Chemical companies rely heavily on energy extraction and refining customers who use their products in everyday operations. Therefore, it's no surprise that the group has plummeted in recent days on the back of collapsing oil prices after Saudi Arabia and Russia, both members of a group known as the Organization of the Petroleum Exporting Countries+ (OPEC+), failed to agree on production output that has resulted in the Saudi Arabia launching a hostile price war.
However, buyers returned to some of the chemical industry's leading names Tuesday as oil partially recovered from its 24% one-day plunge as Russian President Vladimir Putin signaled that talks with OPEC remained possible and on hopes that central banks would continue to roll out stimulus packages to counter the economic impact of coronavirus.
Looking ahead, robust demand from construction and aerospace end markets underpins the segment, with total U.S. chemical shipments expected to reach $668 billion by 2024, up from $569 billion this year, according to Statista. Below we drill down on three large-cap chemical stocks near vital chart support and outline possible trading tactics to consider.
Dow Inc. (DOW)
Dow Inc. (DOW) manufactures chemicals for consumer care, infrastructure, and packaging markets. The company, which spun off from DuPont de Nemours, Inc. (DD) in April last year, offers an attractive 6.68% dividend yield, which should attract investors – especially if the chemical giant's free cash flow remains strong in coming quarters. In 2019, the company generated about $4 billion in free cash flow. As of March 11, 2020, Dow stock has a $23.32 billion market cap and is trading down a whopping 41.35% so far this year.
Like most of the basic materials sector, Dow shares have sold off aggressively in recent sessions amid fears of a coronavirus-driven global recession. However, the stock staged a significant intraday reversal Tuesday to close above the lower trendline of a broad descending channel that has been in play since August. Those who buy at current levels should set a profit target at $47, where price may run into resistance from a two-month downtrend line and the 50- and 200-day simple moving averages (SMAs). Cut losses promptly if the stock closes beneath yesterday's low at $29.32.
Air Products and Chemicals, Inc. (APD)
Air Products and Chemicals, Inc. (APD) produces atmospheric gases along with performance materials that are used in the energy production and refining, electronics, and manufacturing fields. In January, the Pennsylvania-based chemical maker announced that it would invest $500 million to build its largest-ever hydrogen reformer after winning a contract to supply Gulf Coast Ammonia's Texas production plant. Air Products shares pay a respectable 2.29% dividend yield but have fallen 8.69% year to date (YTD) as of March 11, 2020.
Air Products shares gapped below the 200-day SMA on March 9, diving in sympathy with plunging oil prices. Although selling continued in early Tuesday trade, buyers returned later in the session to push the stock from major horizontal trendline support at $205. Those who enter here could book profits near either the November or February swing high – two key resistance areas on the chart where sellers may re-emerge. Protect capital with a stop-loss order placed under this month's low at $204.62.
FMC Corporation (FMC)
FMC Corporation (FMC) provides chemical products globally for the agricultural, consumer, and industrial markets. The company reported double-digit fourth quarter sales growth in North America and Latin America, supported by new technology launches and higher volumes. Furthermore, the $11.23 billion chemical company plans to repurchase $400 million to $500 million of its shares this year, which should help underpin the stock's performance. As of March 11, 2020, FMC stock has returned -8.69% YTD and issues a 1.86% dividend yield.
Monday's steep sell-off found support at the $80 level from a horizontal line connecting an array of reactionary price points over the past year. The stock continued its advance higher yesterday, climbing nearly 10%. Swing traders who believe that the short-term momentum will continue should set a take-profit order just below $100, where the shares may encounter resistance from a period of fourth quarter price consolidation and the psychological round number. Limit downside risk with a stop positioned somewhere underneath yesterday's low at $81.77.