President Trump’s unconventional approach keeps market watchers on edge, speculating about what his new term holds for the economy and stock markets.
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A few things are becoming clear. Trump is likely to push a deregulatory agenda focused on promoting growth and boosting the US manufacturing sector. With US economic growth expected to offset more sluggish economies elsewhere in the world this year, this sets up a generally positive frame for the US manufacturing sector – and related areas.
Truist analyst Peter Osterland, a specialist in the chemical sector, highlights an often overlooked but crucial piece of the manufacturing puzzle: chemicals. While not in the spotlight, chemicals are the backbone of countless production processes. And according to Osterland, that spells an investment opportunity.
Outlining his investment thesis, Osterland explained: “While our sector bias leans positive, with greater potential upside for shares within commodity chemicals, our current investment framework favors names where we believe outperformance can also be supported by underappreciated company-specific factors, rather than ranking our companies by exposure to a thematic sector-wide macro thesis.”
With that in mind, Osterland has picked out two chemical firms that are primed to outperform. We’ve used the TipRanks platform to look up the broader Wall Street view on his picks – both are Buy-rated, with double-digit upside potential. Let’s take a closer look.
Tronox(TROX)
First up is Tronox, a company with its hands in multiple industrial fields – including mining, materials processing, and manufacturing. The main focus of Tronox’s business is titanium dioxide, TiO2, which is used as a pigment to enhance colors in coatings and paints, and is widely used in industrial dyes. The company is a major world producer of titanium and titanium ores, some of which it sells directly on the market and some of which it processes into TiO2. In addition to its titanium operations, Tronox also mines and processes zircon and various rare earths minerals. The company’s end products are found in a wide range of everyday products, including paints, paper, and plastics.
Tronox operates with a global footprint, employing some 6,500 people across the world. While it is based in the US, and has manufacturing facilities in Mississippi and offices in Connecticut and Oklahoma, the company’s largest operations are in South Africa and Australia. In addition, Tronox is active in India, the Middle East, Europe, East Asia, and Brazil. The manufacturing process for Tronox’s main product, TiO2, generates a number of usable by-products, including caustic soda, gypsum, iron sulfate, and sulfuric acid, all of which the company successfully markets to a wide range of industrial customers.
This business can be highly cyclical, but can also generate strong revenues. Tronox brought in $804 million in its last reported quarter, 3Q24, a figure that was up 21% year-over-year and beat the forecast by $14.89 million. At the bottom line, however, Tronox registered a net loss of 13 cents per share by non-GAAP measures. Looking forward, the company expects volumes to decline in 4Q24, for both its leading titanium products and zircon.
Despite that possibility of end-of-year decline, Osterland believes the company will see business improve through 2025. Describing the company’s set-up in his Truist note, the analyst writes, “We believe TROX has one of the strongest competitive positions in the TiO2 industry supported by its scale and superior degree of vertical integration, which have driven relatively resilient margins vs peers during the most recent market downturn. We expect that improving TiO2 market fundamentals, combined with potential support from anti-dumping duties targeting Chinese exports, will enable TROX to realize above-market volume growth, supporting significant earnings upside as operating rates improve.”
These comments back up Osterland’s Buy rating on the stock, while his $17 price target implies a one-year gain of 67.5%. (To watch Osterland’s track record, click here)
Overall, TROX shares hold a Moderate Buy consensus rating, based on 6 recent reviews that include 3 to Buy and 2 to Hold. The stock is selling for $10.14 and its $14.00 average target price suggests the stock will gain 38% over the coming year. (See TROX stock forecast)
Westlake Corporation(WLK)
The next stock on our list, Westlake Corporation, is a $14 billion player in the global chemical industry. The company specializes in a range of chemicals, including olefins, vinyl chemicals, polyethylene, and epoxies, all of which are used as building blocks for a wide variety of everyday materials. The company’s chemical products can be found in such items as cheese wrappers and milk cartons, plumbers’ PVC pipes, soaps and detergents, medical devices, roofing, car interiors – the list is nearly endless. Westlake manufactures, markets, and distributes its product lines through two main divisions, performance & essential materials and housing & infrastructure products.
Westlake operates globally. Its largest presence is in the US, followed by Europe. The company also has facilities in Canada and in East Asia. In all, Westlake employs some 16,000 people in its network of manufacturing and distribution centers. The company was founded in 1986, and in 2023, the last full year with data on record, Westlake generated approximately $12.5 billion in revenues.
Westlake may hold a solid position in a series of essential industries, but that didn’t prevent the company from missing expectations in its last reported quarter, 3Q24. The firm’s revenue total of $3.12 billion was flat year-over-year and missed the forecast by $180 million. At the bottom line, Westlake realized an EPS of $1.41, missing expectations by 71 cents per share – and falling from the $2.20 EPS recorded in 3Q23.
On another note of interest to investors, the company finished the quarter with cash and liquid assets totaling $2.9 billion against a total net debt of $4.6 billion.
Analyst Osterland focuses on the positives in Westlake, and finds plenty. He is impressed by the company’s overall position, and its sound war chest of cash assets, writing of the chemical maker, “Through its strategy of assembling a synergistic chemicals and building products portfolio, WLK has created a vertically-integrated market leader in its core businesses. WLK’s valuation historically and currently trades in line with commodity chemical peers, which in our view gives no credit for the relative margin enhancement and stability of the HIP business. Accordingly, we see upside to current valuation particularly given that WLK’s significant cash balance (~$3B) provides runway either for continued expansion of the HIP portfolio through M&A or increased return of cash to shareholders.”
Osterland goes on to rate these shares as a Buy, and his price target, set at $168, implies an upside potential of 53% on the one-year horizon.
There are 11 recent analyst reviews on record for Westlake, and the breakdown, 9 Buys and 2 Holds, gives the stock its Strong Buy consensus rating. The shares are currently trading for $109.73 and their $152.82 average price target suggests a gain of 39% this year. (See WLK stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
