The chemicals industry, which is part of the basic materials sector, often gets overshadowed by news of the latest catalysts driving oil and gold prices. The American Chemistry Council (ACC) believes that the U.S. chemicals industry is positioned for continued growth due to strong global growth prospects, an increase in manufacturing activity, rising exports, balanced chemical inventories, robust demand from end-use markets and favorable shale gas economics. The trade group expects chemical production to expand 3.4% in 2018 and 3.6% in 2019, which bodes well for chemicals stocks.
Investors who want to trade leading names in the space should consider these three specialty chemicals stocks that look poised for a move.
Albemarle Corporation (ALB)
Founded in 1994 and headquartered in Charlotte, North Carolina, Albemarle is one of the world's largest lithium producers. The company, with a market capitalization of $11.54 billion, sees lithium demand remaining robust due to the growth of electric cars – through their battery use. Albemarle also produces bromine – a dark toxic liquid used in fire safety chemicals, disinfectants and sanitizers. As of Nov. 5, 2018, the company's stock has returned -15.99% year to date (YTD), but it has returned 16% over the past three months. Albemarle offers investors a 1.26% dividend yield.
Albemarle stock started to show price and volume momentum last week ahead of its earnings report, scheduled for Wednesday, Nov. 7, in which analysts expect the company to report earnings per share (EPS) of $1.25 for the quarter ended September 2018. On Nov. 1, the share price broke above a downtrend line that has remained intact throughout most of 2018. The 50-day simple moving average (SMA) has also recently crossed above the 200-day SMA – referred to as "golden cross" – suggesting further upside price movement. Traders could buy the current breakout to ride momentum into the earnings report. A tight stop-loss order should sit below the downtrend line to protect trading capital. Consider booking profits at the $118 level, where the stock's price should encounter resistance from the Jan. 18 gap below the 200-day SMA.
Ecolab Inc. (ECL)
Ecolab, with a market cap of $44.66 billion, manufactures and sells cleaning and sanitation products for hospitality, healthcare and industrial markets. The company also offers customers tailored solutions in water and energy end markets. Trading at $154.59 and delivering a 1.06% dividend yield, Ecolab stock has returned 16.13% YTD, outperforming the industry average gain by roughly 2.5% as of Nov. 5, 2018. Analysts project a 2018 EPS growth rate of 3.5% for the company.
The share price of Ecolab has traded in a steady uptrend for the past nine months. The stock gapped below the 200-day SMA when the company reported mixed third quarter earnings on Oct. 30 but staged an impressive intraday reversal to close over 1.5% higher for the day. Those who wish to buy should look for a pullback to the $147.5 level, where the stock is likely to find support from the uptrend line dating back to early February. Traders could place stops below the 200-day SMA and set a take-profit order at the $160 level – an area where the price may find resistance from the September swing high.
International Flavors & Fragrances Inc. (IFF)
International Flavors & Fragrances produces flavors and fragrances for food, beverages, household goods and personal care products. The company's two self-explanatory segments – flavors and fragrances – generate roughly equal revenue. International Flavors & Fragrances stock, with a market cap of $15.57 billion and a 2% dividend yield, has returned -2.96% for the year but is up 11% over the past three months. The company reports its third quarter earnings Monday, Nov. 5, and analysts expect EPS to come in at $1.54.
International Flavors & Fragrances' stock chart has formed a broad inverse head and shoulders (H&S) chart pattern between February and October. Like Albemarle, the 50-day SMA has recently crossed above the 200-day SMA, signaling bullish price action ahead. Traders should seek an entry point close to the inverse H&S pattern's neckline, which now acts as support, at $141. A stop-loss order could sit just below the pattern's right shoulder at the $130 level. The distance between the pattern's head and neckline could be added to the entry price to project a profit target ($20 + $141 = a profit target of $161).