We recently published a list of 12 Best Chemical Stocks to Buy According to Analysts. In this article, we are going to take a look at where Dow Inc. (NYSE:DOW) stands against other best chemical stocks to buy according to analysts.
PwC believes that Chemicals M&A deal value and volume demonstrated signs of a rebound in H2 2024. This was due to numerous factors, such as central banks cutting rates, moderation of inflation and the broader destocking trend starting to subside. The firm expects chemical deal activity to further rebound in H1 2025 due to the easing of economic and political uncertainties across major countries.
Notably, a renewed emphasis on domestic industrial policy and global supply chain realignment, together with higher private equity exits, are expected to result in more assets in the market, fueling the deal activity. David Yankovitz, the US Chemicals Market Leader at Deloitte, believes that the 2025 outlook for the broader chemical sector demonstrates a transition to a high-tech, low-carbon future.
Growth Drivers for Chemicals Industry
The American Chemistry Council (ACC) anticipates a 1.9% rebound in chemical volumes in 2025 after 2 consecutive years of declines as the US economy continues to undergo a soft landing and the housing market witnesses improvement in H2 of the year. Martha Moore, chief economist at the ACC, expects that the US Fed rate cuts will stimulate demand for durable goods and investment. Moore also expects an improvement in manufacturing and industrial production globally in 2025, which can help US exports. That being said, the trade policy is uncertain with the threat of tariffs by the Trump administration.
Amidst the challenges, the economist expects a recovery in demand for the US chemicals, although a modest one, in 2025, which will be weighted towards H2 2025 as the lag effects of the rate cuts take hold.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Transformative Trends Affecting the Chemicals Sector
David Yankovitz expects an improvement in operational excellence via cost-reduction programs and asset rationalization. Amidst the fluctuating market conditions, several chemical companies continue to emphasize cost-effectiveness. With the help of strategic cost-reduction programs and asset rationalization, companies have been striving to improve operational effectiveness. The chemical companies tend to navigate uneven growth throughout several end markets. With a strong focus on high-growth sectors like semiconductors and clean energy, companies have been positioning themselves to capitalize on such opportunities.
Apart from these trends, Yankovitz believes that innovation remains critical for advancing the chemical industry. Organizations continue to invest in enhancing their product offerings, optimizing manufacturing processes, and collaborating throughout ecosystems to fuel sustainability and performance. Such a comprehensive approach to innovation might help businesses cater to the changing market demands. Notably, it also helps prepare for leadership in a low-carbon, high-tech future.
Our Methodology
To list the 12 Best Chemical Stocks to Buy According to Analysts, we used a screener and online rankings to shortlist the chemical stocks. Next, we chose the ones in which analysts saw upside potential. Finally, the stocks were ranked in ascending order of their average upside potential, as of 29th January. We also mentioned hedge fund sentiments around each stock, as of Q3 2024.
At Insider Monkey we are obsessed with 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 technician operating state of the art machines manufacturing specialized packaging materials.
Dow Inc. (NYSE:DOW)
Average Upside Potential: 42.6%
Number of Hedge Fund Holders: 31
Dow Inc. (NYSE:DOW) is engaged in the provision of various materials science solutions for packaging, infrastructure, mobility, and consumer applications. The company focuses on $500 million – $700 million in direct cost cuts, mainly from purchased services and third-party contract labor. Amidst the challenging environment, Dow Inc. (NYSE:DOW) is expected to benefit from the completion of its near-term incremental growth projects and an improved focus on operational discipline in 2025. Furthermore, the company remains optimistic about demand growth in certain end markets, including packaging, energy, and electronics.
Overall, the company is targeting to deliver $1 billion in cost savings. These reductions came in response to ongoing macroeconomic uncertainty and will reinforce its long-term competitiveness across the economic cycle. Dow Inc. (NYSE:DOW) continues to leverage its cost-advantaged footprint in a bid to capture resilient demand for high-value applications. In December, it signed a definitive agreement for the sale of a minority stake in select US Gulf Coast infrastructure assets for anticipated cash proceeds of up to ~$3 billion.
Dow Inc. (NYSE:DOW) believes that the partnership offers a new business model focused on driving operational efficiencies and growth with new customers while offering near-term financial flexibility. The company also announced a strategic review of select European assets. All these collective actions showcase a continuation of Dow Inc. (NYSE:DOW)’s commitment to maintaining its strong financial foundation and supplementing the near-term cash flow.
Overall, DOW ranks 3rd on our list of best chemical stocks to buy according to analysts. While we acknowledge the potential of DOW as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than DOW 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.
