NEW YORK (TheStreet) -- Certain sub-sectors of the chemicals industry are showing steady long term growth. These include basic chemicals such as vinyl and polymers, fabricated building products, oil refineries, gasoline blending chemicals, chemical solutions for water purification of water, air, food, beverage, and industrial process streams to treat air, and water streams containing organic and inorganic chemical.
According to the U.S. Department of Commerce, commodity chemicals, which is also an area that has been showing solid growth, are chemicals that are produced in large quantities for use in the production of other products. For instance, polypropylene, is a chemical commodity that is used in making ropes, thermal underwear and carpets, packaging and labeling, paper, and plastic items and containers, among many other products. (These are as opposed to specialty chemicals that are made in small quantities for use in a variety high value-added products. For example, adhesives are specialty chemicals used in the automobile, aerospace, food, cosmetics, agriculture, manufacturing, textile industries.)
So, what are the best commodity chemicals companies investors should be buying? Here are the top three, according to TheStreet Ratings, TheStreet's proprietary ratings tool.
TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Check out which commodity chemicals companies made the list. And when you're done be sure to read about which online retail and e-commerce companies to buy now. Year-to-date returns are based on May 14, 2015 closing prices. The highest-rated stock appears last -- read more to see which one is No. 1.CCC data by YCharts
3. Calgon Carbon Corporation (CCC)
Market Cap: $1.1 billion
Year-to-date return: 4.1%
Calgon Carbon Corporation provides services and solutions for purifying water and air, food, beverage, and industrial process streams primarily in the United States, Europe, and Japan. The company operates in three segments: Activated Carbon and Service, Equipment, and Consumer.
"We rate CALGON CARBON CORP (CCC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, growth in earnings per share and increase in net income. We feel its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 14.1%. Since the same quarter one year prior, revenues slightly increased by 5.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- CCC's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, CCC has a quick ratio of 1.97, which demonstrates the ability of the company to cover short-term liquidity needs.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- CALGON CARBON CORP has improved earnings per share by 15.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CALGON CARBON CORP increased its bottom line by earning $0.92 versus $0.84 in the prior year. This year, the market expects an improvement in earnings ($1.04 versus $0.92).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Chemicals industry. The net income increased by 9.9% when compared to the same quarter one year prior, going from $11.04 million to $12.13 million.
- You can view the full analysis from the report here: CCC Ratings Report