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 Ingevity Corporation (NYSE:NGVT) 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).
An engineer in her office examining a blueprint, surrounded by engineering components.
Ingevity Corporation (NYSE:NGVT)
Upside Potential: 46.23%
Number of Hedge Funds Holders: 17
Next, we have Ingevity Corporation on our list of the 10 Best Specialty Chemical Stocks To Buy Now.
Ingevity Corporation (NYSE:NGVT) is involved in manufacturing and selling engineered polymers, carbon products, and specialty chemicals in multiple regions of the world including North America, Asia Pacific, South America, and the Middle East. The company operates through a Performance Material segment dealing with hardwood-based and activated carbon products, a Performance Chemical segment serving road and industrial technologies, and a Polymer Technologies segment involving specialty polymers.
The company’s financial health took a hit in the second quarter of 2024 as it reported revenue of $390.60 million which was 19% lower on a YoY basis. The primary reason for the decline was the Performance Chemical segment as it was repositioned, thus reducing exposure to certain markets.
However, it was offset by the strong performance of the company in the Performance Material segment due to improved pricing and volume which helped achieve a segment EBITDA of $82.2 million. Ingevity has announced additional measures to improve the profitability of the specialty chemicals segment by advancing the repositioning. For that purpose, the company has announced the consolidation of chemical refining with existing crude tall oil refining operations. This is expected to result in annual savings of $20 million to $25 million from 2025 onwards.
While Ingevity Corporation (NYSE:NGVT) faced challenges in one segment, the Advanced Polymer segment performed well for the company with increased volume. Thus, it delivered a segment EBITDA of 20.5% for the quarter.
The company plans to save $10 million annually from restructuring plans starting in 2025; given that the global specialty chemicals market is expected to grow (as discussed earlier), Ingevity’s prospects for improving its position and profitability in the industry increase.
The company reported a free cash flow of $11.6 million, signaling a strong cash position. Moreover, the company has projected the year-end revenue to be between $1.4 billion and $1.5 billion, powered by strong performance in Advanced Polymers and Performance Chemicals, and improvement in Specialty Chemicals.
Whether the company achieves its financial targets post-restructuring is something investors should carefully consider. Thus, given the factors discussed, five analysts have predicted an upside potential of 46% in the share price.
Overall NGVT ranks 9th on our list of the best specialty chemical stocks to buy. While we acknowledge the potential of NGVT 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 NGVT 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.