We remain cautiously optimistic on exposure to Chemicals. We see a lot to like: record low interest rates, ongoing cyclical recovery, and positive price momentum among petrochemicals. Within the group, we prefer overweight exposure to three cohorts: (A) diversified chemical companies; (B) specialty chemical names that are inexpensive on a relative basis; and (C) commodity chemical producers where we deem consensus earnings estimates to be too low (finally). Our top picks are LYB and UNVR. Other Buy-rated stocks in alphabetical order by ticker are: ALB, AXTA, CE, CTVA, EMN, FMC, GRA and WLK. What could go wrong? Three principal risks in our view are high levels of absolute valuation, the prospective shape of cyclical recovery, and event-related risks (COVID wave two and the election). On balance, we view the rebound in chemical stocks in recent quarters as more justified than not, and we continue to advocate sector exposure of balanced or better at this juncture in the economic cycle.
- LyondellBasell Industries (LYB)
- Univar Inc. (UNVR)