Despite the hurdles of the past year, the chemical industry is poised for a resurgence in 2024. Increasing demand, favorable regulations, and a concerted industry push toward sustainability, decarbonization, digitalization, and innovation are paving the way for robust growth and prosperity in the foreseeable future.
Given this context, fundamentally sound chemical stocks Brenntag SE (BNTGY), PPG Industries, Inc. (PPG), and Asahi Kasei Corporation (AHKSY) could be ideal additions to your portfolio. Before delving into these stocks, let's analyze the dynamics of the chemical industry.
While overall chemical demand remained subdued in 2023, the necessity for chemicals and materials pivotal in driving the energy transition is forecasted to surge in 2024 and beyond. The upswing is being propelled by the enduring impact of relevant policies on the economy, fostering a surge in manufacturing reliant on these substances, buoyed by recent government policies and incentives.
Furthermore, the industry supports over 75% of emissions reduction technologies crucial for reaching net-zero goals by 2050. Notably, it manufactures materials for EV batteries, heat pump refrigerants, and components for wind turbines and semiconductors. These demand drivers are set to boost chemical production in 2024, with over 100 projects scheduled to begin operations.
Moreover, companies within the sector are transitioning from addressing isolated use cases to embracing a comprehensive approach to digitalization, integrating systems across operations and businesses. The shift is enabling enhanced productivity, expedited innovation, better decision-making, and fortified customer relationships.
The sector is also experiencing a notable uptick in AI adoption. Companies are harnessing Industry 4.0 tools such as IoT, digital twins, and robotics for data collection and process automation. Additionally, AI and machine learning are being employed to develop predictive models, optimize operations, and anticipate maintenance needs proactively.
As per a MarketsandMarkets report, the leading seven chemical sub-industries are set to increase from $2.27 trillion in 2023 to $2.41 trillion by 2024, marking an 8% yearly growth. These sectors will present $165 billion in fresh opportunities in 2024, spanning new technologies, sustainable solutions, materials, and energy transition.
In light of these encouraging trends, let’s look at the fundamentals of the three best Chemicals stocks, beginning with number 3.
Stock #3: Brenntag SE (BNTGY)
Headquartered in Essen, Germany, BNTGY procures and supplies industrial and specialty chemicals via Brenntag Essentials and Brenntag Specialties segments. It offers just-in-time delivery, blending, repackaging, inventory management, and drum return handling services.
On February 6, 2024, BNTGY unveiled its acquisition agreement for Chimica D’Agostino's chemical logistics site in Italy's industrial hub of Bari. Situated in Puglia, with convenient access to the Adriatic highway and nearby harbors, the acquisition would enhance BNTGY's market presence in Southern Italy and streamline its regional site network.
On December 21, 2023, BNTGY announced its acquisition deal with Solventis Group, specializing in glycols and solvents distribution. This aligns seamlessly with BNTGY's strategy, bolstering tollgate capabilities and volume flexibility through their Antwerp site. The acquisition would enhance BNTGY's global integration and regional market strength, improving customer access and market positioning.
For the fiscal 2023 third quarter that ended September 30, 2023, BNTGY’s cash inflow from operating activities increased 3.4% year-over-year to €435 million ($468.64 million). Its free cash flow rose 27% from the prior year’s period to €441.60 million ($475.75 million).
Additionally, as of September 30, 2023, the company’s non-current assets amounted to €5.60 billion ($6.03 billion), compared to €5.45 billion ($5.87 billion) as of December 31, 2022.
Analysts expect BNTGY’s revenue to increase 4.2% year-over-year to $19.35 billion for the fiscal year ending December 2024. Shares of BNTGY have gained 16.1% over the past six months to close the last trading session at $17.36.
BNTGY’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
BNTGY has an A grade for Stability and a B for Value and Momentum. It is ranked #17 out of 84 stocks within the Chemicals industry.
In addition to the POWR Ratings I’ve highlighted, you can see BNTGY’s Growth, Sentiment and Quality ratings here.
Stock #2: PPG Industries, Inc. (PPG)
PPG produces paints, coatings, and specialty materials. Its Performance Coatings segment offers protective and decorative coatings, sealants, finishes, and related chemicals. The Industrial Coatings segment provides coatings, adhesives, sealants, metal pretreatment products, optical monomers, and specialty materials.
On February 8, 2024, PPG unveiled the PPG ADJUSTRITE® Repair Management tool, augmenting productivity in commercial vehicle repairs within the PPG AdjustRite system. The innovation addresses industry challenges, such as labor shortages and time constraints. This would enhance PPG's competitive edge by providing efficient solutions, ultimately driving profitability and customer satisfaction.
For the fiscal 2023 fourth quarter that ended December 31, 2023, PPG’s net sales increased 3.9% year-over-year to $4.35 billion. Its adjusted net income and adjusted EPS grew 26.9% and 25.4% from the prior year’s period to $363 million and $1.53, respectively. Furthermore, as of December 31, 2023, the company’s cash and cash equivalents stood at $1.51 billion, compared to $1.10 billion as of December 31, 2022.
The consensus revenue estimate of $18.69 billion for the fiscal year ending December 2024 indicates a 2.5% year-over-year growth. Likewise, the consensus EPS estimate of $8.49 for the ongoing year reflects a 10.7% year-over-year increase. Furthermore, the company topped the consensus EPS estimates in all of the trailing four quarters.
Over the past year, the stock has gained 6.3%, closing the last trading session at $138.63.
PPG’s robust fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
PPG has an A grade for Growth and a B for Quality. It is ranked #13 out of 84 stocks within the Chemicals industry.
Click here to access additional PPG ratings for Value, Momentum, Stability, and Sentiment.
Stock #1: Asahi Kasei Corporation (AHKSY)
Based in Tokyo, Japan, AHKSY manufactures chemicals. Its Materials segment includes fiber, petrochemicals, and high-performance polymers. The Housing segment covers construction, real estate, renovation, and lightweight concrete, whereas the Healthcare segment focuses on pharmaceuticals, diagnostics, and critical care products.
On December 6, AHKSY announced its investment in Ionomr Innovations Inc., a Canadian startup producing Anion Exchange Membranes (AEM). This move positions AHKSY to harness Ionomr’s innovative technology for cost-effective green hydrogen production, enhancing AHKSY's sustainability efforts, technological competitiveness, and market leadership in renewable energy solutions.
For the fiscal 2023 third quarter that ended December 31, 2023, AHKSY’s net sales increased 4.2% year-over-year to ¥718.20 billion ($4.82 billion). Its operating income rose 40.6% from the year-ago value to ¥42.60 billion ($286 million).
In addition, the company’s EBITDA grew 16.5% from the prior year’s period to ¥88.80 billion ($596.18 million), while net income attributable to the owners of the parent increased 96.5% year-over-year to ¥27.70 billion ($185.97 million).
The consensus revenue estimate of $18.77 billion for the fiscal year ending March 2024 reflects a 253.3% year-over-year rise. Similarly, the consensus revenue estimate of $19.45 billion for the next fiscal year (ending March 2025) exhibits a 3.6% year-over-year improvement.
AHKSY shares have gained 6.9% over the past six months, closing the last trading session at $13.77.
AHKSY’s sound prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
AHKSY has an A grade for Stability and a B for Growth and Value. It has ranked #10 out of 84 stocks within the same industry.
Click here to access the additional AHKSY ratings (Momentum, Sentiment, and Quality).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
PPG shares were trading at $137.81 per share on Friday morning, down $0.82 (-0.59%). Year-to-date, PPG has declined -7.85%, versus a 5.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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