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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?
Subdued Demand in Key End Markets: 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: 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 lowered 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 term.
Self-help 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 #216, which places it at the bottom 11% 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 32.9% over this period compared with the S&P 500’s rise of 16.4% and the broader sector’s increase of 13.5%.
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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 11.06, below the S&P 500’s 18.73X and the sector’s 14.31X.
Over the past five years, the industry has traded as high as 12.79X, as low as 5.56X and at the median of 9.87X, as the chart below shows.
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3 Chemicals Diversified Stocks to Keep a Close Eye on
Air Products: Based in Pennsylvania, Air Products is a leading industrial gases company. The company is benefiting from investments in high-return projects, new business deals, acquisitions and productivity initiatives. It remains committed to its gasification strategy and is executing its growth projects. These projects are expected to be accretive to earnings and cash flows. APD is also boosting productivity to improve its cost structure. It is seeing the positive impacts of its productivity actions. Benefits from additional productivity and cost improvement programs are likely to support its margins.
Air Products, a Zacks Rank #3 (Hold) stock, has expected earnings growth of 7.7% for fiscal 2026. The Zacks Consensus Estimate for fiscal 2026 earnings has gone up 0.4% over the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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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 48.3% for 2025. The company beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and beat it once. In this timeframe, it delivered an earnings surprise of 35.3%, on average.
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Avient: Ohio-based Avient, carrying a Zacks Rank #3, offers specialized and sustainable material solutions. It is benefiting from the strength in sustainable solutions, diversified end markets, cost-reduction actions, a favorable mix and new business wins. Its cost and productivity actions are lending support to margins. The strength in defense, telecom and healthcare markets also bodes well, offsetting softness in consumer, packaging, industrial and construction end markets. The buyout of the protective materials business of DSM (including the Dyneema brand) is also contributing to its performance. Dyneema expanded AVNT’s portfolio of advanced composite and engineered fiber materials and provided new growth opportunities.
Avient has expected earnings growth of 5.3% for 2025. The Zacks Consensus Estimate for its current-year earnings has been stable over the last 30 days. AVNT beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 1.9%.
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This article originally published on Zacks Investment Research (zacks.com).
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