
Headquartered in Tokyo, Japan, KURRY produces and sells resins, chemicals, fibers, activated carbon, and high-performance membranes and systems worldwide. It operates through five business segments: Vinyl Acetate segment; Isoprene segment; Functional Materials segment; Textile segment; and Trading segment.
On January 22, Kuraray Europe GmbH (KEG) (a 100% owned subsidiary of KURRY) established a new European subsidiary, Kuraray Europe Spain S.L., to reinforce KEG's networks in Europe and accelerate future market development in the Iberian Peninsula.
On January 17, KURRY acquired ISCC PLUS certification for 3-Methyl-1.5-Pentanediol (MPD) produced at the company’s Niigata Plant (Tainai City, Niigata Prefecture). ISCC PLUS ensures that certified items, such as biomass and recycled raw materials, are properly managed via the use of the mass-balance approach throughout their supply chains, including the manufacturing process.
Its annualized dividend of $1.04 per share translates to a dividend yield of 3.21% on the current share price. Its four-year average yield is 3.70%.
In terms of forward Price/Sales, KURRY is trading at 0.66x, 45.3% lower than the industry average of 1.21x. The stock’s forward EV/Sales multiple of 0.90 is 40.2% lower than the industry average of 1.51.
KURRY’s trailing-12-month CAPEX/Sales of 9.32% is 23.9% higher than the industry average of 7.52%, while its trailing-12-month cash per share of $2.26 is 47.7% higher than the industry average of $1.53.
For the fiscal third quarter that ended September 30, 2023, KURRY’s net sales increased 3.8% year-over-year to ¥574.37 billion ($3.87 billion), while gross profit stood at ¥181.69 billion ($1.22 billion).
For the same quarter, its operating income and net income attributable to owners of the parent stood at ¥61.70 billion ($415.91 million) and ¥36.49 billion ($245.94 million), respectively. As of September 30, 2023, KURRY’s total current assets stood at ¥547 billion ($3.69 billion), compared to ¥533.93 billion ($3.60 billion) as of December 31, 2022.
Street expects KURRY’s revenue for the fiscal first quarter ending March 2024 to increase marginally year-over-year to $1.37 billion.
The stock has gained 30.7% over the past year to close the last trading session at $32.25. Over the past nine months, it has gained 16.2%.
KURRY’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Stability and a B for Value. Within the Chemicals industry, it is ranked #17 out of 84 stocks.
To see additional POWR Ratings for Growth, Momentum, Sentiment, and Quality for KURRY, click here.
Stock #2: LyondellBasell Industries N.V. (LYB)
LYB is a chemical company operating in the U.S., Germany, Mexico, Italy, Poland, France, Japan, China, the Netherlands, and internationally. It operates in six segments: Olefins and Polyolefins Americas; Olefins and Polyolefins Europe, Asia, International; Intermediates and Derivatives; Advanced Polymer Solutions; Refining; and Technology.
In 2023, $1.80 billion was returned to shareholders through quarterly dividends and share repurchases. During the fourth quarter that ended December 31, 2023, LYB returned $406 million in dividends to shareholders.
Its annualized dividend of $5 per share translates to a dividend yield of 5.29% on the current share price. Its four-year average yield is 6.82%. LYB’s dividend payments have grown at CAGRs of 5.6% and 4.3% over the past three and five years, respectively.
On January 30, LYB and MSI Technology, LLC entered into an agreement for MSI Technology to serve the LyondellBasell Polybutene-1 (PB-1) resin line into consumer packaging applications for North America. MSI Technology is also the sales representative for the LYB Plexar product line.
LyondellBasell PB-1 resins are commonly used in consumer packaging applications for easy-open packaging and film modification. The expansion of the relationship is a strategic fit relative to the markets MSI Technology serves and should bode well for LYB.
In terms of forward non-GAAP P/E, LYB is trading at 10.95x, 31.7% lower than the industry average of 16.03x. The stock’s forward EV/Sales multiple of 0.98 is 35.2% lower than the industry average of 1.51.
LYB’s trailing-12-month cash from operations of $5.04 billion is significantly higher than the industry average of $432.26 million, while its trailing-12-month cash per share of $10.46 is 578.6% higher than the industry average of $1.54.
For the fiscal fourth quarter that ended December 31, 2023, LYB’s total sales and other operating revenues came at $9.93 billion, while total operating income stood at $315 million. Moreover, its EBITDA excluding identified items increased 5.2% year-over-year to $910 million.
For the same quarter, net income excluding identified items and earnings per share excluding identified items stood at $411 million and $1.26, respectively.
Street expects LYB’s revenue and EPS for the fiscal first quarter ending March 2024 to be $9.61 billion and $1.43, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 2.5% over the past three months to close the last trading session at $94.47. Over the past nine months, it has gained 2.2%.
LYB’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
LYB has a B grade for Growth, Value, Stability, and Quality. It is ranked #6 within the same industry.
Click here for the additional POWR Ratings for LYB (Momentum and Sentiment).
Stock #1: Cabot Corporation (CBT)
CBT operates as a specialty chemicals and performance materials company. The company operates through two segments: Reinforcement Materials; and Performance Chemicals.
During the first quarter that ended December 31, 2023, CBT returned cash to shareholders with $22 million of dividends and $33 million of share repurchases.
On January 12, CBT’s Board of Directors declared a quarterly dividend of $0.40 per share on all outstanding shares of the corporation’s common stock. The dividend is payable to stockholders on March 8.
Its annualized dividend of $1.60 per share translates to a dividend yield of 2.09% on the current share price. Its four-year average yield is 2.64%. CBT’s dividend payments have grown at CAGRs of 3.9% and 3.8% over the past three and five years, respectively.
In terms of forward non-GAAP P/E, CBT is trading at 10.63x, 27.5% lower than the industry average of 16.03x. The stock’s forward EV/Sales multiple of 1.35 is 10.4% lower than the industry average of 1.51.
CBT’s trailing-12-month cash per share of $4.40 is 185.5% higher than the industry average of $1.54. Its trailing-12-month net income and levered FCF margins of 11.24% and 8.04% are 91.1% and 73.6% higher than the industry averages of 5.88% and 4.63%, respectively.
For the fiscal first quarter that ended December 31, 2023, CBT’s net sales and other operating revenues stood at $958 million, while income from operations increased 29.5% year-over-year to $136 million.
For the same quarter, net income attributable to CBT stood at $50 million, while adjusted earnings per share increased 59.2% from the year-ago quarter to $1.56. As of December 31, 2023, CBT’s total current assets stood at $1.69 billion, compared to $1.63 billion as of September 30, 2023.
Street expects CBT’s revenue and EPS for the fiscal second quarter ending March 2024 to increase 3.7% and 26% year-over-year to $1.07 billion and $1.68, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 15.8% over the past three months to close the last trading session at $76.73. Over the past six months, it has gained 10.8%.
CBT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
CBT has a B grade for Growth, Value, Stability, and Quality. Within the same industry, it is ranked first.
Beyond what we’ve stated above, we have also rated the stock for Momentum and Sentiment. Get all ratings of CBT here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
LYB shares were unchanged in premarket trading Wednesday. Year-to-date, LYB has declined -0.64%, versus a 3.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
The post 3 Undervalued Chemical Stocks Set to Surge appeared first on StockNews.com