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 Koppers Holdings Inc. (NYSE:KOP) 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 worker in safety gear loading railroad ties on a truck, emphasizing the importance of manual labor.
Koppers Holdings Inc. (NYSE:KOP)
Upside Potential: 63.09%
Number of Hedge Funds Holders: 14
Koppers Holdings Inc. (NYSE:KOP) deals in treated wood products, preservation chemicals, and carbon compounds. Headquartered in Pittsburgh, Pennsylvania, the company operates in performance chemicals, Railroad and utility products, and Carbon chemicals segments.
The company generated revenue of $2.15 billion in 2023, registering a growth of 8.77% on a year-to-year basis. This was due to Utility Products and Services segment generating record sales of $897.9 million (up by 13.9% YoY) and EBITDA of $84 million (up by 56.7% YoY). This improved performance of the segment was on the back of increased prices and higher volumes of crossties, which are wooden rectangular supports for rails on railway tracks.
The Performance Chemicals segment regained historical profitability as the increased raw materials cost provided leverage for price renegotiation. According to the American Bureau of Statistics, the producer price index in chemical manufacturing increased by 19.2% in three years.
Along with the price surge, the volume of specialty chemicals also increased by 6%, especially in America for copper-based preservatives. This resulted in an EBITDA of $29.4 million as compared to $17.6 million in the same quarter of the previous year.
The operating cash flows were reported to be $146.1 million in 2023 as compared to $102.3 million in the previous year. This shows stability and improvement in the company’s cash flows. All these factors contributed to the share price of the company as it hit a record high of $55 at the start of the second quarter of 2024.
Koppers Holdings Inc. (NYSE:KOP) recently opened its new utility pole peeling and drying facility in Louisiana in collaboration with the Leesville Parish Chamber of Commerce on a 105-acre site with an investment of $17 million. The project has helped the company to optimize its operational footprint.
According to James Sullivan (President and CEO of Koppers Holdings):
“It has allowed us to reduce costs with an improved logistics network and plant automation while opening new opportunities in the high-potential growth market as infrastructure investment in the US is only going to increase”
Along with the opening of the facility, the company also acquired Brown Wood preserving company in April 2024 which is expected to generate between $15 million and $25 million EBITDA for the company in 2025. Although the company has increased production facilities, the company has been charged with multiple violations of environmental safety regulations.
Given compliance with the regulations and adoption of safety standards, two analysts believe that the production and revenue of the company could drive the share price to achieve a target value of $57, thus indicating an upside of 61% – and also justifying its place on our list of the Top 10 Stocks in the Specialty Chemicals Industry to Buy.
Overall KOP ranks 10th on our list of the best specialty chemical stocks to buy. While we acknowledge the potential of KOP 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 KOP 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.
