Geopolitical issues like the Russia-Ukraine war, prolonged COVID lockdowns in China, sky-high inflation, and the Fed’s aggressive money-tightening policies took a toll on the US Chemical industry in 2022. However, with the inflation cooling and the Fed slowing its pace of interest rate hikes, the industry might be able to perform well in the coming times.
The U.S. chemical industry remains advantaged due to abundant domestic production of natural gas and natural gas liquids. Also, automotive manufacturing could be a bright spot for the industry. According to S&P Global Mobility, global new light vehicle sales will reach nearly 83.6 million units in 2023, a 5.6% increase year-over-year. Automotive has been a significant end industry for chemicals.
Moreover, the passage of the Inflation Reduction Act of 2022 opens a whole new set of opportunities for the industry. The White House expects to install 950 million new solar panels, 120,000 wind turbines, and 2,300 grid-scale battery plants by 2030, which should benefit the industry in the long term.
Chemical companies should find opportunities to promote their products as a solution to the Act’s aims to reduce emissions.
So, fundamentally strong stocks Olin Corporation (OLN), Valhi, Inc. (VHI), and Sisecam Resources LP (SIRE) might be ideal buys to capitalize on the industry tailwinds. Moreover, these companies pay stable dividends.
Olin Corporation (OLN)
OLN manufactures and distributes chemical products in the United States, Europe, and internationally. It operates through three segments: Chlor Alkali Products and Vinyls; Epoxy; and Winchester.
On January 10, OLN announced that Blue Water Alliance JV, LLP has received all necessary regulatory approvals and is beginning operations soon. Announced in March 2022, Blue Water Alliance (BWA) is a joint venture of Olin and Mitsui & Co., Ltd. (MITSY).
The joint venture brings together MITSY’s industry-leading global logistics, long-established supplier and customer relationships, and breadth of product portfolio with Olin’s scale, North American export capability, extensive global terminal network, and production flexibility across the electrochemical unit (ECU) portfolio.
OLN pays $0.80 annually as dividends. This translates to a yield of 1.25% at the current price, compared to the 4-year average dividend yield of 3.23%. Also, it has paid dividends for 33 consecutive years.
OLN’s forward EV/Sales of 1.33x is 13.1% lower than the industry average of 1.53x. Its forward Price/Sales multiple of 1.01 is 19.3% lower than the industry average of 1.24.
During the fiscal year ended December 31, 2022, OLN’s sales rose 5.2% year-over-year to $9.38 billion. Its net income grew 2.3% year-over-year to $1.33 billion, while its net income per common share increased 12.3% from the prior year to $8.94.
Its revenue and EPS are expected to amount to $2.06 billion and $1.33 in the fiscal first quarter ending March 2023. Moreover, OLN has topped consensus EPS estimates in each trailing four quarters, which is impressive.
The stock has gained 23.4% over the past six months to close the last trading session at $63.79.
OLN’s POWR Ratings reflect its promising 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.
OLN also has an A grade for Quality and a B for Value. It is ranked #23 among 87 stocks in the B-rated Chemicals industry.
To access additional ratings for OLN’s Growth, Stability, Sentiment, and Momentum, click here.
Valhi, Inc. (VHI)
VHI engages in chemicals, component products, and real estate management and development businesses in Asia Pacific, Europe, North America, and internationally.
VHI pays a $0.32 per share dividend annually, which translates to a 1.23% yield on the current price. The company has a four-year average dividend yield of 3.08% and has paid dividends for 27 consecutive years.
VHI’s forward non-GAAP P/E of 6.15x is 57.8% lower than the industry average of 14.56x. In terms of the trailing-12-month Price/Sales, VHI’s multiple of 0.30 is 75.7% lower than the industry average of 1.22.
For the fiscal third quarter that ended September 30, 2022, VHI’s net sales of the component products segment rose 24.3% year-over-year to $43.90 million. Net income attributable to VHI came in at $26.20 million, while its net income per share stood at $0.92.
Analysts expect its EPS to amount to $4.23 for the fiscal year 2022. Shares of VHI have gained 18.2% over the past month to close the last trading session at $26.
VHI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Stability and Quality. Within the same industry, it is ranked #11.
Beyond what is stated above, we’ve also rated VHI for Growth, Sentiment, and Momentum. Get all VHI ratings here.
Sisecam Resources LP (SIRE)
SIRE engages in the trona ore mining and soda ash production businesses in the United States and internationally. It processes trona ore into soda ash, a raw material in flat glass, container glass, detergents, chemicals, paper, and other consumer and industrial products. It operates as a subsidiary of Ciner Wyoming Holding Co.
The company pays $2.15 as annual dividend, which yields 8.27% at the current price, higher than the 4-year average dividend yield of 7.14%. Over the past three years, SIRE’s dividend payouts have grown at 10.7% CAGR.
In terms of the trailing-12-month PEG, SIRE’s multiple of 0.04 is 86.2% lower than the industry average of 0.29, and its trailing 12-month Price/Cash Flow multiple of 4.54 is 46% lower than the industry average of 8.40.
SIRE’s net sales rose 13.5% year-over-year to $177.10 million in the fourth quarter ended December 31, 2022. Its adjusted EBITDA increased 29.3% year-over-year to $41.90 million. The company’s net income came in at $33.90 million, representing an increase of 43.6% from the previous-year quarter. Also, its net income per limited partner unit increased 48.2% year-over-year to $0.83.
SIRE has topped consensus EPS estimates in three of the trailing four quarters. The stock has gained 19.8% over the past nine months to close the last trading session at $24.17.
Its no surprise that the stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
SIRE has an A grade for Growth and Quality and a B in Sentiment, Value, and Stability. It is ranked first in the same industry.
Click here to see the additional POWR Ratings for SIRE (Momentum).
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OLN shares were trading at $63.58 per share on Thursday afternoon, down $0.21 (-0.33%). Year-to-date, OLN has gained 20.10%, versus a 8.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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