- Air Liquide (AIQUY): Global industrial gases giant just clinched new long-term contract deals.
- Linde (LIN): A $10 billion share repurchase program and high dividend growth boost returns as industrial gas prices soar.
- Air Products (APD): Buy APD stock for 2.6% yielding dividend and double-digit sales and earnings growth outlook.
Reports that about half of global supplies of neon gas used in computer chip manufacturing were shattered as Russia attacked Ukraine attracted investors’ attention to neon gas stocks. Investors would expect neon gas stocks to surge as supplies dry up at a time industrial demand from chipmakers is exploding.
Neon gas is a rare gas used in cryogenics, lighting, imaging, and electronic chip manufacturing. Ukraine is home to the leading producers and exporters of neon gas, namely Ingas LLC and Cryoin Engineering. The two neon supply giants halted production as Russian bombs fell on their respective cities of Odesa and Mariupol. The latter city is currently besieged by Russian forces.
Ingas and Cryoin reportedly supply 45% to 54% of the global neon gas requirements for chip manufacturing. The majority of Cryoin’s exports reportedly go to United States-based customers.
Most noteworthy, the United States could probably be importing as much as 90% of its neon imports from Ukraine. Diversifying these imports cost-effectively could prove a tough challenge in the short term. That said, neon gas is also a byproduct of steel production, and China has a vibrant steel-making industry right now. It’s possible that Chinese producers could step up neon production this year.
Investing in neon gas stocks isn’t as straightforward. There aren’t any pure-play neon gas producers listed on stock exchanges. As can be noted with Ukraine producers, both Ingar and Cryoin Engineering are privately held companies. Most competitors are non-listed entities too.
To compound the complexity, listed producers of industrial gases generally do not publicly disclose the component of neon revenue in total annual sales. Perhaps this is because neon gas sales are a small fraction of total gas sales.
That said, it’s highly likely that neon supply disruptions from Ukraine and Russia could create a bigger market for the big guys as semiconductor manufacturers try to fill the gaps.
Here are three industrial gas producers that investors seeking to buy neon gas stocks should watch as geopolitical events threaten global supplies.
Neon Gas Stocks to Watch: Air Liquide (AIQUY)
Paris-based Air Liquide (OTCMKTS:AIQUY) is a leading industrial gas producer globally. The company generated about $23.3 billion in revenue over the past twelve months and earns a good 18% net profit margin. Air Liquide could enjoy strong revenue growth as neon, helium and other high-purity gas prices soar in 2022.
Air Liquide’s Gas & Services segment generated 95.4% of total group sales in 2021. The company sells neon gas, but there is no special mention of neon in its financial reports implying that the product could still be a small component of group sales.
Interestingly, Air Liquide announced in March a €300 million ($332 million) investment in Japan to build four gas plants that produce ultra-high purity industrial gases. The new projects will serve the needs of two major semiconductor market leaders under long-term contracts. The company has been supplying the same customers with industrial gases for more than two decades.
Although no special reference to neon was made in the announcement, the new plants will produce large quantities of “nitrogen and other high purity gases.” The first plant is expected to commence production at the end of this year.
Air Liquide is also investing $60 million in a long-term deal to supply a semiconductor manufacturing plant in Arizona with high-purity gases. Growth is inevitable, and investors could enjoy more capital gains on top of the 60% total gain potentially earned over the past three years.
United Kingdom-based Linde (NYSE:LIN) is the largest supplier of industrial gases to the world. Linde reported $31 billion in revenue for 2021 and its 12.4% net profit margin is far higher than an industry average net margin of 9.4%. The company generated record cash flows last year.
Although Linde made no special disclosure of neon-specific sales figures in its 2021 Annual Report, it sells neon “in a variety of purities and concentrations” across the world.
Linde generates most of its sales and operating earnings from the Americas (about 40% of total revenue and 47% of operating earnings in 2021).
Investing in LIN stock could yield good returns as the company executes on a $10 billion share repurchase program announced in February. Linde has increased its dividend by an average of 10% over the past three years and management announced another 10% increase in quarterly dividends in February. The current $4.68 annualized dividend should yield 1.5% though, so capital gains will matter more during an investor’s holding period.
Speaking of gains, $10,000 invested in LIN stock just five years ago would have grown to over $29,000 today, with dividends reinvested.
Neon Gas Stocks to Watch: Air Products (APD)
Air Products (NYSE:APD) is another industrial gas production giant to watch as the neon gas supply market gets disrupted. The Allentown, PA-based U.S. company generated $10.3 billion in gas sales during the calendar year 2021 and boasts of an industry-leading net income margin above 20%.
In its marketing materials, Air Products says it “supplies neon gas and neon-fluorine excimer laser mixtures” and that its “high purity neon is ideal for excimer lasers and other laser applications for semiconductor manufacturing.”
That said, revenue from neon gas sales is presumably a small component of total annual sales, historically. Hydrogen is APD’s major industrial gas which is listed 13 times in Air Products’ 2021 Annual Report. Instead, the company bundles up neon gas in the term “cryogenics” or “specialty gases.”
Investing in neon gas stock Air Products today could lock in a 2.6% dividend yield. Wall Street analysts expect APD to grow its revenue by 15.3% year-over-year in 2021. Growth could be higher if the company wins more neon gas customer orders this year.
On the date of publication, Brian Paradza did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.