In this article we take a look at the 10 best chemical stocks to buy for 2021. The chemical industry fuels economic growth worldwide, be it manufacturing, construction, consumer products, packaging and electronics. Chemical stocks experienced a tough time in 2020 in the midst of the pandemic, but they are ripe for growth in 2021. You can skip our detailed discussion detailing future growth catalysts for major chemical stocks and read 5 Best Chemical Stocks to Buy for 2021.
The chemicals industry lies at the center of the production, manufacturing and industrial boom worldwide. The sector provides industrial chemicals that feed the global production, construction, consumer products manufacturing and plastics. The chemicals industry also converts raw materials to over 70,000 different products. The industry is notorious for its cyclical nature, and was hammered badly by the coronavirus crisis. As the world came to a screeching halt, production and manufacturing crashed worldwide, resulting in massive revenue declines for top chemical companies in the U.S. and abroad. But a strong recovery is on the horizon as the world prepares to reopen following the availability of COVID-19 vaccines.
A Strong Recovery in the Chemicals Industry
Deloitte believes the chemical industry revenues are expected to grow about 8% in 2021 after facing a decline of 9% in 2020. Operating income of the industry is expected to jump by almost 17% in 2021 after an expected 14% decline in 2020. The report noted that although the chemical industry had to let go almost 2% of its entire workforce during the peak pandemic period, the demand for R&D experts, engineers and chemical researchers is growing as chemical companies rethink their product strategies and prepare to adapt to the rapidly changing industry demands. Top chemical companies will shift their focus to areas like healthcare, microelectronics, advanced materials for construction, recycling technologies, new solvent cleaning technologies and electric vehicles, the report said. Deloitte found in a survey that 64% of chemical executives believe that advanced chemicals and materials for construction applications will likely drive most of the industry’s growth in 2021. These emerging trends will fuel growth of chemical stocks in 2021. The firm also believes that an uptick of growth and manufacturing activity in China will prove to be a tailwind for U.S. chemical companies in 2021. It is also expected that the Biden administration will end the trade dispute with China, which negatively affected chemical companies due to tariffs and restrictions.
According to a report by the American Chemistry Council, the U.S. economy is expected to grow 3.7% in 2021, while chemical production will jump by 3.9% as many industries will need chemicals for manufacturing and related economic activity.
Should You Invest in Chemical Stocks in 2021?
Why should you invest in the chemical industry in 2021? The primary reason is the resilience and strong track record for chemical stocks in the past. A McKinsey report found that on the total returns to shareholders, the chemical industry outperformed the market along with most of the customer industries and raw-material suppliers. The report said that the key reason behind this trend is the industry’s ability to significantly increase earnings on a base of total revenues and invested capital. Another factor is China, which has an insatiable demand of chemicals on the back of strong manufacturing and economic growth.
It’s extremely important to conduct due diligence before investing your money as financial markets are becoming volatile. Even the so-called experts are struggling to stay on top of the changing market dynamics. The hedge fund industry’s reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
But the most important factor that makes the chemical industry always ripe and evergreen for investment is the nature of the chemicals business. The report said that chemical companies deal in the “world of things.” Everything around us — buildings, food items, cosmetics, furniture, cars, computers — has some kind of chemicals in it.
Without further delay let’s take a look at 10 best chemical stocks to buy for 2021. We used 13F data revealed by top hedge funds and fundamental growth catalysts of major chemical companies as our ranking criteria.
H.B. Fuller Company ranks 10th on the list of 10 best chemical stocks to buy for 2021. The company supplies industrial adhesives worldwide, and is famous for responsible and ethical practices such as proper handling of toxic waste and preserving nature. The stock was upgraded recently by Robert W. Baird to Outperform from Neutral, with a price target of $65.
In the third quarter, H.B. Fuller posted an EPS of $0.76, beating the Street’s estimates by $0.06. Revenue of $691.46 million also surpassed the Wall Street’s forecasts by $17.38 million.
Mario Gabelli’s GAMCO Investors is one of the top shareholders of H.B. Fuller, with 548,176 shares of the company, as of the end of September.
TROX ranks 9th in our list of the 10 best chemical stocks to buy now. Connecticut-based Tronox primarily deals in titanium products, as it is the largest fully integrated seller and marketer of titanium dioxide (TiO2) pigment, which is used to enhance brightness in coatings, plastics and paper. The company is also the second-largest producer of zircon, with approximately 20% of global production.
In October 2020, Tronox shares rallied about 14% after the company reported a 17% jump in its third-quarter revenue, as titanium dioxide sales jumped 16%. Feedstock and other products sales increased a whopping 73% sequentially, driven by pig iron and CP slag sales.
As of the end of the third quarter, 19 hedge funds tracked by Insider Monkey held positions in Tronox.
Albemarle Corporation stands 8th in the list of best chemical stocks to buy for 2021. The company is based in North Carolina, and operates 3 divisions: lithium, bromine specialties and catalysts. The biggest growth catalyst for Albemarle is its lithium batteries business amid huge demand in EV batteries in the near future. The stock was recently upgraded by Evercore ISI analyst Stephen Richardson, who cited “electrified future” for the company’s improving outlook. The analyst also increased the stock price target to $160 from $86.
Dmitry Balyasny’s Balyasny Asset Management is one of the 27 hedge funds having stakes in Albemarle, as of the end of the third quarter. These hedge funds collectively own $112.81 million worth of Albemarle shares entering the fourth quarter of 2020.
Eastman Chemical ranks 7th on the list of the 10 best chemical stocks to buy for 2021. The Tennessee-based company makes additives & functional products, advanced materials, chemical intermediates and fibers. In the third quarter, Eastman reported an adjusted EPS of $1.57, beating the analysts’ forecasts by $0.20. Revenue of $2.12 billion was also ahead of the estimates by $50 million. Adjusted EBIT totaled $310 million. The company’s CEO Mark Costa said in the third-quarter earnings call that Eastman is facing a demand recovery across 10 markets, resulting in 10% higher sales revenue and almost 60% higher adjusted earnings sequentially.
A total of 27 hedge funds tracked by Insider Monkey held $183.97 worth of stakes in Eastman, as of the end of the third quarter.
LYB is among the largest chemical companies in the world. LyondellBasell is a Netherlands-based chemicals company that was formed in December 2007 as a result of the acquisition of Lyondell Chemical Company by Basell Polyolefins for $12.7 billion. LyondellBasell is one of the biggest producers of polyethylene and polypropylene technologies, ethylene, propylene, polyolefins, and oxyfuels. In the third quarter, the company posted a non-GAAP EPS of $1.27 that beat the Street’s estimates by $0.14. Revenue in the quarter came in at $6.78 billion, above the analysts’ forecasts.
Boykin Curry’s Eagle Capital Management is one of the 31 hedge funds that held positions in the chemicals company as of the end of the third quarter. The fund owns 3,524,959 shares of the company, worth $248.47 million.
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Disclosure: None. 10 Best Chemical Stocks To Buy For 2021 is originally published at Insider Monkey.