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The Zacks Analyst Blog Highlights: Stepan, PPG Industries, Olin, Dow Chemical and Axiall

For Immediate Release

Chicago, IL - January 16, 2016 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Stepan Company ( SCL ), PPG Industries, Inc. ( PPG ), Olin Corp. ( OLN ), Dow Chemical ( DOW ) and Axiall Corp. ( AXLL ).

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Here are highlights from Thursday's Analyst Blog:

5 Chemical Stocks to Enrich Your Portfolio in 2016

The chemical industry is clawing its way back after being roiled by the global economic crisis. The industry fared reasonably well last year, thanks to continued strong momentum in the automotive market and a recovery in commercial construction - an end-market that has long been out of favor.

Notwithstanding a slew of headwinds including concerns over China's economy, weakness in Europe, soft agriculture market fundamentals and weak demand in the energy space, the industry's recovery momentum is expected to continue in 2016, aided by strength in the light vehicles market, an upswing in the housing sector and significant shale-linked capital investment.

While the European chemical industry remains in choppy waters given sluggish demand in key markets, high energy costs, lower prices, flat production growth and weak R&D investments, prospects in the U.S. look bright.

The U.S. chemical industry is poised for growth despite several headwinds. According to a recent monthly report from the American Chemistry Council (ACC), U.S. chemical production will continue to expand over the next several years and the American chemical industry will eventually transcend the nation's overall economic growth.

The outlook paints an encouraging picture as the ACC envisions national chemical production to rise 2.9% in 2016 and 4.4% in 2017. The trade group also sees the momentum to continue through the second half of the decade on the heels of new capital investments and capacity additions.

The shale gas bounty and abundant supply of natural gas liquids has been a huge driving force behind chemical investment on plants and equipment in the country and have provided the U.S. petrochemicals producers a compelling cost advantage over their global counterparts. The shale revolution has made the U.S. an attractive investment hotspot and incentivized a number of chemical companies to pump in billions of dollars to boost capacity.

Per ACC, over 261 new chemical projects have been announced by chemical makers (worth more than $158 billion) since 2010 to take advantage of ample natural gas supplies with 34% of them already complete or under construction. Such investments - many backed by Federal government support - are expected to boost capacity and export over the next several years.

Chemical companies also remain actively focused on expanding their reach in high-growth markets and are increasingly looking for cost synergy opportunities and enhanced operational scale through consolidations in a bid to cope with the current low commodity price environment.

Moreover, the automotive sector is witnessing significant momentum. In particular, U.S. light vehicles (a key chemical end-market) sales hit all-time high in 2015 and are expected to rise further this year, aided by an improving job market, rising personal income, lower fuel prices and attractive financing options.

A recovery across housing and commercial construction markets has been another supporting factor for the chemical industry recovery. After being hit hard in the recession, the construction industry is currently in the process of gradual healing. The underlying demand trends in the housing space remain strong and homebuilding is expected to pick up pace in 2016, supported by an encouraging job picture, affordable interest/mortgage rates and rising consumer confidence. This augurs well for chemical demand in this major end-market.

5 Chemical Bets for 2016

Below we list 5 chemical stocks that look good amid the prevailing operating environment and might offer healthy investment returns. These stocks are also armed with a solid Zacks Rank. Going by the Zacks model, companies sporting a Zacks Rank #1 (Strong Buy) or #2 (Buy) have strong chances of outperforming the broader market.

Stepan Company ( SCL )

Illinois-based Stepan, a Zacks Rank #1 stock, delivered a positive earnings surprise of 18% in the last reported quarter and has racked up an average beat of around 12% in the trailing 4 quarters.

This specialty and intermediate chemicals maker is taking steps to cut costs through its efficiency program and other strategic initiatives, which should lead to higher earnings. The company's continued efforts to diversify its business in Europe coupled with new laundry detergent volumes across North and Latin America are expected to support margins in its surfactant business in 2016.

PPG Industries, Inc. ( PPG )

Our next pick in the space is Pittsburgh-based PPG Industries, sporting a Zacks Rank #2. This coatings giant has delivered positive earnings surprises in 3 of the last 4 quarters, with an average beat of around 2.7%. The stock has a long-term expected earnings per share (EPS) growth rate of roughly 8.7%.

PPG Industries has a diversified base of products and markets, and looks to grow its businesses strategically along with controlling costs. It is benefiting from and synergies of acquisitions (including Comex) and healthy momentum across automotive OEM, automotive refinish and aerospace markets. PPG Industries should also gain from its aggressive cost cutting and restructuring actions.

Olin Corp. ( OLN )

Missouri-based chlor alkali products maker Olin, a Zacks Rank #2 stock, has delivered positive earnings surprises in 3 of the trailing 4 quarters. Its long-term projected EPS growth rate is 5%.

Olin, in Oct 2015, completed its purchase of Dow Chemical's ( DOW ) U.S. Gulf Coast chlor-alkali and vinyl, global chlorinated organics and global epoxy businesses. With this major acquisition, Olin has become a global leader in chlorine-based products. It is now the biggest integrated chlor-alkali maker with a diverse product portfolio and geographic base. The company also expects to realize significant annual cost synergies from the buyout.

Axiall Corp. ( AXLL )

Lastly, Georgia-based Axiall is another good choice with a Zacks Rank #2. The stock delivered a whopping positive earnings surprise of around 435% in the last reported quarter. Its long-term projected EPS growth rate is 5.1%.

Axiall remains focused on streamlining its operations and improving its cost structure. The company and its partner Lotte Chemical recently reached a final investment decision to build an ethane-based ethylene plant in Lake Charles, LA. Investment in this major ethane cracker project is in sync with Axiall's strategy to improve its ethylene cost position in its chlor-alkali business.

Final Thoughts

The chemical industry is still feeling the bite of slowdown in China, sluggishness in some parts of Europe and the impacts of the oil price slump and a stronger dollar. However, a gradually healing U.S. economy, strong momentum in the automotive space and positive trends across the construction markets are expected to keep the industry on the path to recovery in 2016.

Amid this scenario, it would be a prudent idea to zero in on the above-mentioned chemical names with healthy prospects if you are looking to beef up your returns this year.

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STEPAN CO (SCL): Free Stock Analysis Report

PPG INDS INC (PPG): Free Stock Analysis Report

OLIN CORP (OLN): Free Stock Analysis Report

DOW CHEMICAL (DOW): Free Stock Analysis Report

AXIALL CORP (AXLL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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