Several end-use industries, such as automotive, consumer goods, building & construction, and electronics, rely heavily on chemicals for manufacturing processes. Further, numerous technological advancements and sustainability initiatives, including the shift toward bio-based chemicals and green chemistry practices, would create new growth opportunities.
Given the industry’s rosy prospects, investors could consider buying fundamentally sound chemical stocks Nitto Denko Corporation (NDEKY), Akzo Nobel N.V. (AKZOY), and Fuchs SE (FUPBY) for potential returns.
The American Chemistry Council anticipates capital spending in the U.S. chemical industry will remain relatively stable in 2024 before accelerating to a growth rate of 3%-4% annually in 2025-2026.
The chemicals market is expected to reach $7.79 billion by 2028, growing at a CAGR of 8.7%. Key market trends include sustainability and green chemistry, advanced materials, and digitalization. Further, new government policies and incentives encouraging investment in energy transition have stimulated manufacturing activity reliant on chemicals.
In recent years, digitalization has transformed the chemicals industry, revolutionizing traditional manufacturing processes and operational paradigms. One of the most significant impacts of digital transformation is seen in the realm of smart manufacturing.
By leveraging advanced technologies like the Industrial Internet of Things (IIoT), Artificial Intelligence (AI), automation, and data analytics, chemical companies have achieved unprecedented levels of efficiency, agility, and quality control in their manufacturing processes. Also, digitalization has catalyzed innovation and product development within the sector.
The global IoT in the chemical market is projected to hit around $232.66 billion by 2032, expanding at a CAGR of 13.5%.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Chemicals industry stocks, beginning with the third choice.
Stock #3: Nitto Denko Corporation (NDEKY)
Headquartered in Osaka, Japan, NDEKY mainly engages in the industrial tape, optronics, and life science businesses. The company also offers functional thermal transfer systems, medical products, electrical and electronic equipment tapes, dust removal products, fluoroplastic sheets, tapes, porous films, and materials.
NDEKY’s trailing-12-month gross profit margin of 34.92% is 28.5% higher than the industry average of 22.64%. Also, the stock’s trailing-12-month ROTC and ROTA of 8.05% and 7.93% are significantly higher than the industry averages of 5.06% and 2.95%, respectively.
For the nine-month period that ended on December 31, 2023, NDEKY reported revenue of ¥693.90 billion ($4.58 billion). Its net income and earnings per share attributable to owners of the parent company amounted to ¥81.60 billion ($538.89 million) and ¥570.62, respectively.
Additionally, the company’s total current assets stood at ¥693.57 billion ($4.58 billion) as of December 31, 2023, compared to ¥677.19 billion ($4.47 billion) as of March 31, 2023.
For the fourth quarter ending March 2024, Street expects NDEKY’s revenue to increase 5.1% year-over-year to $1.49 billion. Likewise, the consensus revenue estimate of $6.10 billion for the fiscal year 2024 reflects a 49.86% rise year-over-year.
NDEKY’s stock has soared 39.5% over the past six months to close the last trading session at $46.78.
NDEKY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong 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 an A grade for Quality and a B in Stability. It is ranked #6 in the 82-stock B-rated Chemicals industry.
Beyond what is stated above, we’ve also rated NDEKY for Growth, Momentum, Value, and Sentiment. Get all NDEKY ratings here.
Stock #2: Akzo Nobel N.V. (AKZOY)
Based in Amsterdam, Netherlands, AKZOY engages in the production and sale of paints and coatings internationally. It provides decorative paints, lacquers, and varnishes, and a wide range of mixing machines and color concepts for building, renovation, and specialty coatings segments. It also offers performance coatings for ships, cars, aircraft, and yachts.
AKZOY’s trailing-12-month gross profit margin of 36.69% is 39.4% higher than the industry average of negative 28.48%. Its trailing-12-month ROTC margin of 6.47% is 27.9% higher than the 5.06% industry average. Also, the stock’s trailing-12-month levered FCF margin of 8.71% is 67.1% higher than the 5.21% industry average.
For the fiscal fourth quarter that ended December 31, 2023, AKZOY’s total revenues came in at €10.67 billion ($11.57 billion). Its gross profit rose 7.9% year-over-year to €4.23 billion ($4.59 billion). Also, its operating income and profit for the period increased 45.3% and 27.8% year-over-year to €1.03 billion ($1.12 billion) and €483 million ($523.61 billion), respectively.
Analysts expect AKZOY’s revenue for the fiscal year ending December 2024 to increase 1.3% year-over-year to $11.64 million. The company’s EPS is estimated to grow 35.3% year-over-year to $1.48 for the ongoing year. Moreover, the company has surpassed the consensus revenue estimates in three of the trailing four quarters, which is remarkable.
Shares of AKZOY have gained 3% over the past three months to close the last trading session at $24.91.
AKZOY’s POWR Ratings reflect bright prospects. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
AKZOY has a B grade for Value, Quality, Stability, and Growth. It is ranked #5 in the B-rated Chemicals industry.
In addition to the POWR Ratings highlighted above, one can access AKZOY’s ratings for Sentiment and Momentum here.
Stock #1: 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.
FUPBY’s trailing-12-month EBIT margin of 11.69% is 6.4% higher than the industry average of 10.99%, and its trailing-12-month gross profit margin of 32.08% is 12.7% higher than the industry average of 28.48%. In addition, the stock’s trailing-12-month levered FCF margin of 12.78% is 145.3% higher than the 5.21% industry average.
During the fourth quarter, which ended December 31, 2023, FUPBY reported sales revenues of €843 million ($913.88 million). Its gross profit increased 10.5% from the previous-year quarter to €283 million ($306.80 million). The company’s earnings after tax and EPS were €64 million ($69.38 million) and €0.47, up 4.9% and 4.4% year-over-year, respectively.
Analysts expect FUPBY’s revenue to increase marginally year-over-year to $3.90 billion for the fiscal year ending December 2024. Its EPS is expected to grow 12.4% year-over-year to $0.64 for the current year. Also, the company has surpassed the consensus revenue estimates in three of the trailing four quarters.
Shares of FUPBY have surged 32.8% over the past six months to close the last trading session at $12.24.
FUPBY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
FUPBY has an A grade for Stability and a B in Sentiment and Quality. It is ranked #4 in the same industry.
Click here to access the additional FUPBY ratings (Momentum, Growth, and Value).
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NDEKY shares were trading at $46.72 per share on Wednesday morning, down $0.06 (-0.14%). Year-to-date, NDEKY has gained 25.46%, versus a 9.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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