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2 Chemical Stocks That Are Reacting Well With the Current Economical Environment

Although several headwinds have taken a toll on the chemical industry, with favorable government initiatives, it is well-positioned to thrive in the near term. Therefore, chemical stocks Sisecam Resources (SIRE) and Oil-Dri Corporation of America (ODC) might be wise portfolio additions now, given their fundamental strength. Read on…

Several economic headwinds have stoked recessionary fears and raised market volatilities. Although hampered by the headwinds last year, the chemical industry is poised to witness significant growth in the foreseeable future, thanks to its increased use across various sectors of the economy and government support.

Given this backdrop, let us probe into chemical stocks Sisecam Resources LP (SIRE) and Oil-Dri Corporation of America (ODC) now.

The chemical industry is a widespread business worldwide. It plays a lead role in agriculture, science and technology, food, décor, etc. The extensive use of chemicals positions the industry in an advantageous position.

The industry faced several headwinds due to the Russia-Ukraine war, but it did benefit from it to some extent. For instance, in the U.S. chemical industry, the diminished supply of chemical fertilizer from Ukraine has boosted prices and exports of U.S. fertilizer products. The producers also exhibit a competitive advantage due to comparatively cheaper domestic U.S. shale gas.

The Fed’s incessant rate hikes and the recent financial sector tumult raised anticipations of an economic slowdown in the upcoming months. Despite such an economic scenario, the chemical industry could remain resilient and register strong growth.

In addition, the White House is preparing to release plans for building U.S. capacity to make plastics, chemicals, foods, fuels, and other products using biological processes to keep pace in a global biomanufacturing race. Moreover, the Inflation Reduction Act of 2022, an important catalyst for a clean energy economy, could bring new opportunities for the chemical industry.

Amid transformations, chemical producers will be seeking to invest and develop decarbonization strategies amid an evolving geopolitical landscape. The companies are also expected to implement increased digitalization in their operations.

The global chemical distribution market size was valued at $246.49 billion in 2022 and is anticipated to expand at a CAGR of 6.3% from 2023 to 2030.

Given this backdrop, investors could capitalize on the current market dynamics and add quality chemical stocks SIRE and ODC to their portfolios now.

Sisecam Resources LP (SIRE)

SIRE engages in the trona ore mining and soda ash production businesses internationally. It processes trona ore into soda ash, which is a raw material in flat glass, container glass, chemicals, paper, and other consumer and industrial products.

On February 1, SIRE declared its quarterly dividend of $0.50, which was paid to unitholders on February 23, 2023. Its annual dividend of $2.00 yields 7.94% on the current share price. It has a four-year average yield of 7.08%. Its dividend payouts have increased at 13.7% CAGR over the past three years.

SIRE’s trailing-12-month ROCE of 30.39% is 160% higher than the industry average of 11.69%. Its trailing-12-month ROTA of 9.42% is 74.4% higher than the industry average of 5.40%.

SIRE’s revenue has grown at 11.3% and 7.7% CAGRs over the past three and five years, respectively. Moreover, its EBITDA has grown at 6.6% CAGR over the past three years.

SIRE’s total net sales came in at $177.10 million for the fourth quarter (ended December 31, 2022), up 13.5% year-over-year. Its net income increased 43.6% year-over-year to $16.80 million. Moreover, its net income per limited partner unit came in at $0.83, up 48.2% year-over-year.

SIRE has gained 29.5% over the past year to close the last trading session at $25.19. It has also gained 16.9% over the past six months.

SIRE’s promising outlook is reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It also has a B grade for Growth, Value, Stability, and Quality. SIRE is ranked first in the 104-stock B-rated Chemicals industry. 

Click here to see the additional POWR Ratings for SIRE (Momentum and Sentiment).

Oil-Dri Corporation of America (ODC)

ODC manufactures and supplies specialty sorbent products for pet care, animal health and nutrition, fluids purification, agricultural ingredients, sports field, and industrial and automotive markets. It operates in two segments, Retail and Wholesale Products Group; and Business to Business Products Group.

In March, ODC’s directors declared a quarterly dividend of $0.28 per share of the company’s common stock and $0.21 per share of the company’s class B stock, payable to stockholders on May 26, 2023. ODC has paid cash dividends continuously since 1974 and has increased dividends annually for nineteen consecutive years.

Its annual dividend of $1.12 yields 2.74% on the current share price. The company’s dividend payouts have increased at a 3.9% CAGR over the past three years and a 4.1% CAGR over the past five years. Its four-year dividend yield is 3.17%.

ODC’s trailing-12-month ROTA of 4.76% is 14.1% higher than the industry average of 4.17%. Furthermore, the stock’s 1.51x trailing-12-month asset turnover ratio is 76.9% higher than the industry average of 0.85x.

ODC’s revenue has grown at 10.2% and 7.3% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 7.6% and 12.9% CAGRs over the past three years, respectively.

ODC’s net sales for the second quarter that ended January 31, 2023, increased 16.6% year-over-year to $101.67 million. Its gross profit increased 47.7% year-over-year to $23.02 million. The company’s net income attributable to common shareholders rose 92.6% from the prior-year period to $3.86 million. Its earnings per common share rose 100% year-over-year to $0.56.

Over the past six months, the stock has gained 73.1% to close the last trading session at $40.92. It has gained 46.3% over the past year.

ODC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

It has a B grade for Growth, Sentiment, and Stability. It is ranked #2 within the same industry.

To see the other ratings of ODC for Value, Momentum, and Quality, click here.

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SIRE shares were trading at $25.19 per share on Thursday morning, down $0.00 (0.00%). Year-to-date, SIRE has gained 22.35%, versus a 6.62% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.


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