The chemical industry is heating up, and investors are taking notice. With strong demand from several major industries, the chemical space is poised for significant growth. As the sector seems to be in a bright spot, loading up on quality chemical stocks Mitsubishi Chemical Group Corporation (MTLHY), Fuchs Petrolub SE (FUPBY), and NewMarket Corporation (NEU) could help you secure solid returns.
Before evaluating the fundamentals of these stocks, let’s discuss the factors propelling the growth of the chemical industry.
The chemical industry is one of the most important parts of the global economy, providing essential raw materials for various industries such as automotive, agriculture, healthcare, construction, and electronics.
According to the American Chemistry Council (ACC), the Global Chemical Production Regional Index (Global CPRI) rose by 0.4% in April after a revised 1.5 % increase in March, while the U.S. Chemical Production Regional Index (U.S. CPRI) rose 0.5% in April.
Moreover, the breakthroughs in innovative digital technologies are revolutionizing the way chemical companies manage their supply chains, improve operational efficiency, and develop new products that meet the evolving needs of their customers. According to a report by Precedence Research, Artificial Intelligence (AI) has the potential to improve prediction accuracy significantly.
The global chemicals market is expected to grow at a CAGR of 7.8% to reach $6.85 trillion in 2027.
Moreover, the demand for specialty chemicals is expected to be supported by an uptick in global industrial and manufacturing activities. These companies are also seeing higher demand in electronics and agriculture end markets. Propelled by the improving demand, the Specialty Chemicals market is expected to grow at a CAGR of 5% over the next five years to reach $998.94 billion by 2028.
Therefore, adding fundamentally sound chemical stocks MTLHY, FUPBY, and NEU to your portfolio could be wise. Let’s dig deeper into the fundamentals of the featured stocks.
Mitsubishi Chemical Group Corporation (MTLHY)
Headquartered in Tokyo, Japan, MTLHY provides performance products, chemicals, industrial materials and gases, health care products, and other products internationally. It is also involved in environmental and recycling-related activities and provides warehousing and semiconductor-related services.
On June 23, MTLHY signed a memorandum of understanding with L&F Co. Ltd., a global manufacturer of cathode active materials for secondary lithium-ion batteries. It aims to conduct feasibility into strengthening the supply chain for anode materials in countries that have concluded a free trade agreement with the U.S.
This partnership is expected to enhance the company’s ability to meet the increased demand for automotive batteries that conform to the 2022 Inflation Reduction Act in the United States.
For the fiscal year 2023, which ended on March 31, 2023, MTHLY’s sales revenue increased 16.5% year-over-year to ¥4.63 trillion ($32.15 billion). Its gross profit rose 11.2% from the year-ago value to ¥1.24 trillion ($8.59 billion), while its core operating income grew 19.5% from the prior-year value to ¥325.56 billion ($2.26 billion). During the same period, its net income and EPS amounted to ¥135.15 billion ($937.42 million) and ¥64.72, respectively.
In addition, its cash and cash equivalents at the end of the period stood at ¥297.22 billion ($2.06 billion), up 20.9% year-over-year.
Analysts expect MTLHY’s revenue for the current quarter (ending June 30, 2023) to be $7.54 billion. For the fiscal year 2025, its revenue is projected to reach $31.88 billion, reflecting a 2.2% year-over-year growth.
Also, its revenue and net income have grown at CAGRs of 8.9% and 21.1% over the past three years, respectively, while its EPS has increased at a 22.5% CAGR over the same period.
MTLHY’s trailing-12-month asset turnover ratio of 0.82x is 9.7% higher than the 0.74x industry average. Also, its trailing-12-month cash flow of operations of $2.68 billion compares to the industry average of $357.30 million.
The stock has gained 24.6% over the past nine months to close the last trading session at $29.43. Also, it has a five-year monthly beta of 0.64, indicating comparative stability than the broader market.
MTLHY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MTLHY also has an A grade for Value and Stability and a B for Quality. Among the 83 stocks in the Chemicals industry, it is ranked first. To see additional POWR Ratings for Growth, Momentum, and Sentiment for MTLHY, click here.
Fuchs Petrolub SE (FUPBY)
FUPBY is a Germany-based company specializing in developing, producing, and distributing lubricants and related specialties for industry, automotive, and other sectors. Its portfolio of products includes engine oils, transmission fluids, hydraulic oils, metalworking fluids, greases, and many other lubricants. It operates within three geographic segments: Europe, Asia-Pacific, Africa, and North and South America.
