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

In agriculture, 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. Demand for biologicals will also be supported by regulations—such as bans on additional synthetic crop chemicals in the European Union and Brazil. 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) market. 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 Select Materials List Source: Morningstar Lithium Americas is Morningstar’s top pick in this space. Its stock currently trades around $65 per share (C$84), or roughly 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. The absence of current operations introduces elevated company-specific risk. However, for long-term investors comfortable with volatility, Morningstar sees substantial upside potential. FMC is Morningstar’s preferred play on biological crop protection products. Its stock trades about 20% below Morningstar’s $135 fair value estimate. FMC is a pure-play crop chemical company heavily investing in new biologicals. As high-margin new biologicals gradually displace traditional crop chemicals, FMC’s revenue should grow at mid-single-digit rates, with earnings expanding at mid- to high-single-digit rates. In specialty plastics, Morningstar’s top pick is Eastman Chemical—a narrow-moat company. Its shares trade 35% below Morningstar’s $140 fair value estimate. Eastman is the market leader in specialty plastics used for automotive films and laminated windows—positions that stand to benefit from rising EV penetration. Additionally, Eastman leads in converting waste plastics into feedstock for new products, allowing it 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 U.S. Communication Services Index to decline nearly 18% in the second quarter ended June 27. Over the past 12 months, the index has fallen approximately 32%, compared with a 11% decline for the broader market. Morningstar believes the 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 well 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.

Three U.S. Mining Stocks Poised to Benefit from the Electric Vehicle Boom

In the second quarter of 2024, Eastman Chemical’s sales rose 1.7% year-on-year to $2.36 billion. Its adjusted EBIT also increased 5.1% year-on-year to $353 million. Adjusted earnings per share rose 8% year-on-year to $2.15. Wall Street Analysts’ View Wall Street analysts expect Eastman Chemical’s revenue to rise 4.8% year-on-year to $2.38 billion in the third quarter of 2024. They also project EPS of $2.13, representing a 45.1% increase year-on-year—especially notable given that the company has exceeded Wall Street’s EPS expectations in each of the past four quarters. Potential Risks Facing Eastman Chemical Stock Mengshou Finance believes Eastman Chemical stock may face the following potential risks: (1) Raw material price volatility risk: Input costs in the chemical industry are heavily influenced—and highly sensitive—to crude oil prices. Any fluctuations in the oil market could directly impact Eastman Chemical’s production costs and profit margins, thereby affecting its stock price. (2) Weak demand risk: A global economic slowdown or declining demand in specific end markets—such as construction and automotive—could reduce demand for Eastman Chemical’s products, negatively impacting sales and profitability. (3) Environmental regulation pressure risk: As global attention to environmental sustainability intensifies, stricter environmental regulations may raise Eastman Chemical’s operating costs and restrict the production of certain products. (4) International trade policy and tariff risk: Changes in global trade policies—particularly increases in tariffs—could affect Eastman Chemical’s export business, raising costs or eroding its competitiveness in international markets. (5) Competitive intensity and product innovation risk: The chemical industry is highly competitive; Eastman Chemical must continuously innovate and improve its products to maintain its market position. Falling behind competitors in new product development could lead to loss of market share. (6) Supply chain disruption risk: Any disruption to the global supply chain—including raw material shortages or transportation bottlenecks—could impair Eastman Chemical’s production and sales. (7) Workplace safety and accident risk: The chemical industry carries significant inherent safety hazards; any production incident could inflict major financial and reputational damage on Eastman Chemical. (8) Technological change risk: Emerging technologies could disrupt existing products and markets. If Eastman Chemical fails to adapt promptly to such changes, it risks falling behind and being overtaken by competitors. III. Glencore Company Overview Glencore is one of the world’s largest commodity trading firms, active across metals and mining, energy products, and agricultural commodities. Its marketing business provides procurement, logistics, transportation, storage, and financing services to global commodity producers and consumers. Core production risks stem from thermal coal, metallurgical coal, copper, zinc, nickel, cobalt, and ferroalloys. Unlike other major miners, Glencore plans to continue producing thermal coal until its mines are depleted, believing it preferable for Western-listed companies to own these assets and rehabilitate them to Western standards. In July 2024, Glencore acquired 77% of Teck’s metallurgical coal business, further expanding its exposure to coking coal.

Eastman Chemical (EMN) Faces a Downgrade, Is It Still Below Fair Value?

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Eastman Chemical was downgraded to Neutral by JPMorgan, causing a stock price decline despite solid cash flow. Analysts estimate a fair value of $77.19 against the current $62.33, amid risks from weak polyethylene pricing and housing market impacts.