Technological change and productivity were among the main drivers of the recent rally in broader markets. The chemical industry also is an important source of innovation and growth, and many companies are steady dividend payers. Let’s take a look at three chemical stocks to buy.
Chemical stocks are typically cyclical as the industry usually tracks the country’s gross domestic product. Regular InvestorPlace readers know earnings in the industry often do not grow in a straight line.
Given the current economic and health uncertainties worldwide, it is hard to know whether we’ll have a V-shaped recovery. If there is prolonged economic contraction, many chemical companies may also underperform.
Therefore, long-term investors should seek chemical stocks with durable businesses as well as progressive management.
Henry Chesbrough and Andrew Garman, writing in Harvard Business Review, said chemical companies that continue to innovate during uncertain times will be winners in future years. As a result, they will also create shareholder value as their share prices will likely rise.
With that background, here are three chemical stocks to buy that should help long-term shareholders maximize their returns via dividends or gains.
Chemical Stocks to Buy: Eastman Chemical (EMN)
Kingsport, Tennessee-based Eastman Chemical is an advanced materials and specialty additives company. On Aug. 4, it announced second-quarter results. Revenue of $1,924 million beat analysts’ estimates. However, revenue was down around 19% year-over-year. Management said the pandemic caused lower sales volumes. Furthermore, reduced raw material prices meant lower selling prices.
Earnings were 85 cents per share for the quarter, down from $1.99 in the year-ago quarter. Profit was $27 million or 20 cents per share, down from the year-ago profit of $258 million or $1.85 per share.
Four main segments contribute to Eastman’s revenue: additives and functional products, advanced materials, chemical intermediates and fibers. Revenue from specialty chemicals is significant for Eastman.
Eastman consistently grew revenue and earnings in the past decade, and its share price reflects that. In March 2009, the stock was below $10. It is trading around $71. Year-to-date, EMN stock is down about 7%.
I believe Eastman Chemical is a reliable chemical stock that deserves to be on your radar.
Huntsman Corporation manufactures differentiated organic and inorganic chemical products. The group operates four segments: polyurethanes, performance products, advanced materials and textile effects. It is regarded as a heavyweight in the polyurethane sector.
In late July, the company announced second-quarter earnings. The group reported an adjusted net loss of $30 million compared to adjusted net income of $108 million in the prior year period. Q2 adjusted loss per share was 14 cents compared to diluted earnings per share of 47 cents in the prior year period. All four segments reported revenue loss, mostly due to lower sales volume.
“We were fortunate to have been more prepared than ever as we entered the second quarter in an unprecedented global economic crisis, with little to no visibility,” CEO Peter Huntsman said. “With our transformed balance sheet, there was no need to access capital markets and we completed the quarter with $2.6 billion of overall liquidity and generated positive free cash flow.”
The company is focused on higher-margin refined products to generate stable margins and consistent free cash flow.
So far this year, HUN stock is down about 14%, The share price peaked in 2018. However, there were signs of stabilization and even strength in recent weeks.
Although there may still be headwinds for this chemical stock, any dip toward the $18 level will make HUN shares attractive.
Westlake Chemical (WLKP)
Westlake Chemical Partners is a master limited partnership. Many investors are drawn to MLPs and their dividends. I believe WLKP stock deserves a look for the right reasons.
The Houston-based company operates, acquires and develops ethylene production facilities and other assets. Its business and operations are conducted through Westlake Chemical OpCo LP. It sells ethylene and its co-products including propylene, crude butadiene, pyrolysis gasoline and hydrogen.
In 2019, Westlake had record annual sales volumes.
On Aug. 6, it reported net income attributable to the partnership of $14.9 million, or 43 cents per limited partner unit, for the quarter ending June 30. This meant an increase of $1.2 million compared to Q2 2019 net income attributable to the partnership of $13.7 million.
“Despite turbulent market conditions that have impacted the overall ethylene value chain, as well as the steep drop in oil prices, we are pleased with the Partnership’s performance in the second quarter of 2020,” CEO Albert Chao said.
WLKP stock is down about 21% year-to-date. I believe long-term investors who buy the dips in this chemical stock will be handsomely rewarded in the next few years.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. degree, in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.