Given its pivotal role in global manufacturing, the chemical industry is a crucial backbone for a wide array of sectors, including automotive, construction, electronics, healthcare, agriculture, and more. This diverse range of applications ensures that the chemical industry maintains resilience, even during economic uncertainty.
In that context, we will closely look at three fundamentally sound chemical stocks Mitsubishi Chemical Group Corporation (MTLHY), FutureFuel Corp. (FF), and ChromaDex Corporation (CDXC), that seem well-positioned to capitalize on the industry’s growth and could be solid portfolio additions.
According to Statista, the global chemical industry has witnessed consistent revenue growth over the years. Despite a significant setback due to the pandemic, resulting in a 35% decline in revenue in 2020, it made a solid comeback in 2021, reaching an all-time high revenue of $4.7 trillion.
Further, in light of the Russia-Ukraine war that resulted in economic sanctions on multiple countries, elevated commodity prices, supply chain disruptions, and inflation across various markets worldwide, the global chemicals market experienced significant growth from $4.70 trillion in 2022 to $5.08 trillion in 2023, exhibiting an impressive CAGR of 8.1%. Further, the market is projected to reach $6.85 trillion by 2027, growing at a CAGR of 7.8%.
Moreover, the chemical industry is undergoing transformation, where companies are adopting sustainable practices and eco-friendly processes to mitigate the adverse effects of chemical manufacturing on the environment.
The integration of advanced technologies and scientific breakthroughs is on the course of improving the chemical sector’s efficiency and decarbonization efforts. This shift toward sustainable practices is a significant step in the industry's approach to environmental stewardship.
Despite macroeconomic challenges and volatile market conditions, the chemical industry has shown steady growth and remains a pivotal driver of the global economy. Furthermore, it is well-positioned to adapt and thrive as innovations emerge, ensuring its continued evolution and relevance in various sectors.
Therefore, considering the industry's growth prospects and ability to thrive despite volatile economic conditions, investing in growing chemical companies MTLHY, FF, and CDXC could be beneficial.
Let’s evaluate the aforementioned stocks in detail to gain a better perspective:
Mitsubishi Chemical Group Corporation (MTLHY)
Headquartered in Tokyo, Japan, MTLHY provides performance products, chemicals, industrial gases, health care products, and other products internationally. The company offers polyester films, packaging materials, high-performance engineering plastics, industrial materials, and pharma and regenerative medicines.
On July 7, Gelest, Inc., a subsidiary of MTLHY, reached a significant milestone by commencing the construction of its newest production facility at its global headquarters in Morrisville, Pennsylvania. Spanning an area of 50,000 square feet, the building is scheduled to be finished by September 2024.
This upcoming facility is expected to bolster the company’s production capacities, supporting diverse customer applications such as microelectronics, medical devices, thermal coatings, and mobility solutions.
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. This collaboration aims to conduct feasibility studies to enhance the supply chain for anode materials in countries that have established free trade agreements with the United States.
MTLHY’s trailing-12-month asset turnover ratio of 0.82x is 9.6% higher than the industry average of 0.74x. Likewise, its trailing-12-month cash per share of $1.57 is 3.1% higher than the industry average of $1.53.
For the fiscal year 2023 (ended on March 31, 2023), MTHLY’s sales revenue increased 16.5% year-over-year to ¥4.63 trillion ($32.56 billion), while its gross profit rose 11.2% from the year-ago value to ¥1.24 trillion ($8.72 billion).
During the same period, its net income and EPS amounted to ¥135.15 billion ($950.38 million) and ¥64.72, respectively. In addition, its cash and cash equivalents stood at ¥297.22 billion ($2.09 billion), up 20.9% compared to ¥245.79 billion ($1.73 billion) as of March 31, 2022.
Street expects MTLHY’s revenue for the fiscal first quarter (ended June 30, 2023) to be $7.52 billion. Further, its revenue is projected to register a significant year-over-year growth, reaching $31.15 billion in the fiscal year 2024.
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 and EBIT have increased at 22.5% and 19.9% CAGRs over the same period, respectively.