On May 3, the company passed a resolution to change the name from FUCHS PETROLUB SE to FUCHS SE, as the term ‘Petrolub’ is no longer relevant to the company’s focus on developing, manufacturing, and distributing highly efficient lubrication solutions made from sustainable resources. The renaming to FUCHS SE is expected to take place on July 3, 2023.
Commenting on this, CEO Stefan Fuchs said, "As a high-tech company, we want to expand our technology leadership in strategically important application areas, be it in the fields of digitalization, future mobility, or sustainability. With the current renaming, we are underlining our focus on advanced, process-oriented, and holistic solutions for lubricants and functional fluids."
FUPBY’s sales revenue increased 15.8% year-over-year to €936 million ($1.02 billion) in the fiscal first quarter (ended March 31, 2023). Its gross profit grew 10.3% from the prior-year quarter to €289 million ($315.99 million), while its EBIT rose 10.7% year-over-year to €103 million ($112.62 million). Also, the company’s EPS increased 12.5% from the year-ago value to €0.54.
The consensus EPS estimate of $0.60 for the fiscal year 2023 (ending December 2023) represents a 21.3% improvement year-over-year. The consensus revenue estimate of $3.96 billion for the next year represents a 10.1% increase from the same period last year. The company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing three quarters.
Also, its revenue and net income have grown at CAGRs of 11.6% and 5.8%, respectively, over the past three years. Likewise, its total assets have increased at a CAGR of 7.9% in the same period.
The stock’s trailing-12-month ROTA of 10.27% is 119.3% higher than the 4.68% industry average. Likewise, its trailing-12-month ROCE and ROTC of 14.32% and 11.89% are 34.1% and 95.4% higher than the industry averages of 10.68% and 6.08%, respectively.
Over the past nine months, the stock has gained 43.7% to close the last trading session at $8.95. It has a five-year beta of 0.95.
FUPBY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Stability and a B for Growth, Sentiment, and Quality. Within the Chemicals industry, it is ranked #2. Click here to see FUPBY’s ratings for Value and Momentum.
NewMarket Corporation (NEU)
NEU engages in the manufacture and sale of petroleum additives. The company provides lubricant additives for use in various vehicle and industrial applications, engine oil additives, and industrial additives designed for products for industrial applications and industrial specialty applications.
On April 27, NEU’s Board of Directors declared a quarterly dividend of $2.25 per share on the Corporation's common stock, an increase of $0.15 from the last quarterly dividend of $2.10 per share. The dividend is payable to its shareholders on July 3, 2023.
NEU pays a $9 per share dividend annually, translating to a 2.26% yield on the current price level. The company’s dividend payments have grown at a CAGR of 4.1% over the past five years, and its four-year average dividend yield is 2.16%.
During the first quarter that ended March 31, 2023, NEU’s total revenue increased 6.1% year-over-year to $702.79 million, while its gross profit rose 27.6% from the year-ago value to $198.04 million. In addition, the company’s net income improved 64.5% year-over-year to $97.58 million, while its EPS amounted to $10.09, reflecting an increase of 75.5% from the prior-year quarter. Also, its EBITDA came in at $155.89 million, up 40.6% year-over-year.
NEU’s revenue and net income have grown at CAGRs of 8.2% and 4.6% over the past three years, respectively. Also, its EPS has grown at a CAGR of 8.9% over the same period.
In terms of trailing-12-month NEU’s ROCE and ROTA of 40.05% and 13.52% are 275% and 188.7% higher than the industry averages of 10.68% and 4.68%, respectively. Likewise, its trailing-12-month levered FCF margin of 6.85% is 92.7% higher than the industry average of 3.55%.
NEU’s shares have gained 33.2% over the past year to close the last trading session at $398.54. Also, it has a five-year beta of 0.38.
It’s no surprise that NEU has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, Stability, and Quality. Out of 83 stocks in the same industry, it is ranked #4.
In addition to the POWR Ratings stated above, we also have NEU’s ratings for Momentum and Sentiment. Get all NEU ratings here.
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MTLHY shares were trading at $29.43 per share on Thursday afternoon, up $0.79 (+2.76%). Year-to-date, MTLHY has gained 18.10%, versus a 15.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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