New Trade for March 25th, 2021

Stocks were flat in early trading this morning after every major index tumbled in yesterday’s session.  Bif tech was hit hard yesterday, with the FAANG Index sinking 3.3%.  The rotation out of growth and into cyclical may be gaining steam.  

Our trade alert for today highlights one firm that stands to benefit from robust growth in construction activities tied to the reopening as well as a rebound for the automotive industry. 

Element Solutions Inc. (ESI) produces and sells specialty chemical products in the United States, China, and internationally.  The company’s Industrial & Specialty segment provides industrial solutions, which include chemical systems, consumable chemicals and energy solutions and serves the aerospace, automotive, construction, consumer electronics, consumer packaged goods, and oil and gas production end markets.  The specialty chemicals maker with some tech exposure fell nearly 5% last week to 19.75, just holding above a 19.50 buy point from a breakout earlier this month.

The global specialty chemicals industry took a hit last year as the COVID-19 pandemic brought economic activities to a halt around the world, and ESI was no exception.  Nonetheless, the situation seems to be improving as economies are gradually reopening.  According to a report by Mordor Intelligence, the specialty chemicals market was valued at $900 billion in 2020 and it is expected to see a CAGR of more than 4% during 2021 to 2026.  The report stated that factors like robust growth in construction activities as well as agrochemicals, which is driven by growth in demand for food around the world as population increases, are expected to drive the specialty chemicals market.

Moreover, the global automotive sector is poised to make a comeback this year, which bodes well for the specialty chemicals industry since automotive is a major consumer.  Notably, per a report by the IHS Markit, global light vehicle production is expected to increase 14% in 2021 to reach 84.3 million units.  The report stated that recovery in demand as well as restoration of manufacturing operations in most regions are expected to drive this uptick.

The consensus estimate for ESI’s current-year earnings has climbed 6.2% over the past 60 days.  The company’s expected earnings growth rate for the current year is nearly 24%.  As of yesterday’s close the stock was $18.57 per share.

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