We began to warm up to the Chemicals sector with the upgrade of three stocks in late March. After 27 months of relative under-performance, the chemicals sector’s absolute and relative valuation has become more attractive than we’ve seen in many years. As recovery from the pandemic progresses, we suspect that the “flight to safety” witnessed through March 2020 could give way to improved appetite for risk as earnings estimates begin to stabilize. For now, we favor (A) specialty and diversified chemical stocks that offer resilient growth at a discounted relative price; and (B) commodity chemical names that offer superior balance sheets, healthy FCF, and/or idiosyncratic growth.
- Eastman Chemical (EMN)
- Univar Inc. (UNVR)