One of the defensive sectors that investors tend to overlook during volatile market conditions is the chemical sector which has many high quality companies with stable long-term growth.
In modern times chemicals are an active ingredient in most of the products we use. They are used for enhancing the texture in cereals, keeping the fragrance in dish washing liquids, airfreshners, adhesives for packaging, making of drugs, paints, etc. So similar to diversifying one’s portfolio with consumer stables like food stocks, one can also pick up some of the top chemical stocks.
To review some of the top chemical companies of the world that trade in the US, I used the “ICIS Top 100 Chemical Companies 2008” list released by ICIS Business on September 15,2008. This list contains all the chemical firms with annual sales of more than $2.5 B. A A total of fourteen foreign stocks are in the list.Some of them like Bayer trade in the OTC market while the rest trade on the New York Stock Exchange.
1. BASF (BASFY) is the world’s largest chemical company with annual sales of $85.0B in 2007. It has a 6.07% yield. The yield has grown at 18.2% for the past 5 years and revenue has increased by just over 10.0%.
On September 15, the day Lehman Brothers died this German chemical giant announced that it will acquire the Swiss specialty chemical maker Ciba for $2.9B in cash.
2. Bayer (BAYRY), another German company, ranked number twelve in the Top 100 list. Sales increased 11.8%(in Euros) from 2006 to 2007. The current yield is 2.64%. Bayer has significant presence in the health care industry with popular brands like Aleve,Alka-Stelzer,Cipro,etc.
3. The Dutch company Akzo Nobel (AKZOY) trades in the OTC market with ticker AKZOY. The company manufactures specialty chemicals, paints and coatings. Last year AKZOY acquired famous British paint-maker Imperial Chemical Industries (ICI) plc and this year sold part of ICI to Henkel AG of Germany. The stock has a yield of 7.48% and the revenue has been almost flat for the past 5 years. The ICI acquisition should help Akzo Nobel expand its market share in the paint segment. In 2007, the company had sales of $21.0B.
4. Yara International (YARIY) of Norway is an agricultural chemical manufacturer. As the demand for fertilizers increased exponentially last year the stock took off. After reaching a peak of $90 the stock currently goes for $37.
5. Air Liquide (AIQUY) is a world leader in industrial and medical gases with operation sin 75 countries. Sales in 2007 was $17B which is 7.8% higher than 2006.The stock has a yield of 2.76%. France based, Air Liquide is a constituent of the DJ Euro Stoxx 50 Index which is made up of the largest European countries (excluding UK).
6. Braskem(BAK) is an integrated petrochemical and thermoplastics producer in Brazil.Revenue has grown 16% in the past 5 years.The current yield is 6.36% and the PE is 8.57. Braskem has lower EPS and Revenue growth compared to the industry.
7. The Swiss agricultural chemical maker is Syngenta (SYT). The stock a yield of 1.97% and the PE is 15.80. Syngenta has increased dividends by 30.5 years in the past 5 years. Sales is up 20% for the fist half of 2008 compares to the same period last year.
8.Solvay SA (SOLVY), is a Belgium based firm operating in the pharmaceuticals,chemicals and plastics sectors. Total sales in 2007 was $10.2 B. Earnings growth in past 5 years was 11%.Current yield is 4.59%.
9.Arkema (ARKAY) is a spinoff from the French oil giant TotalFina. It has a 2.9% yield.
10. The specialty chemicals company Rhodia (RHAYY) is based in France. The dividend yield is 2.29%. This yield is in-line with the industry average.
11. Nova Chemicals Corp.(NCX) is a Canadian chemical manufacturer with a sales of $6.7B in 2007. The P/E ratio is 7.31. While the revenue has grown 17% annually for the past 5 years the dividend growth rate has been flat.
12. South Africa based Sasol (SSL) is a major oil and gas company with substantial interests in chemicals. The stock is down only 14.10% in the past 52 weeks. Sasol is expanding operations in China and Iran besides many African countries. The yield is 5.38% and the S&P rating on the stock is 4-stars.
13. Potash Corporation of Saskatchewan Inc. (POT) of Canada is a fertilizer manufacturer. POT had a great run last year when the demand for fertilizers went up. The stock is expensive with a P/E ratio of 25.65. The revenue and dividend has increased about 18% and 16% annually over the past 5 years. After reaching $241.62 in June this year today it closed at $163.50.
14. Like Potash Corp., Agrium (AGU) is another Canadian fertilizer maker with operations in the US, Argentina and Chile. The current yield is 0.15% and the P/E ratio is 10.84.
As per the ICIS Chemical Business Top 100 report, in 2007 chemical companies continued to grow strongly. In the first half of 2008 the stocks have held up well. But the second half is proving to be tougher due to the sharp economic downturn in the US economy. The M&A activity is worth watching in this sector as some of the major players try to snap up companies in the specialty chemical sector since they have higher profit margins. In July Dow Chemical paid a 74% premium to acquire Rohm and Hass, a specialty chemical maker.
An investor looking to add some exposure to foreign chemical stocks may evaluate some of the stocks mentioned above since these companies are the largest in the world on the basis of total sales.
