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 Albemarle Corporation (NYSE:ALB) 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 team of scientists in a laboratory observing the sophisticated engineering of specialty chemicals.
Albemarle Corporation (NYSE:ALB)
Upside Potential: 35%
Number of Hedge Funds Holders: 32
Albemarle Corporation develops, manufactures, and markets specialty chemicals. The company operates through three segments: Energy storage, Catalyst and Specialties.
The Energy Storage segment deals with storage of various lithium compounds like lithium carbonate, lithium chloride and lithium hydroxide. The company also provides technical service for handling and use of reactive lithium products.
On the other hand, the Specialties segment deals in bromine-based specialty chemicals, elemental bromine, alkyl, organic bromine, and other bromine fine chemicals. It also manufactures cesium products for chemical and pharmaceutical industries. Lastly, the catalyst segment offers clean fuel technologies.
Albemarle Corporation (NYSE:ALB) recorded sales revenue of $1.4 billion in second quarter of 2024. The sales stayed roughly the same over the two quarters of 2024; however, it fell from $2.4 billion in the prior-year quarter. This decline was primarily due to lower pricing in the Energy Storage sector.
Furthermore, the company registered an EBITDA of $386 million that saw a decline of $880 million from the prior-year quarter. This decline was on the account of lower margins and reduced equity earnings, due to falling prices of lithium. However, the adjusted EBITDA rose by 33% in the second quarter compared to the first quarter fueled by higher sales volumes across all businesses and higher income from Talison JV sales volumes.
Albemarle Corporation (NYSE:ALB) also reported operational cash flows of $363 million in the quarter. This was an increase of $289 million compared to the same quarter of the last year. Improvements in working capital and higher Talison JV drove this improvement in cash position. The company ended the second quarter with $3.5 billion liquidity, including $1.8 billion of cash and cash equivalents and $1.5 billion in the revolving facility.
Albemarle has unveiled its project plan for Kings Mountain Mine, which is one of the few known hard-rock lithium deposits in the U.S. The plan outlines the site footprint, primary features, and mining process details. Following approval and final investment decision, the mine is projected to produce 420,000 tons of lithium-bearing spodumene concentrate every year.
Given the strong financial situation reported along with the major breakthrough in lithium mining, 22 analysts have forecasted an upside of 35% in the share price. Additionally, 32 Hedge funds have invested $484 million in this share as well.
Overall ALB ranks 1st on our list of the best specialty chemical stocks to buy. While we acknowledge the potential of ALB 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 ALB 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.