Episode summary
Why Chemical Stocks Have Tanked—and 3 to Consider | Barron's Streetwise
Barron's Streetwise
· · Hosts: Jack Bary, Andrew Bary · Guests: Matthew DeYoe
Summary
Chemical stocks have lagged the broader market because much of the sector is tied to housing, industrial production and other cyclical end markets that are still weak. Matthew DeYoe said the industry has also been hit by a multi-year industrial recession, lower raw-material advantages in the U.S. versus earlier years, and a wave of new chemical capacity in China that has created excess supply globally.
DeYoe argued that investors should stay mostly downstream for now rather than reach for upstream commodity names. He said many upstream producers face more challenging years ahead and could see additional dividend cuts, while downstream companies with more specialized products, better pricing power and lower fixed-cost intensity have become more attractive as their stocks have derated.
He highlighted three names he likes: Element Solutions in electronic chemicals for printed circuit boards and semiconductors; RPM, where he sees improving operating leverage across brands like Rust-Oleum and exposure to data centers and industrial construction; and Exalta, which he described as a high-quality paint and auto-refinish business trading at a very low free cash flow yield despite cyclical pressure. On agriculture, he said farmer economics remain strained by higher seed, fertilizer and equipment costs, with fertilizer prices expected to ease next year but not enough to fully solve the problem.
Key takeaways
- DeYoe says upstream chemical stocks remain vulnerable because excess supply and weak end-market demand could lead to more dividend cuts.
- He prefers downstream businesses with higher margins and better growth algorithms, especially those tied to electronics and industrial end markets.
- Element Solutions stands out to DeYoe because AI and data center demand is growing more than 20% within about 10% to 15% of its electronics business.
- He likes RPM because organic growth is holding up in a weak industrial backdrop and any recovery in housing or industrial activity could add leverage.
- He sees Exalta as a cheap, high-quality auto paint and refinish business with a free cash flow yield near 10% and a potential dividend initiation.
- DeYoe expects fertilizer prices to fall next year, but says farm margins are still squeezed by input inflation and weak crop prices.
Notable quotes
“we've been in a few years of an industrial recession at this point and a lot of chemicals ultimately do end up in housing”
“we don't really have many buy ratings in what we consider to be like the upstream commodity franchise”
“China needs to just take a more serious view on the profitability of its own construction cycle”
“our favorite story right now is uh an electronic chemical company and they sell chemistries for printed circuit boards and semiconductor manufacturing”
“from our perspective, it's under pressure right now cycllically, but it's as cheap as it's ever been”
How the episode opens
Thanks for hopping on the phone during your week off. Oh, happy to. How's your week going?
I'm I'm in full puttering mode. I had a I had a big list of things to do. Um I I don't know why I put off tight.
I had a couple of cabinet doors needed tightening in the kitchen that I put off for months. I thought it was a big job. Turns out I just had to turn a couple screws a little bit.
The whole thing took not even a minute. It was I was embarrassed for having left it for so long. And then I have replaced a couple of I'm a little confused about the difference between a ballister and a spindle.
But um there the wooden up and downy things on staircase under the railing and the staircase. I replaced a couple of those. So um you know it's a big week and I've been accumulating property pretty aggressively in the uh Monopoly game they're running at McDonald's.
So we've got we've got it's too much to talk about. I didn't know they were still doing that. You know what?
I just peeled one off as we're speaking here from the large coffee and it says you won food. Now I have to scan it to see exactly what we're talking about. I I don't want to say more.
It's going to start to sound like an advertisement, but there's just there's a lot of excitement over this quarter. We're going to play a conversation in just a moment about chemical stocks. I have almost nothing to say about the trading week so far.
I noticed that gold took a beating for a day. It had been up 65% year-to date. It had its biggest single day decline since 2020.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- chemical stocks
- industry challenges
- bargain hunting
- downstream demand
- securities analysis
Companies and tickers mentioned
- BAC
- Bank of America
Watch the episode
Watch “Why Chemical Stocks Have Tanked—and 3 to Consider | Barron's Streetwise” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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