At the start of 2016, specialty chemical manufacturer Calumet Specialty Products Partners LP (NASDAQ:CLMT) was a toxic stock. It had a balance sheet overloaded with debt, sky-high expenses, and as an MLP seemed to lack the financial flexibility needed to turn itself around. On the other hand, Ashland Global Holdings (NYSE:ASH) owned a profitable and diversified business that presented investors with promising upside.

It's now a little over 18 months later, and a lot has changed. Ashland still owns profitable operations, although margins have soured since completing the spinoff of Valvoline (NYSE:VVV) in May. Meanwhile, Calumet Specialty Products Partners has soared thanks to solid execution against a turnaround strategy that many thought would be very difficult to pull off.

How do these changes affect the medium- and long-term prospects of each company, and which stock is the better buy?

A woman looking an an illustration of a lightbulb

Image source: Getty Images.

The matchup

Calumet Specialty Products Partners' turnaround still has a ways to go, but the first phase appears to have been completed without much trouble. The company improved adjusted EBITDA for each of its three segments -- specialty products, fuels, and oil-field services -- in the second quarter of 2017 compared to the year-ago period, and has reported solid operations for the first half of the year overall. It even reported positive EPS in the second quarter of 2017 for the first time in years. 

Management has divested lower-margin refinery businesses and doubled down on organic growth by launching new specialty products developed in-house. Investors can't really argue with the results. If the progress keeps up for a few more quarters, then Calumet Specialty Products Partners will be better able to begin tackling the next elephant in the room: an awful balance sheet. Even something as "simple" as refinancing outstanding debt would help, especially considering it shelled out $88.4 million in interest expenses in the first half of 2017. 

Ashland Global Holdings shareholders find themselves in a considerably more comfortable position. They were taken care of in the short term, having received 2.74 shares of the healthily profitable Valvoline for each share of the former parent company they owned in early May. The spinoff will continue paying dividends in the long term, too, by allowing both Valvoline and the remaining three high-margin business segments more room to grow and deliver value.

It's still early in the process. So although there was a sharp drop-off in earnings post-spinoff at the parent company, they're sure to pick up, especially considering Ashland Global Holdings has been increasing prices across its portfolio throughout the year. The stock has largely been given the benefit of the doubt by Mr. Market in the last year, having tracked the total returns of the S&P 500.

Even still, both are getting dusted by the total returns of Calumet Specialty Products Partners in the same period -- all of which have come since July, surprisingly.

ASH Total Return Price Chart

ASH Total Return Price data by YCharts.

Which stock has the best chances of growth going forward? A look at valuation metrics helps to provide a few clues:  


Calumet Specialty Product Partners

Ashland Global Holdings

Forward P/E ratio



P/S ratio



PEG ratio



Enterprise value to EBITDA



Data source: Yahoo! Finance.

To be fair, it appears that Calumet Specialty Products Partners is getting a raw deal in the most up-to-date analyst expectations. For example, the average earnings in the next 12 months are expected to be negative, but it just posted EPS of $0.12 in the second quarter of 2017. If that holds, then Wall Street will need to revisit expectations. Still, a ridiculously low P/S ratio of 0.16 shows just how far the stock has fallen from its former greatness, when there were considerably fewer concerns about the balance sheet, profitability, and the distribution (which it hasn't paid since early 2016). The upside potential is high -- if management delivers.

By contrast, Ashland Global Holdings offers a steadier investment opportunity, much as it did at the beginning of 2016. Investors won't be blown away by the returns, but the company's $4.1 billion market cap provides some insulation from volatility. Throw in a 1.3% dividend yield that has ample opportunity to grow, and slow and steady growth seems like a reasonable expectation.

Which stock is the better buy?

I don't think there's much doubt that Calumet Specialty Products Partners stock offers the most potential upside in this matchup -- even after returning 95% in the last year. However, all that potential upside comes with substantially more risk than Ashland Global Holdings.

That matters greatly, especially given that the broader stock market is historically expensive. Combine that with the fact that shareholders of Calumet Specialty Products Partners cannot take advantage of the tax benefits that come from owning an MLP (since it doesn't pay distributions at the moment), and Ashland Global Holdings is the better buy right now.

Should operations continue to improve at the smaller specialty chemicals stock for another two quarters or so, then it may be time to revisit this matchup. Until then, investors should feel confident owning Ashland Global Holdings, the nearly 100-year-old chemical manufacturing leader.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.