With the gradual resumption of global manufacturing activities, demand for chemicals is soaring. Given rising prices and an increasing focus on domestic chemical production, we think it could be wise to scoop up the shares of quality chemical companies Huntsman (HUN), Asahi Kasei (AHKSY), and AdvanSix (ASIX), which look undervalued at their current price levels. These stocks have an overall A (Strong Buy) or B (Buy) rating in our proprietary POWR Ratings system. Read on.
The US chemical industry contributes more than 25% to the nation’s GDP and is crucial for the country’s overall manufacturing activities. Global supply chain disruptions have driven rising prices for basic chemicals. However, despite lingering logistic hurdles, US chemical production has increased 5.2% year-over-year.
Demand for chemicals has increased significantly over the past few months amid the resumption of manufacturing activities. According to KingPin Market Research, the global chemicals market size is projected to grow at a 2.2% CAGR from 2021 to 2026.
Therefore, we think it could be wise to add fundamentally sound yet undervalued chemical stocks Huntsman Corporation (HUNAsahi Kasei Corporation (AHKSY), and AdvanSix Inc. (ASIX) to one’s portfolio now. These stocks have an overall A (Strong Buy) or B (Buy) grade in our POWR Ratings system.
Huntsman Corporation (HUN)
HUN in Salt Lake City, Utah, Manufactures and sells differentiated organic chemical products worldwide. The company operates through four segments: Polyurethanes; Performance Products; Advanced Materials; and Textile Effects.
On May 20, 2022, HUN announced that its subsidiary, Huntsman International LLC, entered a new $1.2 billion senior unsecured, sustainability-linked revolving credit facility. Phil Lister, Executive Vice President and Chief Financial Officer said, “Linking our revolving credit facility to sustainability objectives supports our commitment to provide innovative solutions for a low-carbon and more sustainable economy.”
For its fiscal year 2022 first quarter, ended March 31, 2022, HUN’s revenues were $2.39 billion, up 30% year-over-year. Its adjusted net income was $256 million, up 74.1% year-over-year, while its adjusted EPS was $1.19, up 80.3% year-over-year. Also, its adjusted EBITDA came in at $415 million, up 43.6% year-over-year.
In terms of forward EV/S, HUN’s 0.92x is 39.8% lower than the 1.53x industry average. Also, its 0.78x forward P/S is 37.8% lower than the 1.26x industry average.
HUN’s revenue is expected to come in at $9.35 billion in 2022, representing a 10.6% year-over-year rise. The company’s EPS is expected to increase 24% year-over-year to $4.39 in 2022. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 8.6% in price to close yesterday’s trading session at $36.16.
It is no surprise that HUN has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings assesses stocks by 118 distinct factors, each with its own weighting. In addition, it has an A grade for Value and a B grade for Growth.
HUN is ranked #16 out of 91 stocks in the A-rated Chemicals industry. Click here to see the additional POWR Ratings for HUN (Momentum, Stability, Sentiment, and Quality).
Asahi Kasei Corporation (AHKSY)
Headquartered in Tokyo, Japan, AHKSY manufactures, processes, and sells chemical products in Japan and internationally. The company operates through three segments: Material; Homes; and Health Care.
On April 19, 2022, Asahi Kasei Medical announced its agreement to acquire Bionova Scientific, LLC. The acquisition is expected to help AHKSY expand its Health Care segment with an improved bioprocess business and diversified customer reach.
For the year ended March 31, 2022, AHKSY’s net sales came in at ¥2.46 trillion ($19.39 billion), up 16.9% year-over-year. Its net income was ¥163.83 billion ($1.29 billion), up 99.6% year-over-year. Furthermore, its gross profit came in at ¥769.77 billion ($6.07 billion), up 13.1% year-over-year.
In terms of forward EV/S, AHKSY’s 0.79x is 48.3% lower than the 1.53x industry average. Its 0.57x forward P/S is 55% lower than the 1.26x industry average.
AHKSY’s revenue is expected to increase 301.7% year-over-year to $20.27 billion for its fiscal period ending March 31, 2023. Over the past month, the stock has gained 2.3% in price to close yesterday’s trading session at $16.33.
AHKSY’s POWR Ratings reflects its promising outlook. It has an overall B rating, which represents a Buy in our POWR Ratings system.
AHKSY has an A grade for Value and Stability. It is ranked #35 in the Chemicals industry. Click here to see the additional POWR Ratings for AHKSY (Growth, Momentum, Sentiment, and Quality).
AdvanSix Inc. (ASIX)
ASIX in Morris Plains, NJ, manufactures and sells polymer resins in the United States and internationally. It offers Nylon 6, a polymer resin; caprolactam, to manufacture polymer resins; ammonium sulfate fertilizers; acetone; and other intermediate chemicals.
On May 6, 2022, Erin Kane, ASIX’s President and CEO, said, “We continued to deploy capital to enhance shareholder value creation including the acquisition of US Amines and return of cash in the form of our ongoing quarterly dividend as well as optunistically repurchasing approximately $7 million of our stock.”
ASIX’s sales came in at $479.07 million for the first quarter, ended March 31, 2022, up 27.3% year-over-year. Its net income was $63.07 million, up 124.2% year-over-year, while its EPS came in at $2.15, up 119.4% year-over-year.
In terms of forward EV/S, ASIX’s 0.76x is 50.4% lower than the 1.53x industry average. Also, its 0.61x forward P/S is 51.7% lower than the 1.26x industry average.
Analysts expect ASIX’s revenue to increase 22% year-over-year to $2.05 billion in 2022. Its EPS is expected to increase 72.3% year-over-year to $8.29 in 2022. Also, it surpasses EPS estimates in three of the four trailing quarters . Over the past three months, its stock has gained 17.4% in price to close yesterday’s trading session at $45.45.
It is no surprise that ASIX has an overall A rating, representing a Strong Buy. It has an A grade for Value and a B grade for Growth and Sentiment. It is ranked #2 out of 37 stocks in the A-rated Industrial – Manufacturing industry. Click here to see the additional ratings for ASIX (Momentum, Stability, and Quality).
Click here to check out our Industrial Sector Report for 2022
HUN shares were unchanged in premarket trading Friday. Year-to-date, HUN has gained 4.25%, versus a -13.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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