The chemical industry is expected to expand due to strong demand, emerging technologies, and the need for sustainable solutions in the renewable energy and healthcare sectors, as well as improved operational efficiency.
Therefore, fundamentally sound chemical stocks Nitto Denko Corporation (NDEKY), Cabot Corporation (CBT) and Fuchs SE (FUPBY) could be wise portfolio additions.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the chemical industry.
The chemical industry is poised to embrace industry 4.0, often known as the fourth industrial revolution, by incorporating advanced digital technologies such as IoT, AI, and machine learning into its operations. This will increase efficiency, lower costs, and allow for predictive maintenance.
Data analytics will be utilized to obtain insights into operations, improve supply networks, and create innovative materials. This will result in new goods and uses, as well as new markets for chemical manufacturers. Overall, the chemical industry is projected to be transformed by Industry 4.0.
The global artificial intelligence (AI) in chemical market is expected to reach $10.1 billion by 2030, with a 31.9% CAGR.
Furthermore, the global specialty chemicals market is expected to increase at a CAGR of 4.1% until 2032. The specialty chemicals market is being driven by rising R&D investments, end-use demand, technical developments, and demand for bio-based chemicals.
Considering these conducive trends, let’s take a look at the fundamentals of the three above-mentioned Chemicals stocks, starting with the third stock.
Stock #3: Nitto Denko Corporation (NDEKY)
Headquartered in Osaka, Japan, NDEKY mainly engages in the industrial tape, optronics, and life science businesses. The company also offers functional thermal transfer systems, medical products, electrical and electronic equipment tapes, dust removal products, fluoroplastic sheets, tapes, porous films, and materials.
NDEKY’s forward EV/Sales of 1.34x is 17.3% lower than the industry average of 1.62x. Its forward EV/EBITDA of 6.11x is 27.1% lower than the industry average of 8.38x.
NDEKY’s trailing-12-month levered FCF margin of 9.61% is 134% higher than the industry average of 4.11%. Its trailing-12-month ROTA of 7.47% is 125.9% higher than the industry average of 3.31%.
For the six-month ended on September 30, 2023, NDEKY’s revenue came in at ¥449.34 billion ($3.12 billion). Net income and earnings per share attributable to owners of the parent company amounted to ¥44.22 billion ($307.11 million) and ¥308.77.
The company reported total current assets of ¥697.88 billion ($4.85 billion) as of September 30, 2023, compared to total current assets of ¥677.19 billion ($4.70 billion) as of March 31, 2023.
Street expects NDEKY’s revenue to increase 53.4% year-over-year to $6.24 billion for the year ending March 2024. Shares of NDEKY have gained 26.5% over the past year to close the last trading session at $36.45.
NDEKY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NDEKY also has an A grade for Quality and a B for Value and Stability. It is ranked #12 out of 84 stocks in the Chemicals industry. Click here for the additional POWR Ratings for Growth, Sentiment and Momentum for NDEKY.
Stock #2: Cabot Corporation (CBT)
CBT operates as a specialty chemicals and performance materials company. The company operates in two segments, Reinforcement Materials; and Performance Chemicals.
CBT’s forward non-GAAP P/E of 11.91x is 28.4% lower than the industry average of 16.63x. Its forward EV/Sales of 1.39x is 13.7% lower than the industry average of 1.62x.
CBT’s trailing-12-month ROCE of 40.43% is 431.6% higher than the 7.60% industry average. Its trailing-12-month asset turnover ratio of 1.10x is 56.9% higher than the 0.70x industry average.
For the third quarter that ended September 30, 2023, CBT’s net sales and other operating revenues came in at $965 million. Its gross profit came in at $225 million and net income stood at $234 million, up 2.3% and 148.9% year-over-year, respectively. Its adjusted EPS of common stock attributable to CBT came in at $1.65, increased 6.5% year-over-year.
The consensus revenue came in at $4.05 billion for the fiscal year ending September 2024 represents a 2.9% increase year-over-year. Its EPS is expected to grow 23% year-over-year to $6.62 for the same year. It surpassed EPS estimates in three of four trailing quarters. CBT’s shares have gained 20% over the past year to close the last trading session at $78.80.
CBT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #6 in the same industry. It has a B grade for Value and Quality. To see additional CBT’s ratings for Growth, Stability, Sentiment and Momentum, click here.
Stock #1: Fuchs SE (FUPBY)
Headquartered in Mannheim, Germany, FUPBY develops, produces, and sells lubricants and related specialties in Europe, the Middle East, Africa, the Asia Pacific, and North and South America.
FUPBY’s forward EV/Sales of 1.35x is 16.6% lower than the industry average of 1.62x. Its forward EV/EBIT of 11.83x is 10.1% lower than the industry average of 13.15x.
FUPBY’s trailing-12-month levered FCF margin of 11.90% is 189.6% higher than the industry average of 4.11%. Its trailing-12-month ROTA of 10.96% is 231.7% higher than the industry average of 3.31%.
FUPBY’s sales revenue amounted to €876 million ($959.72 million) in the fiscal third quarter that ended September 30, 2023. Its gross profit grew 5.1% from the prior-year quarter to €288 million ($315.52 million), while its EBIT rose 13.4% year-over-year to €110 million ($120.51 million). Also, the company’s earnings per share increased 16% from the year-ago value to €0.58.
Street expects FUPBY’s revenue to increase marginally year-over-year to $3.96 billion for the year ending December 2024. Its EPS is expected to grow 13.8% year-over-year to $0.67 for the same period. The stock has gained 22.9% over the past year to close the last trading session at $10.76.
It’s no surprise that FUPBY has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Stability and a B for Value, Sentiment and Quality. It is ranked first in the same industry.
Beyond what is stated above, we’ve also rated FUPBY for Growth and Momentum. Get all FUPBY ratings here.
What To Do Next?
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NDEKY shares were trading at $37.35 per share on Thursday morning, up $0.90 (+2.46%). Year-to-date, NDEKY has gained 0.30%, versus a -1.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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