MTLHY’s shares have gained 28.1% over the past nine months to close the last trading session at $30.14
MTLHY’s POWR Ratings reflect this robust outlook. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth, Value, and Stability and a B for Quality. In the 84-stock Chemicals industry, it is ranked first. Click here to see MTLHY’s ratings for Momentum and Sentiment.
FutureFuel Corp. (FF)
FF manufactures and sells diversified chemical, bio-based fuel, and bio-based specialty chemical products in the United States. The company operates through two segments, Chemicals and Biofuels. Its product portfolio includes various custom chemicals used in coatings, chemical intermediates, industrial and consumer cleaning, oil and gas, etc.
On January 4, FF declared a regular quarterly dividend of $0.06 per share to its shareholders, payable on September 15, 2023, and December 15, 2023. The company’s annual dividend of $0.24 translates to a 2.72% yield on its prevailing prices, while its four-year average dividend yield is 17.51%.
The stock’s trailing-12-month ROCE and ROTC of 17.08% and 9.94% are 59.9% and 62.4% higher than the 10.68% and 6.12% industry averages. Likewise, its trailing-12-month ROTA of 13.04% is 178.6% higher than the industry average of 4.68%.
In the fiscal first quarter that ended March 31, 2023, FF’s revenue increased 76.3% year-over-year to $74.16 million, while its gross profit came in at $21.62 million.
The company’s net income and EPS amounted to $21.08 million and $0.48 compared to a net loss and loss per share of $12.39 million and $0.28 in the prior-year period, respectively. Also, during the same period, its total current assets stood at $291.49 million, up 6.5% versus $273.78 million as of December 31, 2022.
FF’s EPS is expected to improve by 10% per annum over the next five years. Moreover, it surpassed the EPS estimates in three of its trailing four quarters. In addition, its revenue has grown at CAGRs of 26.8% and 9.1% over the past three and five years, respectively.
The stock has gained 50.3% over the past nine months to close the last trading session at $8.82.
It’s no surprise that FF 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, and Quality. Out of 84 stocks in the same industry, it is ranked #3.
In addition to the POWR Ratings we’ve stated above, we also have FF’s ratings for Momentum, Stability, and Sentiment. Get all FF ratings here.
ChromaDex Corporation (CDXC)
CDXC operates as a bioscience company focusing on developing healthy aging products. The company operates through three segments: Consumer Products; Ingredients; and Analytical Reference Standards and Services.
In terms of the trailing-12-month gross profit margin, CDXC’s 59.19% is 6.4% higher than the 55.64% industry average. Likewise, its trailing-12-month asset turnover ratio is 1.45x compared to the industry average of 0.35x.
CDXC’s net sales increased 30.7% year-over-year to $22.56 million in the first quarter (ended March 31, 2023), while its gross profit grew 28.4% from the year-ago value to $13.52 million. Also, its total expenses declined 15.2% from the prior-year quarter to $15.59 million.
During the same period, the company’s cash and cash equivalent amounted to $23.14 million, increasing 13.2% versus $20.44 million as of December 31, 2022.
The consensus revenue estimate of $19.52 million for the second quarter (ended June 30, 2023) represents a 16.7% increase year-over-year. The consensus EPS estimate for the same period reflects a 53.7% improvement year-over-year. Moreover, it surpassed the EPS estimates in three of its trailing four quarters, which is promising.
CDXC’s revenue has grown at CAGRs of 15.2% and 25.9% over the past three and five years, respectively. Likewise, its total assets have improved at a CAGR of 14.7% over the past three years.
Over the past nine months, the stock has gained 23.4% to close the last trading session at $1.58.
CDXC’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 Growth and a B for Value, Sentiment, and Quality. Within the same industry, it is ranked #2. Click here to see the other ratings of CDXC for Momentum and Stability.
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MTLHY shares were trading at $30.42 per share on Monday afternoon, up $0.28 (+0.93%). Year-to-date, MTLHY has gained 22.07%, versus a 15.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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