The giants of the chemical industry produce wallpapers, adhesive tapes, insecticides, inks, shampoo, and more. These companies are protected from economic downturn.
The chemical industry is one of the most stable in unstable conditions. People won’t stop buying toothpaste, glue, and ink even in a recession. This means that even a conservative investor, that is, one who does not want to risk too much, can make money on the shares of chemical giants. In this article, we will consider the best companies to invest in chemical stocks.
The connection between the chemical industry and the performance of other industries
Chemical products are used in different sectors including automotive, manufacturing, and industrial operations. Many companies process raw materials such as crude oil into more refined products that are used in various fields of the economy.
Important factors to consider before investing:
- A wide range of consumers, such as automakers, manufacturers, and agricultural companies, depending on the products of chemical companies.
- Approximately 80% of the products of the chemical industry are polymers and plastics.
- Companies that manufacture chemical products closely monitor trends emerging in the economy. They do it to properly respond to possible changes in the industries of customers who are sensitive to changes.
It should be noted that the chemical sector itself is the largest consumer of chemical products.
Interestingly, crude oil has a significant impact on the chemical industry, as it is a raw material for the production of plastics and polymers. Approximately 80% of the chemical sector is involved in the production of these products. More than 25% of them are then used by the chemical industry itself in other production processes.
Polymers and plastics
Polymers include polyethylene, polyvinyl chloride, and polystyrene. Plastic is essential for the production of packaging, toys, and household appliances, and it is also used in the transport industry and in housing construction. Global consumer spending and economic growth have fueled an increase in demand for products that use chemicals. Since chemical companies are very sensitive to market demand, the industry closely monitors demand from other industries. Increasing demand for consumer goods and the expansion of production, in turn, stimulate the demand for chemical products.
Chemical products are widely used to produce other useful materials. For this reason, plants supplying basic chemicals are often located near other chemical production plants.
Feedstock consumption is high for many industrial chemical processes, so locating plants near these material producers also makes sense for many companies in the industry. Businesses with relatively lower energy costs can invest in plants near their consumer markets to make it cheaper to transport materials to the site. Meanwhile, as demand picks up in emerging economies in Asia, production on the continent is likely to increase to meet rising consumer spending.
Oil and chemistry
Oil is essential for the production of many chemical products. Both polymers and many plastics are made from it. Because plastics make up a significant proportion of the chemical industry, the oil industry has a huge impact on the production of plastics and polymers. Fluctuations in the price of oil can have a huge impact on the price of chemical products. Some companies pass these prices on to customers through markups and protect themselves to some extent from the impact of unsustainable costs.
The prices of other feedstocks also affect the industry and can reduce demand if costs are excessively high. As important suppliers, manufacturers of these feedstocks can have a significant impact on the variable costs associated with increased production. Chemical companies must carefully manage supply chain risks to minimize problems associated with these costs.
The best companies to invest in chemical stocks
Let’s look at the best chemical stocks you can buy right now. There is a list of companies, based on data provided by leading hedge funds.
- WR Grace & Co (NYSE: GRA)
WR Grace is a Maryland company that manufactures special chemicals and materials, with a focus on catalysts and silica. In its current state, WR Grace emerged from Chapter 11 bankruptcy of the United States Bankruptcy Code, when the original company, founded in 1854, went bankrupt due to asbestos litigation. The company has a strong market presence, with about 80% of revenue coming from segments in which it ranks first or second.
In addition, it has a competitive advantage due to a significant number of patents, high barriers to entry, proximity to customers, long-term partnerships, and a broad, well-differentiated product portfolio.
- Dow Inc. (NYSE: DOW)
The Michigan-based Dow is ranked fourth on the list of the top five chemical stocks to buy for 2022. The company, which has a market capitalization of over $41 billion, received a high rating from J.P. Morgan on the back of excellent growth prospects in the polyethylene market.
- Chevron Corporation Chemicals (NYSE: CVX)
Chevron Phillips Chemical Company is a chemical company jointly owned by oil giant Chevron and Texas-based Phillips 66. The company has a strong presence in the market and is an attractive variant to invest in.
- ExxonMobil Corporation (NYSE: XOM)
ExxonMobil Chemical Company is the chemical division of oil giant Exxon. The company manufactures a wide range of chemical products that are used in packaging materials, plastics, automobiles, rubbers, and many other consumer products. ExxonMobil’s chemicals business is currently under pressure due to trade tensions with China and a global oversupply.
The company’s share in the global production of polyethylene is 9%, but this segment is experiencing a decline due to overproduction.
- DuPont de Nemours Inc (NYSE:DD)
DuPont de Nemours Inc (NYSE: DD) is a chemical giant formed from the merger of Dow Chemical and EI du Pont de Nemours and Company in 2017. This player is one of the best producers of chemicals and science-based products in the world.
An important factor that keeps the chemical industry always ready for investment is the very nature of the chemical business. Chemical companies operate in the “world of things”. Everything around us — buildings, food, cosmetics, furniture, cars, computers — contains some kind of chemicals. Thus, if you are interested in investing in chemical stocks try the Gainy app. With this useful solution, an investor can manage his funds and discover new investment strategies. It also provides users with the possibility to arrange and customize all the needed data in one place.
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