The basic materials sector has been a tricky field for investors as of late. Mining companies are in a fluid state due to a number of circumstances, including the turmoil surrounding gold and to a lesser extent other precious metals, while iron ore and copper prices are set to go down due to the recent expectations for a supply glut. And while energy stocks offer a great deal of promise, they too are caught up in a whirlwind of hype resulting from the US and global shale boom.
The specialty chemicals industry, however, offers a number of attractive opportunities.
The following five companies have been selected from that sector based on the kind of healthy fundamentals that are, generally speaking, desirable for basic materias stocks:a price to cash ratio greater than one, indicating that the company not only has cash on hand, but interest to go along with it; a return on equity rate of greater than 20 percent, indicating that the company is investing capital properly and can continue to operate in the long term; a debt/equity ratio of less than 1, indicating that the company's finances are in order; and any kind of dividend yield, since basic materials companies are generally not high-growth, and a dividend of any ammount suggests that the company is doing better than the rest.
Furthermore, all of these stocks have been rated "buy or better" by analysts.
LyondellBasel Industries NV (LYB) –
Market Cap: $42 billion
Price/Cash Ratio: 13.05
Return On Equity: 28.1 percent
Dividend Yield: 2.71 percent
Debt/Equity Ratio: 0.37
The Netherlands-based company is the largest publicly-traded specialty chemicals company on the New York Stock Exchange, and specializes in plastics. The company sells its products in about 100 countries, and counts itself as the world’s largest producer of polypropylene and related compounds that are used in a wide variety of products, including but not limited to thermal undergarments, carpets, loudspeakers, and polymer bank notes. The company has had a good year so far, with shares up over 30 percent to their current price of $73.80.
PPG Industries Inc. (PPG) –
Market Cap: $24 billion
Price/Cash Ratio: 13.53
Return On Equity: 74.70 percent
Dividend Yield: 1.45 percent
Debt/Equity Ratio: 0.67
PPG is based in Pittsburgh, Pennsylvania, and mainly produces coatings and sealants for use in aerospace, automotive, and marine vehicles, as well as architecture and industry. The company also produces materials for use in eye-glasses, as well as fiber glass and packaging, via its facilities which can be found in about 60 countries around the world. PPG is the second largest public specialty chemicals company in the business, and has enjoyed a good 2013, with shares adding more than 25 percent to $168 a piece.
The Sherwin-Williams Company (SHW) –
Market Cap: $18.5 billion
Price/Cash Ratio: 24.91
Return On Equity: 39 percent
Dividend Yield: 1.10 percent
Debt/Equity Ratio: 0.94
The well-known manufacturer of paint and coatings for uses both commercial and industrial, and is the fourth largest public company in the specialty chemicals sector. Most recently, Sherwin-Williams announced the purchase of the US and Canadian segments of the leading Mexican paint company, Consorcio Comex S.A. de C.V. for some $165 million, a deal that had previously been rejected by Mexican regulators. Otherwise, it has been a good year for Sherwin, as the company’s shares have advanced 20 percent to a current price of $181.60 a piece.
International Flavors & Fragrances Inc. (IFF) –
Market Cap: $6.8 billion
Price/Cash Ratio: 18.65
Return On Equity: 21.30 percent
Dividend Yield: 1.86 percent
Debt/Equity Ratio: 0.75
The company develops and manufactures flavoring for food and beverage products, as well as component ingredients for perfume, soap, and other beauty care products. Headquartered in New York City, IFF’s recent second-quarter earnings report showed the company posting substantial year-over-year increases in net sales as well as earnings-per-share. IFF has also had a good year, with shares some 27 percent higher to $83.90 each.
Quaker Chemical Corporation (KWR) –
Market Cap: $905 million
Price/Cash Ratio: 23.52
Return On Equity: 31.10 percent
Dividend Yield: 1.44 percent
Debt/Equity Ratio: 0.08
Quaker produces specialty chemicals primarily for heavy industry and metals manufacturers, including cleaners, lubricants, oils, coatings, and greases. Headquartered in Conshohocken, Pennsylvania, the company has also had a great year, with shares up over 30 percent to their current price of $69.50.