Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Thematic (Sector/Industry)

<ul><li>WTR-CMI this week. In a tough week for the market, the WTR- CMI Index of 30 specialty chemicals and materials technology stocks dipped 0.6%, while the large-cap heavy S&amp;P 500 declined 1.4%, with the Russell 2000 inching up 0.1%.</li><li>Strong rebounds in NGVT, ECVT, LAC, PLL, and AXTA nearly offset sharp declines in EAF, CMP, and HXL. YTD, our index is slightly outperforming the Russell 2000, increasing 10.4% versus the broader index’s 9.0% improvement, although both trail the S&amp;P 500’s 20.1% increase.</li><li>On a Y/Y basis, the WTR-CMI Index has narrowed the performance gap with the S&amp;P 500, improving 32.9% versus the large-cap index’s 35.2% appreciation, with the Russell 2000 bringing up the rear with a 32.4% rebound.</li></ul>

WTR-CMI this week. In a tough week for the market, the WTR- CMI Index of 30 specialty chemicals and materials technology stocks dipped 0.6%, while the large-cap heavy S&amp;P 500 declined 1.4%, with the Russell 2000 inching up 0.1%.Strong rebounds in NGVT, ECVT, LAC, PLL, and AXTA nearly offset sharp declines in EAF, CMP, and HXL. YTD, our index is slightly outperforming the Russell 2000, increasing 10.4% versus the broader index’s 9.0% improvement, although both trail the S&amp;P 500’s 20.1% increase.On a Y/Y basis, the WTR-CMI Index has narrowed the performance gap with the S&amp;P 500, improving 32.9% versus the large-cap index’s 35.2% appreciation, with the Russell 2000 bringing up the rear with a 32.4% rebound.

Mat-Chem Notes - Supply-Demand Balancing Act and Geopolitics of Energy Transition

<ul><li>WTR-CMI last week. Driven by the recovery in lithium stocks, our WTR-CMI index of 30 specialty chemicals and materials technology stocks rose 1.7% for the week, handily outperforming mostly flattish performance of large cap tech-heavy S&amp;P 500 as well as the broader Russell 2000 indices.</li><li>YTD the WTR-CMI continues to outperform the Russell 2000 (13.6% vs. 9.8%) and on YoY basis our index nearly kept up with S&amp;P 500’s strong 33.8% rise by appreciating 31.1% compared to Russell 2000’s 24.6% improvement.</li><li>Hurricane season kicks into high gear. While the impact of hurricane Helena are still being assessed, Francine’s impact on oil and gas production and barge traffic are already being felt in the markets, with gulf coast oil production down nearly 40% and natural gas production down nearly 50%, with barge fleets staying away from the region until weather settles, which now looks to be delayed due to Helena’s destructive path.</li></ul>

WTR-CMI last week. Driven by the recovery in lithium stocks, our WTR-CMI index of 30 specialty chemicals and materials technology stocks rose 1.7% for the week, handily outperforming mostly flattish performance of large cap tech-heavy S&amp;P 500 as well as the broader Russell 2000 indices.YTD the WTR-CMI continues to outperform the Russell 2000 (13.6% vs. 9.8%) and on YoY basis our index nearly kept up with S&amp;P 500’s strong 33.8% rise by appreciating 31.1% compared to Russell 2000’s 24.6% improvement.Hurricane season kicks into high gear. While the impact of hurricane Helena are still being assessed, Francine’s impact on oil and gas production and barge traffic are already being felt in the markets, with gulf coast oil production down nearly 40% and natural gas production down nearly 50%, with barge fleets staying away from the region until weather settles, which now looks to be delayed due to Helena’s destructive path.

Mat-Chem Notes -  Hurricanes, Port Strikes, Geopolitics, and Crosscurrents in EVs

<ul><li>WTR-CMI last week. In a down week for the market, with both the S&amp;P 500 and Russell 2000 declining 4.2% and 5.7%, respectively, 29 of the 30 stocks in our WTR-CMI Index likewise saw their prices fall 4.0%, with AVD being the only exception, appreciating 9.1% for the week.</li><li>YTD, the S&amp;P 500, heavily weighted toward tech and internet stocks, has increased 13.4%, while our WTR-CMI Index has increased 7.2%, outperforming the broader Russell 2000’s 3.2% rise, despite lithium stocks’ 50%- <span style="font-size: var(--content-font-size);">plus declines.</span></li><li>Recycled plastics market gaining acceptance. LYB announced the acquisition of German APK AG, a mechanical plastics recycler to bolster its circular economy and low-carbon credentials, while AVTN launched a pigment additive for plastics used in automotive plications made from recycled tires, as an alternative to carbon black, again aiming at helping its customers reduce their carbon impact while improving its own circular economy efforts.</li></ul>

WTR-CMI last week. In a down week for the market, with both the S&amp;P 500 and Russell 2000 declining 4.2% and 5.7%, respectively, 29 of the 30 stocks in our WTR-CMI Index likewise saw their prices fall 4.0%, with AVD being the only exception, appreciating 9.1% for the week.YTD, the S&amp;P 500, heavily weighted toward tech and internet stocks, has increased 13.4%, while our WTR-CMI Index has increased 7.2%, outperforming the broader Russell 2000’s 3.2% rise, despite lithium stocks’ 50%- plus declines.Recycled plastics market gaining acceptance. LYB announced the acquisition of German APK AG, a mechanical plastics recycler to bolster its circular economy and low-carbon credentials, while AVTN launched a pigment additive for plastics used in automotive plications made from recycled tires, as an alternative to carbon black, again aiming at helping its customers reduce their carbon impact while improving its own circular economy efforts.

