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The chemical industry is expected to make a comeback on macroeconomic developments that should bring about an economic turnaround. Notably, the U.S. Federal Reserve reiterated its commitment to support the U.S. economy until the situation stabilizes. Per the latest FOMC Policy Statement, the Fed decided to keep its target range for federal fund rates between 0% and 0.25%. This should allow borrowing costs to stay at low levels.

Moreover, the Fed stated that it will maintain its “accommodative” stance of monetary policy. Meanwhile, talks have progressed over a coronavirus relief bill. The latest developments suggest that the deal is likely to include direct payments along with more unemployment benefits, as quoted in a New York Times article.

Notably, the auto sector has made a comeback in recent times which is positive for the chemical industry since it is a major consumer of chemical products. Per the latest industrial production data released by the Fed, there was an increase of 5.3% in factory production of motor vehicles and parts in November.

Such developments coupled with the vaccine rollout augur well for the chemical industry, which saw a downturn in the early part of the year owing to pandemic-induced lockdowns.

ACC Expects the Space to Bounce Back in 2021

The chemical industry is recovering from the COVID-19 crisis following the halts in production and supply-related problems earlier this year and the next year it is expected to stage a rebound. The American Chemistry Council (“ACC”) estimated that chemical output, excluding pharmaceuticals, in the United States is set to grow 3.9% in 2021 and 2.7% in 2022, following an estimated fall of 3.6% in 2020.

ACC further mentioned that automotive sales are expected to rise to 16 million in 2021, from 14.4 million projected for 2020. Meanwhile, ACC expects industrial production to rise 3.7% in 2021 following an estimated fall of 6.9% in 2020.

4 Top Buys

The chemical industry is set to do well in the near term on the back of several positive macroeconomic factors. These include the rollout of the vaccine; fiscal stimulus hopes as well as the commitment of the Fed to boost the economy.

Such encouraging factors make it a good time to invest in chemical stocks. Notably, we have handpicked four such stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). 

Cabot Corporation (CBT Quick Quote CBT - Free Report) operates as a specialty chemicals and performance materials company in the United States. The company offers rubber grade carbon blacks used in tires as a rubber reinforcing agent and performance additive, as well as in industrial products, among others. It currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has risen 24% over the past 60 days. The company’s expected earnings growth rate for the current year is 61.5%.

Huntsman Corporation (HUN Quick Quote HUN - Free Report) manufactures and sells differentiated organic chemical products in the United States. The company's products are used in a range of applications, including adhesives, aerospace, automotive, construction products, personal care, and hygiene, etc. It currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 39.1% north over the past 60 days. The company’s expected earnings growth rate for next year is more than 100%.

PPG Industries, Inc. (PPG Quick Quote PPG - Free Report) manufactures and distributes paints, coatings, and specialty materials in the United States. The company's Performance Coatings segment offers coatings, solvents, adhesives, sundries, and software for automotive and commercial transport/fleet repair and refurbishing, among others. It currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 4.8% over the past 60 days. The company’s expected earnings growth rate for next year is 20.5%.

Valvoline Inc. (VVV Quick Quote VVV - Free Report) manufactures, markets, and supplies, engine, and automotive maintenance products and services in the United States. The company offers lubricants for passenger car, light-duty, and heavy-duty; antifreeze/coolants for original equipment manufacturers, etc. It currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has climbed 6.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 10.8%.