Morningstar’s U.S. Equity Q3 Outlook: Trading at an Exceptionally Rare Discount

In the agricultural sector, demand for biological (non-synthetic) crop protection products is expected to grow rapidly. This growth will be driven by rising insect resistance in conventional crops, compelling farmers to adopt new solutions. Regulatory support will further boost demand for biologicals, as countries including the European Union and Brazil ban increasing numbers of synthetic crop chemicals. As a result, Morningstar forecasts that the biologicals market will double in size between 2020 and 2025, capturing market share from synthetic crop chemicals. Morningstar also identifies long-term growth potential for specialty plastic producers serving the electric vehicle (EV) industry. EVs use 3.5 times more laminated glass than conventional vehicles—to reduce noise, improve cabin energy efficiency, and extend battery life. This enables specialty plastic manufacturers to sell significantly more plastic per vehicle, supporting low-single-digit annual revenue growth. Morningstar’s Selected Basic Materials Stocks Source: Morningstar Lithium Americas is Morningstar’s top pick in this sector. Its stock currently trades at approximately USD 65 (CAD 84) per share—about one-third of Morningstar’s fair value estimate. Lithium Americas does not yet produce any lithium but is developing three lithium resources. Once all projects are fully operational, Morningstar expects the company to rank among the world’s top five lithium producers by capacity. However, the absence of current production elevates company-specific risk. Still, for long-term investors comfortable with volatility, Morningstar sees substantial upside potential. FMC is Morningstar’s top pick for investing in biological crop protection products. Its stock trades about 20% below Morningstar’s fair value estimate of USD 135. FMC is a pure-play crop chemical company aggressively investing in new biological product development. As high-margin new biologicals gradually displace traditional crop chemicals, FMC’s revenue should grow at mid-single-digit rates, while profits rise at mid- to high-single-digit rates. In the specialty plastics segment, Morningstar’s top pick is Eastman Chemical—a narrow-moat company. Its stock trades 35% below Morningstar’s fair value estimate of USD 140. Eastman leads the market in specialty plastics used for automotive films and laminated windows—segments poised to benefit from rising EV adoption. Moreover, Eastman’s leadership in converting waste plastics into feedstock for new products positions it well to capitalize on growing consumer demand for recycled packaging. Morningstar views the current share price as an attractive entry point. Communication Services Sector Alphabet and Meta continue to weigh down the communication services sector, causing the Morningstar US Communication Services Index to decline nearly 18% in the second quarter ended June 27. Over the past 12 months, the index has fallen roughly 32%, compared with a 11% decline for the broader market. Morningstar believes the mounting negative sentiment surrounding online advertising—particularly Meta’s ad business—is unwarranted. Meta trades at just 14 times Morningstar’s 2022 earnings estimate, while Alphabet trades at 23 times. Both stocks trade significantly below Morningstar’s fair value estimates. Over recent months, cable stocks have underperformed the broader market amid concerns about slowing broadband subscriber growth—especially given Verizon’s and T-Mobile’s strong fixed wireless broadband subscriber gains.

Net Profit Doubles, Surges, Approaches RMB 10 Billion! Chemical Giants Rally Collectively; A Comprehensive Review of Global Plastics & Chemical Companies’ Q2 Earnings

From late July through early August, the global chemical industry entered a concentrated reporting period for second-quarter 2026 earnings. Financial results from plastics and chemical giants—from North America and Europe to the Middle East and Asia—collectively turned positive: Dow reported a 20% year-on-year increase in net sales; BASF ended 14 consecutive quarters of declining revenue; and Wanhua Chemical forecasted a more than 60% year-on-year increase in its first-half net profit. Yet beneath the headline figures, the drivers behind this recovery differ across companies. Some benefited from price increases; others saw one-time profit boosts from asset divestitures; still others gained traction from new capacity coming online and volume growth of advanced materials. Below is a regional review of the latest performance highlights. North America: Dow’s Strong Rebound, Eastman’s Volume-and-Price Gains 1. Dow Inc. Q2 net sales: USD 12.1 billion, up 20% year-on-year. Dow’s Q2 earnings, released on July 27, showed growth across all operating segments and regions. Local prices rose 20% year-on-year—driven primarily by the Packaging & Specialty Plastics segment—with polyethylene prices increasing across all regions. Profit recovery was even more pronounced: GAAP net income stood at USD 802 million; operating EPS was USD 1.44, versus a loss of USD 0.42 per share in the prior-year quarter. Operating EBIT totaled USD 1.6 billion—up USD 1.7 billion year-on-year. Dow attributed this turnaround to higher pricing and internally driven improvement initiatives. Notably, operating EPS excluded USD 0.45 per share in major items—including costs related to the ‘Transform to Outperform’ initiative. This transformation program remains underway, and its progress will directly influence performance in the second half of the year. 2. Eastman Chemical Company Q2 sales: USD 2.513 billion, up 10% year-on-year. Eastman released its Q2 results on August 3, delivering a solid performance marked by gains in both volume/product mix and pricing—each contributing 5% and 4%, respectively, to overall revenue growth. On the profitability front, EBIT reached USD 311 million; adjusted EBIT was USD 320 million; and adjusted diluted EPS was USD 1.97. Net cash provided by operating activities amounted to USD 224 million. Eastman had faced earnings pressure in 2025, leading to nearly 1,000 layoffs. Two consecutive quarters of rising revenue now suggest improving market conditions for its specialty materials businesses—including advanced intermediates, specialty plastics, and fibers. 3. LyondellBasell Industries LyondellBasell—one of the world’s largest polyolefin producers—reported its Q2 results on July 31. Q2 net income totaled USD 559 million, compared with only USD 115 million in the prior-year quarter. The company had endured a difficult 2025: it posted a USD 79 million adjusted net loss in Q4 2025 and announced a dividend cut in Q1 2026. Among the identified items affecting GAAP net income, a pre-tax disposal loss of USD 734 million from the sale of certain European assets was the primary one-time factor. The company stated that the European asset sale aims to structurally improve cost efficiency and align its European footprint with its long-term strategy. Additionally, the company continues to advance its first-half free cash flow and cash improvement initiatives, with capital expenditures running below the prior-year level.

Eastman Chemical Co. stock underperforms Friday when compared to competitors

2 days ago

Eastman Chemical Co. shares fell 2.06% to $66.53 on Friday, ending a four-day winning streak amid broader market losses. The stock underperformed relative to competitors during the negative trading session.

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