While a slowing economy and high prices continue to pressure the global chemical industry, chemical companies are embracing digital transformation to enhance operational efficiency, optimize supply chains, and develop innovative products and services.
In this piece, I evaluated two chemical stocks, NewMarket Corporation (NEU) and Brazil-based Sigma Lithium Corporation (SGML), to determine a better investment. Based on a fundamental comparison of these stocks, I believe NEU is the better buy for the reasons explained throughout this article.
Moreover, despite the current macroeconomic volatilities in the chemical industry, chemical companies continue contributing to a more sustainable world by embracing sustainability, driving innovation, pursuing strategic partnerships, and focusing on resiliency.
Both NEU and SGML have gained 24.8% over the past six months. NEU closed its last trading session at $396.64 and SGML closed at $38.01.
Here are the reasons I think NEU could perform better in the near term:
Recent Financial Results
NEU’s net sales increased 11.1% year-over-year to $702.79 million in the fiscal first quarter that ended March 31, 2023. Its gross profit rose 27.6% year-over-year to $198.04 million and operating profit increased 50.1% from the previous-year quarter to $125.04 million.
NEU’s net income and EPS grew 64.5% and 75.5% year-over-year to $97.58 million and $10.09, respectively.
SGML announced a delay in filing its annual information form and audited financial statements for the year ended December 31, 2022.
During the fiscal third quarter that ended September 30, 2022, SGML’s net loss for the period rose 20.4% year-over-year to CAD13.13 million ($9.64 million). Its net loss and comprehensive loss for the period widened by 15.2% year-over-year to CAD13.19 million ($9.69 million). Additionally, its net loss per share grew by 8.3% from the prior-year quarter to CAD0.13.
Profitability
NEU’s 40.05% forward ROCE is higher than SGML’s negative 50.87%. NEU’s forward ROTC of 15.41% is higher than SGML’s negative 31.02%. In addition, NEU’s forward ROTA of 13.52% is higher than SGML’s negative 12.60%.
Hence, NEU is more profitable.
Dividend Payment History
While SGML does not pay any dividends, NEU’s annual dividend of $9 translates to a 2.27% yield on the current price level. Its four-year average dividend yield is 2.16%. The company’s dividend payouts have grown at CAGRs of 4.1% and 3.7% over the past three and five years, respectively.
Moreover, NEU recently declared a quarterly dividend of $2.25 per share on the common stock, an increase of $0.15 compared to the last quarterly dividend of $2.10 per share. The dividend is payable on July 3, 2023.
POWR Ratings
NEU has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, SGML has an overall rating of F, translating to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NEU has a B grade for Growth, in sync with its robust performance in the previous quarter. However, SGML has a D in Growth, consistent with its poor financial performance in the last reported quarter.
Moreover, NEU’s 24-month beta of 0.48 justifies its B grade in Stability. On the other side, SGML’s 24-month beta of 1.47 complements its D grade in Stability.
Among the 84 stocks in the B-rated Chemicals industry, NEU is ranked #4, while SGML is ranked #80.
Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, Sentiment, and Quality. Click here to view NEU’s ratings. Access all the ratings of SGML here.
The Winner
The chemical industry is expected to experience significant expansion and thrive due to the increasing demand for chemical products. Both companies operating in this sector are well-positioned to capitalize on the growing market opportunities.
However, as discussed earlier, NEU has a higher potential for earnings growth. Moreover, its consistent dividend history and higher profitability rank it higher than SGML. So, NEU could be a better investment than SGML.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Chemical industry here.
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NEU shares were trading at $398.36 per share on Friday morning, up $1.72 (+0.43%). Year-to-date, NEU has gained 28.85%, versus a 9.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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