The global chemical industry is experiencing substantial growth, fueled by increased sustainability initiatives and rising demand across various sectors. Given the industry’s tailwinds, investors could consider buying fundamentally sound chemicals stocks, LyondellBasell Industries N.V. (LYB), Innospec Inc. (IOSP), and NewMarket Corporation (NEU).
Specialty chemicals are used across nearly every industrial sector. Over half of the global production is consumed by four key industries: food and beverages, soap, cleaning, and cosmetics, construction, and electronics. The global specialty chemicals market is anticipated to grow at a CAGR of 5.2% by 2030, driven by industrialization and rising consumer economies.
Moreover, rising environmental concerns are pushing industries to adopt sustainable practices, from renewable resources to eco-friendly production and recyclable chemical industry products. Companies embracing these changes meet regulations and cater to the growing demand for eco-conscious options.
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: LyondellBasell Industries N.V. (LYB)
LYB is a chemical company operating 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.
On May 30, 2024, LYB and Alujain Corporation announced the completion of LYB's acquisition of a 35% interest in Saudi Arabia–based National Petrochemical Industrial Company (NATPET) from Alujain.
The joint venture is enabled by LYB Spheripol polypropylene (PP) technology and positions LYB to profitably expand its core PP business by gaining access to advantaged feedstocks and additional product marketing volumes.
LYB’s trailing-12-month ROCE of 17.57% is 185.3% higher than the 6.16% industry average. Its trailing-12-month ROTC of 7.67% is 55.8% higher than the 4.92% industry average. Likewise, the company’s trailing-12-month ROTA of 6.26% is 154.9% higher than the 2.46% industry average.
For the second quarter ended June 30, 2024, LYB’s sales and other operating revenues increased 2.4% year-over-year to $10.56 billion. The company generated a net income of $924 million, up 29.2% year-over-year. Moreover, its EPS grew 95.8% year-over-year to $2.18.
For the fourth quarter ending December 31, 2024, EA’s revenue is expected to increase marginally year-over-year to $10.69 billion. Its EPS for the same quarter is expected to grow 43.6% year-over-year to $1.81. Moreover, the company surpassed revenue estimates in each of the trailing four quarters, which is impressive.
LYB’s stock has gained 2.8% over the month to close the last trading session at $96.20.
LYB’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to a 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 Value and Stability. It is ranked #25 in the 80-stock B-rated Chemicals industry.
Beyond what is stated above, we’ve also rated LYB for Momentum, Growth, Sentiment, and Quality. Get all LYB ratings here.
Stock #2: Innospec Inc. (IOSP)
IOSP develops, manufactures, blends, markets, and supplies specialty chemicals in the United States, the rest of North America, the United Kingdom, the rest of Europe, and internationally. The company operates through three segments: Performance Chemicals, Fuel Specialties, and Oilfield Services.
On June 5, 2024, IOSP, a global leader in specialty chemicals, announced that its Performance Chemicals business had entered into a social partnership with the International Justice Mission (IJM).
IJM is a global nonprofit organization working with local authorities in 33 communities to combat modern slavery and violence against women, rescuing and restoring victims, holding perpetrators accountable, and strengthening the local public justice systems to build a safe future that lasts.
IOSP’s trailing-12-month gross profit margin of 30.65% is 8.1% higher than the 28.36% industry average. Its trailing-12-month net income margin of 7.90% is 57.4% higher than the 5.02% industry average. Likewise, the company’s trailing-12-month levered FCF margin of 7.19% is 33.6% higher than the 5.38% industry average.
For the fiscal second quarter that ended June 30, 2024, IOSP’s net sales were reported at $435 million. The company’s gross profit was reported at $126.90 million. In addition, the company’s net income stood at $31.20 million and earnings per share at $1.24, up 8% and 6.9% year-over-year.
Street expects IOSP’s revenue for the fiscal third quarter (ending September 2024) to increase 6.7% year-over-year to $495.10 million. The company’s EPS is expected to rise 4.4% from the prior year’s quarter to $1.66. Moreover, the company surpassed EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 10% to close the last trading session at $109.43.
IOSP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
IOSP has a B grade for Stability and Sentiment. The stock is ranked #12 in the same industry.
Click here to access the additional IOSP ratings (Growth, Momentum, Value, and Quality).
Stock #1: NewMarket Corporation (NEU)
NEU primarily manufactures and sells petroleum additives. The company offers lubricant additives for use in various vehicle and industrial applications, including engine oils, transmission fluids, off-road powertrains, and hydraulic systems.
On August 8, 2024, NEU declared a quarterly dividend in the amount of $2.50 per share, payable on October 1, 2024. The company pays $10 annually, which translates to a yield of 1.85% on the prevailing price level. Its four-year average dividend yield is 2.17%. The company has raised its dividend payouts at a CAGR of 7.7% over the past three years.
NEU’s trailing-12-month gross profit margin of 29.94% is 5.6% higher than the 28.36% industry average. Its trailing-12-month EBIT margin of 20.68% is 92.4% higher than the 10.75% industry average. Likewise, the company’s trailing-12-month EBITDA margin of 24.09% is 46.9% higher than the 16.40% industry average.
During the second quarter, which ended June 30, 2024, NEU reported net sales of $710.23 million, up 3.7% year-over-year. Its segment operating profit increased 15.5% from the previous year’s quarter to $151.42 million. The company’s net income and EPS were $111.62 million and $11.63, up 12% and 12.3% year-over-year, respectively.
Shares of NEU have soared 7.3% over the past month to close the last trading session at $546.20.
NEU’s POWR Ratings reflect bright prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
NEU has a B grade for Growth, Stability, Sentiment, and Quality. It is ranked #5 in the same industry.
In addition to the POWR Ratings highlighted above, one can access NEU’s ratings for Momentum and Value here.
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LYB shares were trading at $96.84 per share on Friday afternoon, up $0.64 (+0.67%). Year-to-date, LYB has gained 4.55%, versus a 12.81% 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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