We recently compiled a list of the 10 Best Specialty Chemical Stocks To Buy Now. In this article, we are going to take a look at Ashland Inc. (NYSE:ASH) against the other specialty chemical stocks.

The chemical industry includes companies that produce industrial, specialty, and commodity chemicals, serving as a cornerstone of the modern world economy. In 2023, the global chemical industry stood at $5.1 trillion and is expected to grow to $7.8 trillion in 2028, with a whopping yearly growth rate of 8.7%, according to estimates by the Business Research Company.

Global Specialty Chemicals Market

Within the broader chemical industry, the specialty chemicals segment plays a crucial role. This segment includes performance chemicals used to improve industrial processes and as ingredients in final products to enhance technical and performance attributes. These chemicals include plastic & rubber additives, oilfield chemicals, water treatment chemicals, advanced ceramic chemicals, and several other types of performance chemicals.

In 2023, the global specialty chemicals market was valued at $627.7 billion and is expected to grow to $1 trillion by 2032 at a CAGR of 5%, according to Fortune Business Insights. This exceptional growth is driven by the packaging industry, particularly in food and cosmetic packaging, driven by the growth of e-commerce platforms.

In addition to packaging, the automotive industry boosts demand for specialty chemicals, which play a crucial role in producing parts like tires, coatings, and adhesives. Additionally, demand for specialty chemicals is strong in the construction industry where they help keep the structures safe and improve their lasting period.

The global food and beverage market is expected to grow from roughly $6.5 trillion in 2023 to $8.8 trillion by 2028, according to Fortune Business Insights. This means increasing demand for food additives and packaging which further bolsters growth prospects of the specialty chemicals industry.

Despite the wide usage of such chemicals, they are often subject to government regulations to protect workers, the environment, and customers. This is due to the specialty chemicals industry being the 3^rd largest contributor to CO2 emissions from the industry.

However, the specialty chemicals industry has started evolving towards green and sustainable practices. This shift aims to lower energy emissions, improve safety standards, and lower compliance costs. Hydrogen fuel cells are expected to reduce the industry’s CO2 emissions, while Artificial Intelligence (AI) and machine learning (ML) can optimize processes, make materials discovery easier, and enhance predictive modeling.

Specialty Chemicals Market in USA

Based on their types and serving industries, the specialty chemicals market is divided into multiple segments including dyes, construction, pharmaceuticals, and others.

The U.S. specialty chemicals market is expected to grow at a CAGR of 3% mainly driven by the increased production of vehicles which directly increases the demand for paints, coatings, and additives. The U.S. automotive industry is one of the largest ones in the world; 15.5 million new light vehicles were sold in the country in 2023 alone, as we reported in our article about the 15 Fastest Growing Automotive Brands in the World.

The growing infrastructure of the U.S. is also a major consumer of specialty chemicals in the paint and coatings segment; the U.S. is the second biggest exporter of all types of paints.

Our Methodology

To curate our list of the 10 Best Specialty Chemical Stocks To Buy Now, we gathered a list of all companies that are operating in this segment using the Finviz stock screener. We then further narrowed them down on the basis of several metrics like market capitalization, institutional ownership, the number of analysts watching the stock, and the overall financial health of respective stocks. We ranked the finest remaining companies by their upside potential, as predicted by the analysts. Finally, we ranked the top stocks based on the number of hedge funds that were bullish on the stock as of Q2 2024. Hedge Fund data was acquired from the Insider Monkey’s hedge fund database that tracks the activity of 920 hedge funds. For stocks with equal number of hedge fund holders, we used their upside as the tiebreaker.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Ashland Inc. (NYSE:ASH)

Upside Potential: 20.64%

Number of Hedge Funds Holders: 25

Operating in the life sciences, personal care, intermediaries, and specialty additives sectors, Ashland Inc. (NYSE:ASH) serves both consumer and industrial segments. The company provides pharmaceutical solutions, nutrition solutions, biodegradable performance materials, and advanced materials that act as surfactants and modifiers.

Ashland Inc. (NYSE:ASH) posted a revenue of $575 million in the quarter ended on March 31, 2024. The company’s share price showed a consistent upward trend in the first half of 2024, rising from $83.7 at the start of the year to $101.3 in the second quarter of 2024, yielding a 20.9% return. Sales were boosted by an increase in volume of personal care and specialty additive segments reflecting an increase of 1.2% compared to the same quarter last year. However, sales in the life sciences segment were down by 7.5%, reflecting weaker demand for vinyl pyrrolidone and derivatives (VP&D), mainly used in pharma and crop-care markets.

Overall, the company reported an adjusted EBITDA of $126 million, down by 13% on a YoY basis due to pricing concerns. The company has a strong cash position on the balance sheet, with $439 million in cash available; however, the company has $1.3 billion in long-term debt, which investors should monitor closely.

Along with that, the company has signed an agreement on July 5, 2024 to sell its nutraceuticals business, which is expected to be completed in the third quarter of 2024, and is expected to help the company optimize its product mix.

The company has also repurchased $130 million in shares as part of a disciplined capital approach signaling the trust the company holds in its valuation. Despite this positive news, the weakening demand trend remains a concern for management, who are hopeful for improvement later in the year.

According to Guillermo Novo (Chair & CEO of Ashland):

“Although overall demand trends are improving, there is uncertainty around specific industry and regional dynamics. To be prudent, we are planning for a choppy demand environment”

Whether the demand improves later in the the year is something investors should keep an eye on. However, the company has emphasized its strategic decisions for long-term profitability, despite short-term demand disruptions. Considering these factors, the share price has an upside potential of 20.64%, with four analysts bullish on the stock. As such, 25 hedge funds are bullish on the stock, with investments totaling $540 million. Thus, the stock makes it to our list of the 10 Best Specialty Chemical Stocks To Buy Now.

Overall ASH ranks 4th on our list of the best specialty chemical stocks to buy. While we acknowledge the potential of ASH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ASH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.