The U.S. chemical industry has witnessed a strong recovery since the pandemic, with demand increasing from the major end markets such as construction and health and safety. Strong demand for commodity and specialty chemicals should keep prices robust throughout the year.  

Moreover, the industry is expected to grow, supported by inventory building and end-use demand. Chemical output in the country is expected to grow by 4.1% in 2022 and by 2.4% in 2023.

Given this backdrop, fundamentally strong chemical stocks Dow Inc. (DOW) and Kronos Worldwide, Inc. (KRO) might be solid investments now.   

However, the chemical industry is struggling with supply chain issues and freight transportation disruptions, harming manufacturing operations. Thus, the fundamentally weak stock Gevo, Inc. (GEVO) might be best avoided now.  

Stocks to Buy: 

Dow Inc. (DOW)  

DOW provides materials science solutions for packaging, infrastructure, mobility, and consumer applications. It operates through Packaging & Specialty Plastics; Industrial Intermediates & Infrastructure; and Performance Materials & Coatings segments.  

On September 23, DOW announced its partnership with Lion Corporation to launch recyclable refill bags for Shokubutsu Monogatari’s shower cream in Thailand. This agreement to develop easy-to-recycle refill bags should enable DOW to expand its customer base in new markets. 

On September 14, DOW announced an agreement with French recycling company Valoregen to contribute to building the largest single hybrid recycling site in France. DOW is expected to be the main recipient of post-consumer resins, which it would use to develop new plastic products marketed under Dow’s REVOLOOP™ product range. 

DOW’s net sales increased 12.8% year-over-year to $15.66 billion for its second quarter ended June 30, 2022. For six months ended June 30. Its non-GAAP net income increased 12.6% year-over-year to $3.44 billion, while its non-GAAP EPS amounted to $4.65, representing an increase of 14% year-over-year.  

The consensus revenue estimate of $57.56 billion for fiscal 2022 reflects a 4.7% improvement year-over-year. Its consensus EPS is estimated to be $7.43 for the same year. Additionally, DOW has surpassed the Street’s EPS estimates in each of the trailing four quarters, which is impressive.  

The stock has declined 1.9% intraday to close the last trading session at $43.90. 

DOW’s POWR Ratings reflect its promising outlook. According to our proprietary rating system, it has an overall B rating, which translates to a Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. 

It has an A grade for Value and a B for Momentum and Quality. It is ranked #33 out of 88 stocks in the B-rated Chemicals industry. To see additional POWR Ratings for Growth, Stability, and Sentiment for DOW, click here.  

Kronos Worldwide, Inc. (KRO) 

KRO produces and sells titanium dioxide pigments (TiO2) under the KRONOS brand, which is a base industrial product used for diverse applications. In addition, the company provides technical services for its products.  

On August 3, KRO declared a regular quarterly dividend of $0.19 per share on its common stock, which was payable to stockholders on September 15, 2022. This reflects the good liquidity position of the company.   

KRO’s net sales increased 18.1% year-over-year to $565.30 million during the second quarter of 2022 ended June 30. The company’s income from operations increased 48.9% from the year-ago value to $65.20 million. Net income came in at $45.90 million, up 78.6% year-over-year. The income per share rose 81.8% from the previous-year quarter to $0.40.   

Analysts expect KRO’s revenue for the third fiscal quarter ending September 2022 to be $537.51 million, indicating a 7.5% year-over-year growth. The company’s EPS for the same period is expected to increase 14.9% year-over-year to $0.36. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.   

KRO has dipped 2.9% intraday to close its last trading session at $10.99.  

It is no surprise that KRO has an overall A rating, which translates to Strong Buy in our POWR Ratings system. The stock has an A grade for Value and a B for Momentum, Stability, and Quality. It is ranked #4 in the same industry.  

Beyond what we’ve stated above, we have also given KRO grades for Growth and Sentiment. Get all KRO ratings here.   

Stock to Avoid:  

Gevo, Inc. (GEVO) 

GEVO operates as a renewable fuels company through its four segments: Gevo; Agri-Energy; Renewable Natural Gas; and Net-Zero. The company commercializes gasoline, jet fuel, and diesel fuel to achieve zero carbon emissions and reduce greenhouse gas emissions. 

On September 19, GEVO announced that the U.S. Department of Agriculture had selected its Climate-Smart Farm to Flight proposal for funding with an award ceiling of up to $30 million.

GEVO’s total revenues have decreased 74.3% year-over-year to $89 thousand in the second fiscal quarter ended June 30, 2022. Its total cost of goods sold increased 33.4% from the year-ago value to $3.73 million, while its loss from operations amounted to $16.12 million. The company’s non-GAAP adjusted net loss per share came in at $0.06 for the quarter.  

The company’s EPS is expected to decline 21.4% from its prior-year quarter to a negative $0.09 for the fiscal third quarter ending September 2022. Street expects GEVO’s revenue to be $731 thousand for the same quarter.  

GEVO’s stock has lost 66.5% over the past year to close its last trading session at $2.27. The stock fell 54.4% over the past six months. 

GEVO’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.  

GEVO has an F grade for Value, Stability, and Quality and a D for Growth. It is ranked #86 in the same industry. Click here to see the additional POWR Ratings for GEVO (Momentum and Sentiment).

DOW shares were trading at $43.39 per share on Monday afternoon, down $0.51 (-1.16%). Year-to-date, DOW has declined -20.74%, versus a -22.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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