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US Chemical Industry Set to Ride High in 2019: 4 Solid Picks


The American chemical industry is poised for an upswing in 2019 on the back of strength across major end-use markets, higher industrial activities and gains in business investment – according to the newly released “Year-End 2018 Chemical Industry Situation and Outlook” by the American Chemistry Council (“ACC”).

The Washington, DC-based chemical industry trade group said that growth in manufacturing and exports markets this year will continue to boost demand for basic chemicals. These factors coupled with growth in construction markets are also expected to drive the specialty chemicals segments.

U.S. Chemical Industry Set for Solid Growth

The outlook for the American chemical industry paints an encouraging picture. The ACC envisions national chemical production (excluding pharmaceuticals) to rise 3.6% in 2019, following a 3.1% growth in 2018. The growth is expected to be spurred by gains in manufacturing and export and sustained demand across light vehicles and housing markets. However, rising trade tensions pose a risk.

The trade group also expects basic chemicals production to expand 2.1% in 2018 and further gain steam with a 4.8% rise in 2019 on the heels of investments in new capacity additions.

According to the ACC, strength in export markets and higher business investment have boosted demand in major chemical end-use markets such as light vehicles and housing. While the automotive sector remains at high levels, housing activity is improving with 1.27 million starts in 2018 and 1.34 million in 2019. Light vehicle sales are expected to remain elevated at 17.1 million in 2018 and 16.8 million in 2019, the ACC added.

The specialty chemicals segment is also expected to see production growth of 3.7% in 2018 and 2.2% in 2019, per the ACC. Improvement in oilfield chemicals, electronic chemicals, coatings, adhesives, cosmetic chemicals, and flavors and fragrances are fueling growth in specialty chemicals. The trade group expects demand for specialty chemicals to grow in sync with gains in industrial and construction sectors in the years ahead.

Rising Capital Spending

The American chemical industry continues to enjoy the advantage of access to abundant and cheap ethane feedstock extracted from shale gas. The shale bounty has provided U.S. producers a compelling cost advantage over their global counterparts, which use oil-based feedstock such as naptha. This is driving investment in chemical production projects to beef up capacity.

According to the ACC, 333 chemical projects (both on new plants and capacity expansions) have been already announced by chemical makers since 2010 worth $202 billion, 68% of which is foreign direct investment or involves an overseas partner. New capacity is expected to provide a boost to chemical production as these investments come on stream.

Strengthening Export Markets

The ACC expects improving export markets to contribute to growth of the domestic chemical industry. Total chemical exports are projected to rise 10% to $143 billion this year while imports are forecast to pick up 7.8% to $105 billion.

Higher exports will result in the U.S. chemical industry having a $39 billion trade surplus in chemicals in 2018, the trade group noted. Moreover, the ACC sees two-way trade between the United States and its foreign partners to expand 9.1% year over year and reach $248 billion this year.

4 Chemical Stocks Set to Run Higher

The U.S. chemical industry is set for solid upside next year on continued demand strength across major end-markets and significant capital investment. Amid such a backdrop, it would be prudent to invest in chemical stocks with compelling growth prospects.

We highlight the following four stocks, armed with a solid Zacks rank, that are good options for investment right now.

Air Products and Chemicals, Inc. APD

Pennsylvania-based Air Products carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company delivered positive earnings surprise in three of the trailing four quarters, with an average positive surprise of 3.9%. It has an expected earnings growth of 9.9% for fiscal 2019. Earnings estimates for fiscal 2019 have been revised 0.4% upward over the last 60 days. The stock also has long-term expected earnings per share (EPS) growth of 11.8%.

W. R. Grace & Co. GRA

Maryland-based W. R. Grace is another attractive choice. It carries a Zacks Rank #2 and has an expected earnings growth of 10.1% for 2019. The company delivered positive earnings surprise in each of the trailing four quarters, with an average positive surprise of 10.1%. The stock also has long-term expected EPS growth of 12%.

Celanese Corporation CE

Our next pick in the space is Texas-based Celanese carrying a Zacks Rank #2. The company delivered positive earnings surprise in each of the trailing four quarters, with an average positive surprise of 13.3%. It has expected earnings growth of 1.7% for 2019. Moreover, earnings estimates for 2019 have been revised 2.3% upward over the last 60 days. The stock also has long-term expected EPS growth of 10%.

Innospec Inc. IOSP

Colorado-based Innospec carries a Zacks Rank #2. It has expected earnings growth of 4.4% for 2019. The company also delivered positive earnings surprise in three of the trailing four quarters, with an average positive surprise of 10.5%.

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