The chemical sector is vital to industries like manufacturing, construction, agriculture, healthcare, and consumer goods, providing essential raw materials for numerous daily products and processes. Therefore, it could be wise to buy chemical stocks, Dow Inc. (DOW) and PPG Industries, Inc. (PPG), this month.
The chemical sector is expected to grow strongly in the next few years owing to stringent environmental regulations, shifts in consumer preferences, the adoption of renewable and bio-based materials, and an increased prioritization of health and safety. Therefore, the global chemicals market is projected to grow at a CAGR of 8.7% by 2028.
Moreover, with the world becoming increasingly concerned about health and safety, the growth in sales of industrial and institutional disinfectants has expanded at a swifter rate than usual. Therefore, specialty chemicals are used by a plethora of industries, including textiles, healthcare, and food. The global specialty chemicals market is projected to grow at a 10.9% CAGR till 2029.
Considering these encouraging trends, let’s take a look at the fundamentals of the two best Chemicals industry stocks, beginning with the second choice.
Stock #2: Dow Inc. (DOW)
DOW provides various materials science solutions for packaging, infrastructure, mobility, and consumer applications. The company operates through the Packaging & Specialty Plastics, Industrial Intermediates & Infrastructure, and Performance Materials & Coatings segments.
On May 16, 2024, DOW announced a capacity expansion from its minority equity investment in SAS Chemicals GmbH, a German-based specialty chemical producer of sealants and components used in insulating glass manufacturing, to create a more holistic facade offering.
With the capacity expansion at SAS Chemicals GmbH, DOW has a broader range and capacity of high-performance adhesives and sealant solutions for insulating glass manufacturers.
On the same day, DOW and SCG Chemicals announced signing a first-of-its-kind memorandum of understanding (MOU) circularity partnership in the Asia Pacific region to transform 200KTA of plastic waste into circular products by 2030.
The partnership intends to accelerate technology development in the value chain to enable recycling through Mechanical Recycling (MR) and Advanced Recycling (AR) and convert a broader range of plastic waste into high-value applications. This should strategically benefit the companies and is a step forward for sustainable development.
In terms of the trailing-12-month levered FCF margin, DOW’s 5.76% is 9.8% higher than the 5.24% industry average. Likewise, its 6.15% trailing-12-month ROCE is 4.3% higher than the industry average of 5.90%. Moreover, its 0.74x trailing-12-month asset turnover ratio is 7.8% higher than the 0.68x industry average.
For the fiscal first quarter that ended March 31, 2024, DOW’s net sales were reported at $10.77 billion. Its net income was $538 million, compared to a loss of $73 million in the previous year's quarter. Also, its earnings per common share were $0.73, compared to a loss per share of $0.13 in the previous year's quarter.
Analysts expect DOW’s revenue for the third quarter (ending September 2024) to increase 5.8% year-over-year to $11.35 billion. Likewise, its EPS for the same quarter is projected to grow 81.8% year-over-year to $0.87. Moreover, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is excellent.
DOW’s stock has gained 3.5% over the past year and 9.1% over the past six months to close the last trading session at $55.73.
DOW’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating 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.
The stock has a B grade for Value. DOW is ranked #31 in the 82-stock B-rated Chemicals industry.
In addition to the POWR Ratings I’ve just highlighted, you can see DOW’s ratings for Growth, Momentum, Stability, Quality, and Sentiment here.
Stock #1: PPG Industries, Inc. (PPG)
PPG Industries, Inc. manufactures and distributes paints, coatings, and specialty materials in the United States, Canada, the Asia Pacific, Latin America, Europe, the Middle East, and Africa. It operates through two segments, Performance Coatings and Industrial Coatings.
On May 21, 2024, PPG announced it would invest $300 million in advanced manufacturing in North America to support increased demand for paints and coatings in the automotive industry. These investments will commence in 2024 and span a four-year period. The investment represents a strategic, growth-focused investment for PPG.
PPG’s trailing-12-month gross profit margin and EBIT margin of 41.97% and 12.34% are 49.6% and 18.1% higher than the industry averages of 28.06% and 10.44%, respectively. Likewise, its 18.64% trailing-12-month ROCE is 216.1% higher than the industry average of 5.90%. Moreover, its 0.83x trailing-12-month asset turnover ratio is 20.9% higher than the 0.68x industry average.
For the fiscal 2024 first quarter that ended March 31, 2024, PPG’s net sales were reported at $4.31 billion. Its adjusted net income and adjusted EPS grew 2.1% and 2.2% from the prior year’s period to $441 million and $1.86, respectively. Furthermore, as of March 31, 2024, the company’s cash and cash equivalents stood at $1.81 billion, compared to $1.51 billion as of December 31, 2023.
Analysts expect PPG’s revenue for the second quarter (ending June 2024) to increase 1.2% year-over-year to $4.93 billion. Likewise, its EPS for the same quarter is projected to grow 11% year-over-year to $2.50. Moreover, the company surpassed revenue and EPS estimates in three of the trailing four quarters.
PPG’s stock has plunged 4.3% over the past month to close the last trading session at $128.41.
PPG’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 stock has a B grade for Quality. PPG is ranked #18 out of 82 stocks in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see PPG’s ratings for Growth, Momentum, Stability, Sentiment, and Value here.
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DOW shares were trading at $56.01 per share on Monday afternoon, up $0.28 (+0.50%). Year-to-date, DOW has gained 4.71%, versus a 13.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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