Mat-Chem Notes - Weakness of Industrial, Ag, and EV Markets Leaves Few Options

<ul><li>WTR-CMI keeping pace with broad markets. YTD, the S&amp;P 500 has appreciated 18%, compared with the 9.5% appreciation for the broader Russell 2000, while our WTR-CMI Index has improved 8.4%, held back primarily by lithium stocks, which are off anywhere from 37% for ALB to 68% for PLL.</li><li>Two companies in our index, RYAM and ECL, have outperformed even the tech-heavy S&amp;P 500, coming off a challenging 2023.</li><li>Unfortunately, with both lithium and ag markets still under pressure, we do not expect companies in our sector to outperform the broader markets in 2H24, although individual stock outperformance may continue.</li></ul>

WTR-CMI keeping pace with broad markets. YTD, the S&amp;P 500 has appreciated 18%, compared with the 9.5% appreciation for the broader Russell 2000, while our WTR-CMI Index has improved 8.4%, held back primarily by lithium stocks, which are off anywhere from 37% for ALB to 68% for PLL.Two companies in our index, RYAM and ECL, have outperformed even the tech-heavy S&amp;P 500, coming off a challenging 2023.Unfortunately, with both lithium and ag markets still under pressure, we do not expect companies in our sector to outperform the broader markets in 2H24, although individual stock outperformance may continue.

Mat-Chem Notes Caution - Canada Rail Strike, Weakening Ag-Chem Market, and Slower EV Adoption

Equity Bottom-Up

Rayonier Advanced Materials / Equity Bottom-Up

<ul><li>Strong 2Q24 results confirm corporate strategy. RYAM delivered a positive surprise when it reported its 2Q24 results earlier this week, driven primarily by stronger sales in HPC and Paperboard and significant margin recovery in HPC, driven by reduced commodity sales and a higher mix of specialties, further benefited by one-time CEWS payments.</li><li>Raised guidance suggests building momentum into 2025. Management raised 2024 EBITDA guidance from $180-200 million to $205-215 million on a strong 2Q24 performance and higher outlook for 2H24.</li><li>Free cash flow guidance was also increased to $100-110 million (previously $80-$100 million), largely a result of lower maintenance capex as a function of the suspension of commodity HPC production at Temiscaming, and a better margin outlook overall.</li></ul>

Strong 2Q24 results confirm corporate strategy. RYAM delivered a positive surprise when it reported its 2Q24 results earlier this week, driven primarily by stronger sales in HPC and Paperboard and significant margin recovery in HPC, driven by reduced commodity sales and a higher mix of specialties, further benefited by one-time CEWS payments.Raised guidance suggests building momentum into 2025. Management raised 2024 EBITDA guidance from $180-200 million to $205-215 million on a strong 2Q24 performance and higher outlook for 2H24.Free cash flow guidance was also increased to $100-110 million (previously $80-$100 million), largely a result of lower maintenance capex as a function of the suspension of commodity HPC production at Temiscaming, and a better margin outlook overall.

Rayonier Advanced Materials, Inc. - Turning the Corner

United States

Rayonier Advanced Materials Inc operates as a performance fibers business. The company produces specialty cellulose fibers using proprietary cellulose chemistry knowledge and manufacturing processes.

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Rayonier Advanced Materials (RYAM US)

Mat-Chem Notes - Supply-Demand Balancing Act and Geopolitics of Energy Transition

In a tough week for the market, the WTR- CMI Index of 30 specialty chemicals and materials technology stocks dipped 0.6%, while the large-cap heavy...

Water Tower Research

Mat-Chem Notes - Hurricanes, Port Strikes, Geopolitics, and Crosscurrents in EVs

Driven by the recovery in lithium stocks, our WTR-CMI index of 30 specialty chemicals and materials technology stocks rose 1.7% for the week

Water Tower Research

Mat-Chem Notes - Weakness of Industrial, Ag, and EV Markets Leaves Few Options

YTD, the S&P 500, heavily weighted toward tech and internet stocks, has increased 13.4%, while our WTR-CMI Index has increased 7.2%, outperforming...

Water Tower Research

Mat-Chem Notes Caution - Canada Rail Strike, Weakening Ag-Chem Market, and Slower EV Adoption

Unfortunately, with both lithium and ag markets still under pressure, we do not expect companies in our sector to outperform the broader markets in...

Water Tower Research

Rayonier Advanced Materials, Inc. - Turning the Corner

Raised guidance suggests building momentum into 2025. Management raised 2024 EBITDA guidance from $180-200 million to $205-215 million on a strong...

Water Tower Research

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