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. Demand for biologicals will also be supported by regulation, 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 sees 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 allows specialty plastic manufacturers to sell more plastic per vehicle, enabling low-single-digit annual revenue growth. Morningstar’s Top Picks in Basic Materials 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. The absence of current production elevates company-specific risk. However, Morningstar believes the stock offers substantial upside potential for long-term investors comfortable with volatility. 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 newly launched, higher-margin 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 specialty plastics, 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 for automotive films and laminated windows—segments poised to benefit from rising EV penetration. Moreover, Eastman’s leadership in converting waste plastics into feedstock for new products positions 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 drag down the communication services sector, causing the Morningstar U.S. Communication Services Index to fall nearly 18% in the second quarter ended June 27. Over the past 12 months, the index has declined roughly 32%, compared with a 11% decline for the broader market. Morningstar believes the mounting negative sentiment around 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 the past few 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 growth.

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 to early August, the global chemical industry entered a concentrated reporting period for second-quarter 2026 earnings. From North America to Europe, and from the Middle East to Asia, multiple plastics and chemical giants posted collectively strong results: 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 rebound 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 in advanced materials. Below is a regional review of the latest performance. North America: Dow’s Strong Rebound; Eastman’s Volume and Price Rise in Tandem 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 rising 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—an increase of USD 1.7 billion year-on-year. Dow attributed this improvement to higher pricing and internally driven operational enhancements. Notably, operating EPS excluded a USD 0.45-per-share charge related to major initiatives—including costs associated with the ‘Transform to Outperform’ program. This transformation initiative remains underway, and its execution will directly influence performance in the second half of the year. 2. Eastman Chemical Company Q2 sales revenue: 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 totaled USD 224 million. Eastman had faced earnings pressure in 2025, leading to nearly 1,000 layoffs. Two consecutive quarters of rising revenue suggest improving market conditions for its specialty materials businesses—including advanced intermediates, specialty plastics, and fibers. 3. LyondellBasell Industries One of the world’s largest polyolefin producers, LyondellBasell reported its Q2 results on July 31. Q2 net income reached 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, and announced a dividend cut in Q1 2026. Among the identified items affecting Q2 GAAP net income was a pre-tax disposal loss of USD 734 million related to the sale of certain European assets—the primary one-time factor impacting GAAP net income. 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.