FMC shares just set a new higher ceiling, by as much as 50%.

photo of a laptop with fmc logo on a white background

Key points

  • FMC stock could quickly become a trader favorite in the current industry expansion into the chemicals and agriculture sector.
  • Understanding that this is a trend already expressed by the biggest names on Wall Street can help you align your portfolio with it.
  • Analysts may have gotten the hint, so double-digit upside is the theme across FMC.
  • 5 titles we prefer to NVIDIA

The stock market is about to undergo a new tear. Some might call it the continuation of an existing trend. Others might consider it an explosive breakthrough. Where do the indices find room for a turnaround after the S&P 500 and NASDAQ hit new all-time highs? Well, the truth is that not all stocks are created equal in this rally; some struggle to keep up with the rest of the group.

Today, there are many reasons to look at the industrials space, primarily those names that make money by operating in the chemicals sector. Even analysts from the biggest names on Wall Street have woken up to the fact that 2024 could be filled with a lot of price action sponsored by the FED itself, but more on that later.

For now, all you need to remember is this FMC NYSE:FMC is the stock to keep on your watch list as the underlying chemicals sector begins to heat up after a long period of contraction. But wait, there’s more; The FMC is something of a “double whammy” in the sense that it is also capitalizing on the revival of the agricultural stocks space; get ready to dig.

Stand with the professionals

When investment banks try to recommend stocks to their clients, or traders engage in “proprietary” activities, that is, using the bank’s money to trade, they follow a repeatable process to come up with ideas about where the money should be used.

In short, this process is called “top-down” analysis, and here’s how it works. Starting with the economy itself, it appears that markets are very optimistic about the future of the US economy, as they have driven most indices to all-time highs, but not all sectors share the same momentum.

THE SPDR Technology Select Sector Fund NYSEARCA: XLK has outperformed the S&P 500 by as much as 24.3% over the past twelve months, which makes sense when you consider tech stocks like NVIDIA NASDAQ:NVDA also making new highs.

At the opposite end of the spectrum, the SPDR fund for selected industrial sectors NYSEARCA: XLI it lagged, underperforming the S&P by a wide gap of 7.8%. This, of course, would leave you and other investors with the opportunity to fill this gap when the time is right; that time could be now.

Analysts at The Goldman Sachs Group NYSE:GS have expressed their views on a manufacturing sector turnaround in the US, which you can find in their 2024 macro outlook report.

Now that the Fed is looking to cut interest rates later this year, a weaker dollar could spur export activity, pumping the manufacturing sector with new orders left and right.

This can be seen in the ISM manufacturing PMI index, where chemicals saw their first expansion after last quarter’s contraction. This is something that professional traders always look for. But there is also another advantage that helps FMC tap into this trend.

The coast is free

You see, not only is the chemical industry looking to transition into an expansionary trend, but FMC is equally exposed to the agricultural sector, as its chemicals are used for fertilizers and other necessary agricultural products.

In the services PMI, the agricultural space also broke its contraction trend, showing its first expansion in the last quarter. The top-down process dictates that these sectors could be the ones that offer the highest potential returns, provided the right stocks are chosen. So why is FMC the right one?

When analyzing the chemical industry, there are two things you should look for to spot outliers. First, earnings per share growth is a crucial factor for these stocks. We recommend that you look at both the trailing twelve months and the next twelve months of EPS growth.

Second, you need to evaluate how much the markets will pay for this growth, which you can do through the forward P/E ratio or a simpler price-to-book ratio. Here FMC shines alongside competitors like Valves NYSE: VVV AND LyondellBasell Industries NYSE:LYB.

While Valvoline grew its EPS by an impressive 32.2% over the last year, analysts expect just 23.1% for the next twelve months; not a record worthy of an industry breakthrough, is it?

Furthermore, the stock is trading at 97% of its 52-week high price and with a P/B ratio of 25.2x. Even with double-digit growth, there isn’t much room for this stock to fly higher.

For LyondellBasell, the story isn’t that different. Last year’s EPS growth was 9.2%, and 2024 is expected to grow only 10.6%. There’s nothing to get excited about, so analysts only see a 5.8% upside to their price target of $100.9 per share.

Markets value this stock at 2.4x P/B, in line with the industry average of 2.4x. Last year FMC reported an EPS contraction of 14.5%, while analysts are pushing for a turnaround with a projected 2024 EPS advance of 29.6%! This fits a turnaround narrative, doesn’t it?

Markets have yet to realize that analysts see a price target of $78.2 per share, predicting an upside of 51.2% from today’s prices. The stock trades at 2.2x P/B as a discount to the industry average, despite leading markets to above-average growth and the turnaround that professionals look for.

Will you be smarter than them or will you be the first to the party?

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