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We recently compiled a list of the 10 Best Specialty Chemical Stocks To Buy Now. In this article, we are going to take a look at Ecovyst Inc. (NYSE:ECVT) against the other specialty chemical stocks.
The chemical industry includes companies that produce industrial, specialty, and commodity chemicals, serving as a cornerstone of the modern world economy. In 2023, the global chemical industry stood at $5.1 trillion and is expected to grow to $7.8 trillion in 2028, with a whopping yearly growth rate of 8.7%, according to estimates by the Business Research Company.
Global Specialty Chemicals Market
Within the broader chemical industry, the specialty chemicals segment plays a crucial role. This segment includes performance chemicals used to improve industrial processes and as ingredients in final products to enhance technical and performance attributes. These chemicals include plastic & rubber additives, oilfield chemicals, water treatment chemicals, advanced ceramic chemicals, and several other types of performance chemicals.
In 2023, the global specialty chemicals market was valued at $627.7 billion and is expected to grow to $1 trillion by 2032 at a CAGR of 5%, according to Fortune Business Insights. This exceptional growth is driven by the packaging industry, particularly in food and cosmetic packaging, driven by the growth of e-commerce platforms.
In addition to packaging, the automotive industry boosts demand for specialty chemicals, which play a crucial role in producing parts like tires, coatings, and adhesives. Additionally, demand for specialty chemicals is strong in the construction industry where they help keep the structures safe and improve their lasting period.
The global food and beverage market is expected to grow from roughly $6.5 trillion in 2023 to $8.8 trillion by 2028, according to Fortune Business Insights. This means increasing demand for food additives and packaging which further bolsters growth prospects of the specialty chemicals industry.
Despite the wide usage of such chemicals, they are often subject to government regulations to protect workers, the environment, and customers. This is due to the specialty chemicals industry being the 3rd largest contributor to CO2 emissions from the industry.
However, the specialty chemicals industry has started evolving towards green and sustainable practices. This shift aims to lower energy emissions, improve safety standards, and lower compliance costs. Hydrogen fuel cells are expected to reduce the industry’s CO2 emissions, while Artificial Intelligence (AI) and machine learning (ML) can optimize processes, make materials discovery easier, and enhance predictive modeling.
Specialty Chemicals Market in USA
Based on their types and serving industries, the specialty chemicals market is divided into multiple segments including dyes, construction, pharmaceuticals, and others.
The U.S. specialty chemicals market is expected to grow at a CAGR of 3% mainly driven by the increased production of vehicles which directly increases the demand for paints, coatings, and additives. The U.S. automotive industry is one of the largest ones in the world; 15.5 million new light vehicles were sold in the country in 2023 alone, as we reported in our article about the 15 Fastest Growing Automotive Brands in the World.
The growing infrastructure of the U.S. is also a major consumer of specialty chemicals in the paint and coatings segment; the U.S. is the second biggest exporter of all types of paints.
Our Methodology
To curate our list of the 10 Best Specialty Chemical Stocks To Buy Now, we gathered a list of all companies that are operating in this segment using the Finviz stock screener. We then further narrowed them down on the basis of several metrics like market capitalization, institutional ownership, the number of analysts watching the stock, and the overall financial health of respective stocks. We ranked the finest remaining companies by their upside potential, as predicted by the analysts. Finally, we ranked the top stocks based on the number of hedge funds that were bullish on the stock as of Q2 2024. Hedge Fund data was acquired from the Insider Monkey’s hedge fund database that tracks the activity of 920 hedge funds. For stocks with equal number of hedge fund holders, we used their upside as the tiebreaker.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A view of a large petro-chemical plant and its complex equipment.
Ecovyst Inc. (NYSE:ECVT)
Upside Potential: 103.96%
Number of Hedge Funds Holders: 17
Ecovyst Inc. is the next stock on our list of the 10 Best Specialty Chemical Stocks To Buy Now.
Ecovyst Inc. (NYSE:ECVT) is an American company founded in 2017 that deals in two segments: Ecoservices and Advanced Catalysts. The Ecoservices segment deals with the recycling of sulfuric acid and is also involved in logistics for the production of alkylates for refineries. On the other hand, the Advanced Materials and Catalyst segments provide products and services to producers of polyethylene. It also deals with zeolite and its catalysts for low-emission engines, refineries, and sustainable fuels.
In May 2024, Ecovyst Inc. (NYSE:ECVT) announced the successful commissioning of its new thermal pyrolysis reactor and cutting-edge equipment, specially designed for the recycling of waste produced by plastic applications. The milestone is a big step in the company’s vision of addressing plastic pollution and promoting a healthier environment. This is a highly financially viable decision as the U.S. government has announced financial incentives of over $360 billion for companies making green investments.
The revenue of the company was $691.12 million in 2023, which is 15.73% lower on a YoY basis. The main reason for this decline was the pass-through effect of lower sulfur costs amounting to $86 million and the decline in volume. Sales volume was mainly reduced due to disruptions caused by the Elliot storm, lower demand, and decreased inventory in intermediaries dealing with polyethylene and sulfuric acid. Despite the fall in revenue, the diluted EPS of the company improved to $0.60 per share in 2023 from $0.52 in 2022, primarily due to an increase in prices for customers, which was partially offset by higher operating expenses.
The company reported sales of $160.5 million in the first quarter of 2024, primarily driven by higher sales in virgin sulfuric acid and regeneration services, although slightly offset by lower volumes being generated in Ecoservices and advanced silicas, which is a point of concern for the company.
Along with improved revenue, the cash generation was significant in the quarter which reduced the company’s net debt leverage to 2.9 times. Moreover, the company has recently announced its equity investment of $4.5 million in an innovative materials company – Pajarito Powder – specializing in electrolyzers and fuel cells.
In light of these developments, four analysts predict that the share has an upside potential of 104%, and 17 hedge funds are bullish on the stock.
Overall ECVT ranks 8th on our list of the best specialty chemical stocks to buy. While we acknowledge the potential of ECVT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ECVT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.