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 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

<ul><li>Heavy lithium. Halfway through the year, the S&amp;P 500 has appreciated 15.4% YTD, driven by the strong performance of the Magnificent Seven, even as the remaining 490+ companies saw their stock prices move more in line with the Russell 2000, which itself posted an 7.8% gain YTD.</li><li>Over the same timeframe, the WTR-CMI Index delivered a disappointing 4.4% gain under the weight of lithium and graphite companies losing 36-62% of their value due to collapsing lithium and synthetic graphite prices, driven by slower growth of EVs and steel production and liquidation of excess inventories by customers, built over the course of 2022-23.</li><li>Sticky costs remain as pricing power wanes. Over the course of 2022-23, many companies experiencing a rapid rise in raw material costs, driven by higher petrochemical prices and rising costs of transportation and logistics aggressively raised prices in an attempt to preserve profits, if not profit margins. </li></ul>

Heavy lithium. Halfway through the year, the S&amp;P 500 has appreciated 15.4% YTD, driven by the strong performance of the Magnificent Seven, even as the remaining 490+ companies saw their stock prices move more in line with the Russell 2000, which itself posted an 7.8% gain YTD.Over the same timeframe, the WTR-CMI Index delivered a disappointing 4.4% gain under the weight of lithium and graphite companies losing 36-62% of their value due to collapsing lithium and synthetic graphite prices, driven by slower growth of EVs and steel production and liquidation of excess inventories by customers, built over the course of 2022-23.Sticky costs remain as pricing power wanes. Over the course of 2022-23, many companies experiencing a rapid rise in raw material costs, driven by higher petrochemical prices and rising costs of transportation and logistics aggressively raised prices in an attempt to preserve profits, if not profit margins. 

Mat-Chem Notes - Between a Rock and a Hard Place - 2H24 Outlook

<ul><li>WTR-CMI in 2023. With the majority of stocks in our index finishing the year in positive territory, the WTR-CMI Index managed to keep pace with the Russell 2000, appreciating 15%.</li><li>However, both indexes fell well short of the 24% growth of the S&amp;P 500 in 2023, with the WTR- CMI Index dragged down by four companies that lost more than 50% in value during the year.</li><li>Weak demand and destocking. Looking back at 2023, several themes are emerging as we head into 2024, such as declining commodity prices and weakening end-market demand, with Y/Y volume comps affected by destocking across several end-markets since mid-year, as supply chain constraints, which characterized 2022, are resolved and companies go back to just-in-time inventory management.</li></ul>

WTR-CMI in 2023. With the majority of stocks in our index finishing the year in positive territory, the WTR-CMI Index managed to keep pace with the Russell 2000, appreciating 15%.However, both indexes fell well short of the 24% growth of the S&amp;P 500 in 2023, with the WTR- CMI Index dragged down by four companies that lost more than 50% in value during the year.Weak demand and destocking. Looking back at 2023, several themes are emerging as we head into 2024, such as declining commodity prices and weakening end-market demand, with Y/Y volume comps affected by destocking across several end-markets since mid-year, as supply chain constraints, which characterized 2022, are resolved and companies go back to just-in-time inventory management.

Industry Report - Chemicals & Materials Technology

<ul><li>WTR-CMI last week. The third quarter ended on a down note, with the S&amp;P 500 losing 3.7% and the Russell 2000 dropping 2.7%.</li><li>Our WTR-CMI index slightly underperformed the Russell 2000, declining 3.0% for the week. Coincidently, RYAM led the performance of stocks in our index, appreciating 18% last week, as news spread of one of its main competitors in commodity markets announcing the intention to shut down a major wood pulp production plant in the US</li><li>Lithium (LAC and PLL) and ag- chem stocks (FMC and AVD) were the worst performers in our index last week on lower lithium prices and signs of slowing EV demand, and a weaker farmer outlook for 2024/25 season.</li></ul>

WTR-CMI last week. The third quarter ended on a down note, with the S&amp;P 500 losing 3.7% and the Russell 2000 dropping 2.7%.Our WTR-CMI index slightly underperformed the Russell 2000, declining 3.0% for the week. Coincidently, RYAM led the performance of stocks in our index, appreciating 18% last week, as news spread of one of its main competitors in commodity markets announcing the intention to shut down a major wood pulp production plant in the USLithium (LAC and PLL) and ag- chem stocks (FMC and AVD) were the worst performers in our index last week on lower lithium prices and signs of slowing EV demand, and a weaker farmer outlook for 2024/25 season.

Mat-Chem Notes For the Week Ended September 29, 2023

<ul style="list-style-type: disc;"><li>WTR-CMI last week. In an up-week for the market, our WTR-CMI index of 30 chemical and material technology companies appreciated 4.8%, surpassing both the S&amp;P 500 and Russell 2000 returns of 2.3% and 3.7%, respectively.</li><li>FUL’s 13.2% appreciation led our index, as the company delivered strong margins in 2QFY23 (May- 23) and provided solid EBITDA guidance for the year.</li><li>The stock was also helped by FUL’s announcement of two bolt- on acquisitions, Adhezion Biomedical, a privately held medical adhesives company, and XCHEM International, a UAE specialty adhesives manufacturer with a strong position in MENA. </li></ul>

WTR-CMI last week. In an up-week for the market, our WTR-CMI index of 30 chemical and material technology companies appreciated 4.8%, surpassing both the S&amp;P 500 and Russell 2000 returns of 2.3% and 3.7%, respectively.FUL’s 13.2% appreciation led our index, as the company delivered strong margins in 2QFY23 (May- 23) and provided solid EBITDA guidance for the year.The stock was also helped by FUL’s announcement of two bolt- on acquisitions, Adhezion Biomedical, a privately held medical adhesives company, and XCHEM International, a UAE specialty adhesives manufacturer with a strong position in MENA. 

Mat-Chem Notes For the Week Ended June 30, 2023

United States

H.B. Fuller Company manufactures and markets adhesives, sealants, coatings, paints, and other specialty chemical products worldwide.  The Company's products are sold in countries that include North America, Europe, Latin America, the Asia Pacific region, India, the Middle East and Africa.

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H.B. Fuller Co. (FUL US)

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

Mat-Chem Notes - Between a Rock and a Hard Place - 2H24 Outlook

Over the same timeframe, the WTR-CMI Index delivered a disappointing 4.4% gain under the weight of lithium and graphite companies losing 36-62% of...

Water Tower Research

Industry Report - Chemicals & Materials Technology

WTR-CMI in 2023. With the majority of stocks in our index finishing the year in positive territory, the WTR-CMI Index managed to keep pace with the...

Water Tower Research

Mat-Chem Notes For the Week Ended September 29, 2023

WTR-CMI last week. The third quarter ended on a down note, with the S&P 500 losing 3.7% and the Russell 2000 dropping 2.7%.

Water Tower Research

Mat-Chem Notes For the Week Ended June 30, 2023

FUL’s 13.2% appreciation led our index, as the company delivered strong margins in 2QFY23 (May- 23) and provided solid EBITDA guidance for the year.

Water Tower Research

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