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1 Chemical Stock to Buy Before 2022 Ends and 1 to Sell

The U.S. chemical industry, one of the world’s largest, has rebounded post-pandemic, driven by solid demand. Hence, sound chemical stock American Vanguard (AVD) might be an ideal investment. However, the industry is under pressure because of carbon emissions, supply chain challenges, and high input costs. And we believe Gevo (GEVO) might be best avoided considering its weak fundamentals. Continue reading...

The U.S. chemical industry’s rebound in the post-pandemic period has been primarily driven by robust demand for commodity and specialty chemicals.

Moreover, chemical demand is estimated to rise due to increased use in high-end markets such as automotive and construction. The production volume of the chemical industry in the United States is expected to increase by 4.3% in 2022.

Additionally, the U.S. chemical industry remains one of the world’s largest producers by a substantial margin with a balance of trade surplus in excess of $20 billion. The industry is a major player contributing 21% in GDP to the U.S. economy.

Hence, the fundamentally strong chemical stock American Vanguard Corporation (AVD) might be an ideal investment given the industry’s sound prospects.

However, lately worries about carbon emissions, supply chain challenges, and high input costs have disrupted the chemical industry.

Fitch Ratings says slower global economic growth and a mild U.S. recession next year will weaken North American chemicals demand, limiting the ability of companies to offset rising costs with higher prices.

Given this backdrop, the fundamentally weak chemical stock Gevo, Inc. (GEVO) might be best avoided.

Stock to Buy:

American Vanguard Corporation (AVD)

AVD develops, produces, and markets specialty chemicals for agricultural, commercial, and consumer purposes in the United States and globally through its subsidiaries. It sells its products through national distribution corporations, buying groups or co-operatives, sales offices, salesforce executives, sales agents, and wholly-owned distributors.

On September 12, AVD declared a cash dividend in the amount of $0.025 per share of the company’s common stock to shareholders, payable on October 7, 2022. Its annual dividend of $0.10 yields 0.44% on prevailing prices.

For the third fiscal quarter ended September 30, 2022, AVD’s net sales increased 3.3% from the year-ago value to $152.12 million. Its gross profit rose 7.6% year-over-year to $61.38 million, while its operating income grew 25.7% year-over-year to $11.24 million.

AVD’s EPS is expected to grow 83.6% year-over-year to $1.12 in the current fiscal year ending December 2022. Its revenue estimate of $619.55 million in 2022 represents an 11.3% increase from the last year.

The stock has gained 37.5% year-to-date to close its last trading session at $22.53.

AVD’s POWR Ratings are consistent with this bleak outlook. The stock’s overall F rating translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock also has a B for Growth, Value, Sentiment, and Quality. In the B-rated Chemicals industry, it is ranked #2 of 87 stocks.

Beyond the POWR Rating grades I have just highlighted, you can view AVD ratings for Momentum and Stability here.

Stock to Avoid:

Gevo, Inc. (GEVO)

GEVO operates as a renewable chemical and advanced biofuel company through its four segments: Gevo; Agri-Energy; Renewable Natural Gas; and Net-Zero. GEVO commercializes gasoline, jet fuel, and diesel fuel to achieve zero carbon emissions and reduce greenhouse gas emissions with sustainable alternatives.

On October 25, GEVO announced a new sustainable aviation fuel (SAF) sales agreement with Qatar Airways (Qatar) for the purchase of 5 million gallons per year of sustainable aviation fuel (SAF) for five years from Gevo’s future commercial operations. However, the gains might be stretched over a long period of time.

In the third fiscal quarter ended September 30, GEVO’s total operating expenses rose 252.4% year-over-year to $40.08 million. Its loss from operations improved 196.4% year-over-year to $43.67 million, while its comprehensive loss came in at $43.70 million for the quarter, increasing 204.1% year-over-year.

Analysts expect GEVO’s EPS for the fiscal year ending December 2022 to decline 30% year-over-year to a negative $0.39.

The stock has declined 68.7% year-to-date and 34.2% over the past six months to close the last trading session at $2.37. It has declined 44.6% year-to-date.

GEVO’s poor prospects are reflected in its POWR Ratings. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.

GEVO is also rated an F for Value, Quality, Stability, and Sentiment. It is ranked #85 in the same industry.

Click here to get the POWR Ratings for Growth and Momentum for GEVO.

AVD shares were trading at $22.66 per share on Tuesday morning, up $0.13 (+0.58%). Year-to-date, AVD has gained 38.77%, versus a -14.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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