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 American Vanguard Corporation (NYSE:AVD) 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 farmer inspecting the health of soil in a green and lush field.
American Vanguard Corporation (NYSE:AVD)
Upside Potential: 184%
Number of Hedge Funds Holders: 19
The next stock on our list of the 10 Best Specialty Chemical Stocks To Buy Now is American Vanguard Corporation (NYSE:AVD). It develops and markets specialty chemicals for use in the agriculture, commercial and consumer segments. The company also produces biological and chemical products for crop applications. Based in California, the company distributes its products with the help of national distribution companies and sales offices.
The company reported net sales of $128.2 million in the second quarter of 2024 which are slightly lower than the sales of $132.8 million of the second quarter in 2023. However, half-year sales of 2024 were higher with $263.4 million reported in the first half of 2024 compared to $257.7 million in the prior year. It recorded a double-digit sales increase in the non-crop and green solutions business. This increase was driven by stronger demand in Central America.
Although the sales registered a growth, the profitability of American Vanguard Corporation (NYSE:AVD) declined, as adjusted EBITDA of $6.2 million reported in second quarter of 2024 was lower than $10.7 million in the prior year. This decline was driven by one-time costs, including severance of the former CEO as well as restructuring costs.
Despite the one-time nature of these costs, the company announced immediate steps to improve liquidity and cost structure. It has also set in motion multiple initiatives to reduce inventory downward and maximize cash. Nevertheless, American Vanguard Corporation (NYSE:AVD) announced a cash dividend of $0.03, reflecting the financial strength of the company.
The company faced a challenging situation when it had to cancel all registrations for its Dacthal herbicide products following a suspension order from EPA (Environmental Protection Agency). Despite its reservations with the EPA decision, the company is prioritizing the removal of product from market.
Meanwhile, 19 hedge funds have collectively invested $43 million in the company’s stock. Additionally, three analysts have forecasted an upside potential of 184% in the share.
Overall AVD ranks 5th on our list of the best specialty chemical stocks to buy. While we acknowledge the potential of AVD 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 AVD 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.