2024 Buy or Hold Chemical Stocks?

The chemical industry stands on the cusp of substantial growth, driven by robust demand across vital sectors. Therefore, let’s assess the prospects of chemical stocks Dow Inc. (DOW), Linde plc (LIN), and NewMarket Corporation (NEU) to determine the best investment opportunity in this space. Read on….

The chemical sector displays substantial resilience, propelled by robust demand for chemicals utilized in a variety of industries for transforming raw and precursor materials into valuable products that respond to society’s needs. Given the industry’s promising prospects, in this piece, we assessed three chemical stocks to determine how they can help investors tap into the industry’s tailwinds.

Linde plc (LIN) and NewMarket Corporation (NEU) appear to be solid buy candidates for 2024, given their strong fundamentals. On the other hand, I think Dow Inc. (DOW) should be kept on one’s watchlist for better entry opportunities.

Before delving deeper into the fundamentals of the three stocks, let’s take a quick look at the industry landscape.

Chemicals are as fundamental to the economy as the more overt technologies. Used in everything from processed foods as artificial sweeteners and preservatives to the manufacture of everyday items, which utilize advanced polymers or affordable synthetics to accommodate cost considerations, the chemical industry extends its influence to countless elements within our homes or workplaces.

The chemical industry, deeply embedded in the U.S. economy, accounts for over 85% of basic and specialty chemicals consumed by the industrial sector. Its influence permeates both micro and macroeconomic levels, underscoring its significant impact. The industry has demonstrated impressive financial performance, hitting those that have remained unmatched for over two decades. It contributes over a quarter to the nation’s GDP, propelled by heightened demand.

Moreover, new government policies and incentives promoting investment in energy transition have spurred additional manufacturing activity dependent on chemicals and materials. Over 75% of technologies reducing emissions are rooted in the chemical industry.

Advancements in digital technology are also reshaping the landscape for chemical manufacturers. Producers are expected to use various digital tools to create innovative materials and streamline efficient formulations – evaluating, optimizing, and incorporating ingredient recipes and proprietary knowledge.

Consequently, the global chemical market is anticipated to grow at a CAGR of 8.8% until 2032.

Given the industry tailwinds, it’s time to examine the fundamentals of the three stocks in the Chemicals industry, starting with the starting with the third in line.

Stock #3: Dow Inc. (DOW)

DOW engages in the provision of various materials science solutions for packaging, infrastructure, mobility, and consumer applications. It operates through Packaging & Specialty Plastics; Industrial Intermediates & Infrastructure; and Performance Materials & Coatings segments.

On December 21, 2023, DOW successfully addressed today’s challenges of achieving net zero by 2050 in the cable industry by developing a new compound – ENDURANCE HFDD-4201 for Cable Systems.

It offers a next-generation cross-linked polyethylene (XLPE) compound for high-voltage cable insulation that helps manufacturers improve production efficiency while lowering associated carbon emissions. 

On December 8, DOW paid a dividend of 70 cents per share to the shareholders. This marks the 449th consecutive dividend paid by the company or its affiliates since 1912, reflecting upon the company’s strong cash generation ability.

Its annualized dividend rate of $2.80 per share translates to a dividend yield of 5.06% on the current share price. Its four-year average yield is 5.36%.

DOW’s trailing-12-month cash from operations of $5.62 billion is significantly higher than the industry average of $415.73 million, while its trailing-12-month cash per share of $4.39 is 182.3% higher than the industry average of $1.56.

For the fiscal third quarter that ended September 30, 2023, DOW’s net sales and free cash flow stood at $10.73 billion and $1.06 billion, respectively. Moreover, its non-GAAP operating EBIT stood at $626 million.

For the same quarter, its non-GAAP net income and non-GAAP operating EPS stood at $345 million and $0.48, respectively.

Street expects DOW’s revenue and EPS in the fiscal first quarter ending March 2024 to be $11.52 billion and $0.55, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.

The stock has gained 7.1% over the past three months to close the last trading session at $54.63. Over the past year, it has gained 7%.

DOW’s fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering…