The Zacks Chemicals Diversified industry remains mired in headwinds from demand weakness in certain markets, including consumer durables and building & construction. Lower consumer spending due to inflationary pressures in Europe and a slow recovery in China is weighing on demand.

Industry players like DuPont de Nemours, Inc. (DD Quick QuoteDD - Free Report) , Albemarle Corporation (ALB Quick QuoteALB - Free Report) and Methanex Corporation (MEOH Quick QuoteMEOH - Free Report) are banking on strategic measures, including operating cost reductions and aggressive price hikes, to navigate the challenging environment.

About the Industry

The Zacks Chemicals Diversified industry consists of manufacturers of basic chemicals, plastics, specialty chemicals and agricultural chemicals. Companies in this space serve a host of end markets, such as automotive, building & construction, transportation, electronics, aerospace and agriculture. Basic chemicals are produced in large quantities and include petrochemicals and intermediates (such as ethylene, propylene and benzene), polymers (including plastic resins such as polyethylene, polypropylene and polyvinyl chloride), and inorganic chemicals (such as chlorine, caustic soda and titanium dioxide). Specialty chemicals that include catalysts, specialty polymers and coating additives are used in specific fields based on their performance. Agricultural chemicals include herbicides, fungicides and insecticides that are used to protect crops from disease, pests and weeds.

What's Shaping the Future of the Chemicals Diversified Industry?

Demand Headwinds From End-market Softness: Companies in the chemical-diversified space remain hamstrung by demand weakness in certain key markets. The sluggishness in the building & construction, and consumer electronics markets is the key concern. In North America, uncertainties surrounding the U.S. housing market are weighing on building & construction. Elevated borrowing costs and inflation have taken a bite out of the residential construction industry. The consumer electronics market, a key driver of demand for specialty chemicals and advanced materials, is among the hardest hit. Following the post-pandemic boom, global electronics demand has cooled amid high inflation, elevated interest rates and cautious consumer behavior. Manufacturing activities have also softened amid weaker demand for goods and higher borrowing costs, while recovery remains tepid. Demand for chemicals in the industrial sector has weakened due to constrained industrial production. Softer demand in industrial and consumer durables is hurting chemical volumes. 

Slowdown in Europe and China Poses a Concern: In China, a slower recovery in economic activities is hurting chemical demand. China is seeing slower economic growth and a sluggish real estate market. A weak property market and a slowdown in infrastructure investments have led to softer demand. The real estate sector has taken a hard hit amid a decline in new home prices, property investment and housing sales. The slowdown in Europe, resulting from the prolonged Russia-Ukraine war and weaker consumer spending due to high levels of inflation and high interest rates, has also led to softer demand in that region. Energy and feedstock inflation has reduced industrial production and consumer spending in Europe. The ongoing weakness in these key regions will likely adversely impact the demand for chemicals over the short haul.

Strategic Actions to Aid Results: Companies in this space are taking a host of strategic measures, including cost-cutting and productivity improvement, operational efficiency improvement and actions to strengthen the balance sheet and boost cash flows. In particular, the industry participants are aggressively implementing actions to lower costs. The industry participants are also raising selling prices to counter cost inflation. Such moves are likely to help the industry sustain margins amid the prevailing challenges.

 

Zacks Industry Rank Indicates Bleak Prospects

The Zacks Chemicals Diversified industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #232, which places it at the bottom 5% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a gloomy near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Underperforms Sector & S&P 500

The Zacks Chemicals Diversified industry has underperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.

The industry has lost 21% over this period compared with the S&P 500’s rise of 18.4% and the broader sector’s increase of 5.2%.

One-Year Price Performance

Industry's Current Valuation

On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing chemical stocks, the industry is currently trading at 19.29X, below the S&P 500’s 23.02X and above the sector’s 16.31X.

Over the past five years, the industry has traded as high as 19.98X, as low as 8.76X and at the median of 14.53X, as the chart below shows.

 

Enterprise Value/EBITDA (EV/EBITDA) Ratio

 

 

Enterprise Value/EBITDA (EV/EBITDA) Ratio

 

3 Chemicals Diversified Stocks to Keep a Close Eye on

Methanex: Vancouver-based Methanex is the world’s biggest supplier of methanol to major international markets. The Geismar 3 plant will enhance the company’s asset portfolio and future cash generation and deliver long-term value to shareholders. Healthy methanol demand in traditional chemical applications also bodes well. The acquisition of OCI Global's international methanol business allows MEOH to strengthen its global production capacity, benefiting from North America’s abundant and favorably priced natural gas feedstock. The buyout will provide operational synergies along with opportunities for revenue diversification. MEOH is also committed to delivering excess cash to its shareholders in the form of dividends and share repurchases.

The Zacks Consensus Estimate for Methanex’s current-year earnings has been revised 29.2% upward over the past 60 days. The company, carrying a Zacks Rank #2 (Buy), beat the Zacks Consensus Estimate in each of the trailing four quarters at an average of 83.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Price and Consensus: MEOH

 

DuPont: Delaware-based DuPont provides technology-based materials and solutions to markets including electronics, transportation, construction and water. DuPont remains focused on driving growth through innovation and new product development. Its innovation-driven investment is focused on several high-growth areas. DD remains committed to driving returns from its R&D investment. The acquisition of Spectrum Plastics Group, a leading manufacturer of specialty medical devices and components, also strengthened DuPont’s position in stable and fast-growing healthcare end markets. DuPont is also benefiting from cost synergy savings and productivity improvement actions. The company remains focused on driving cash flow and returning value to its shareholders. It aims to boost cash flow through working capital productivity and earnings growth. The company is also making progress on the planned separation of its electronics business (Qnity Electronics) with an expected completion date of Nov. 1, 2025.

DuPont, carrying a Zacks Rank #3 (Hold), has a projected earnings growth rate of around 7.9% for 2025. DD beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 10.7%.

Price and Consensus: DD

 

Albemarle: North Carolina-based Albemarle is a premier specialty chemicals company with leading positions in attractive end markets globally. Albemarle is well-placed to gain from long-term growth in the battery-grade lithium market. The market for lithium batteries and energy storage remains strong, especially for electric vehicles (EVs), offering significant opportunities for the company to develop innovative products and expand capacity. Lithium demand is expected to grow with significant global EV penetration. ALB is strategically executing its projects aimed at boosting its global lithium conversion capacity. It remains focused on investing in high-return projects to drive productivity. Albemarle is also taking actions to cut costs, optimize its conversion network and increase efficiencies to preserve its long-term competitive position.
 
Albemarle, a Zacks Rank #3 stock, has expected earnings growth of 20.9% for 2025.  It also has an expected long-term earnings growth of 16%.

 

Price and Consensus: ALB