Goldman calls DuPont and Eastman “later cycle names.”
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Goldman Sachs has three stocks for the next phase of the post-Covid economic recovery. Analyst Robert Koort, who now favors “longer duration growth,” upgraded shares of three chemical producers Tuesday. The stocks have done fine year to date, but have the potential to perform far into the future.
Koort upgraded DuPont de Nemours (ticker: DD), Eastman Chemical (EMN), and Univar Solutions (UNVR) to Buy from Hold. He also downgraded LyondellBasell Industries (LYB), Dow Inc. (DOW), and Huntsman (HUN) to Hold from Buy.
The six stocks, on average, are up about 23% year to date, and all have outperformed the S&P 500 and Dow Jones Industrial Average. A couple of factors have boosted recent share price performance. Abnormal winter weather in Texas hurt chemical output, driving up prices and tightening supply/demand balances. More significantly, chemical producers are sensitive to the overall level of global economic activity, and the economy is doing much better as it exits the Covid-induced downturn.
Some chemical product prices, such as prices for polyethylene—the generic clear plastic used to make bags, among myriad other products—might be peaking. That hurts Dow. and Lyondell and is the main reason for the downgrades. Koort does note that the supply/demand balance remains tight, but expects ethylene margins to fall in the second half of the year, which could slow those two stocks down.
The downgrade of Huntsman, which makes different commodity chemical products, has a similar theme.
Koort calls DuPont and Eastman “later cycle names,” which means stocks that can work after the initial economic recovery. Both have more diversified product offerings including commodity and specialty chemical products.
And Univar is a chemical distributor that can benefit from “broad-based economic improvement.”
Based on Koort’s new price targets, the three upgraded stocks have 20% to 25% return potential over the coming year. The other three shares, however, are very close to his price targets.
Koort’s peers appear to agree with call on the sector. All three upgraded shares have Buy-rating ratios north of 55%. The average Buy-rating ratio for stocks in the S&P is roughly 55%. Dow and Lyondell have below average Buy-rating ratios, but Huntsman remains a popular stock on Wall Street. More than 80% of analysts covering the company rate its shares Buy.
DuPont, Eastman and Univar shares are all up in Tuesday trading. Dow, Lyondell and Huntsman shares are all down on the day. The S&P 500 is down about 1%.
Write to Al Root at [email protected]
