Please ensure Javascript is enabled for purposes of website accessibility

3 Stocks to Watch in Plastics

By Reuben Gregg Brewer - Sep 2, 2015 at 7:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Plastic is ubiquitous today, but there's still a big business in the stuff, which is why you'll want to keep an eye on these key players

"One word: Plastics."

That famous line from The Graduate constituted career advice in 1967. Some 50 years or so later, the plastics industry has matured a great deal. But it's now so intertwined in society that there's still a good reason to watch the plastics space. Here are three companies worth a look: Bemis Company (BMS), West Pharmaceutical Services (WST 0.76%), and A. Shulman (SHLM).

The things you use every day
When it comes to plastics, you use the substance so often you may not even realize it. And that's where Bemis comes in. Bemis makes rigid and flexible plastic packaging. About two-thirds of its revenues come from the United States, with the rest spread across the world.

You've probably seen or used its products. For example, the company makes such things as single-serve plastic pudding cups and single-serve squeezable applesauce pouches. And while its big businesses is with food packaging (a far more diverse industry than you probably realize), it also serves the healthcare sector.

One of the key factors driving the company's future will be the shift from rigid packaging such as glass bottles and cardboard boxes to flexible packaging made of plastic. The applesauce packet is an example, but so, too, are diapers, frozen foods, and soup. It's a broad-based and global shift that fits right into Bemis' wheelhouse.

That said, the packaging company has been working to increase its profitability. It's homing in on its best investment options to improve return on invested capital and working on its operations to increase profit margins. The goal is to drive revenue growth of around 6% equally through internal and external (i.e., acquisition) avenues. That's a decided turn from recent history, when growth came disproportionately from inorganic means. That's a solid goal and makes this plastic packaging maker a worthy consideration for investors.

Drugs, or what they come in
Another unique plastic company is West Pharmaceuticals. At first you might think it's a drug company, but instead it makes the products in which drugs are distributed and delivered. The best example is probably plastic syringes, but it makes far more than that. And it serves drug companies around the world.

The main categories it serves include vials, syringes, and so-called delivery systems. the best way to visualize this delivery systems is devices that use cartridges. These businesses are expected to grow as much as 5%, 6%, and 10%, respectively, over the next few years. That should help keep the company's top line growing in the near term.

However, if you have a long-term view of the world, West could be an interesting play on the aging baby boom generation. As nations try to contain healthcare costs, patients will be kept out of medical facilities. How? Through the use of medicines and drug delivery systems that can be used at home. West is likely to be a big part of that.

The building blocks of plastic. Source: Rohini, via Wikimedia Commons.

The basics ...
A. Shulman is further back in the plastics food chain, providing the resins that others use to make plastic items. The ultimate end markets its products reach include the packaging, automotive, construction, and electronic industries, among others.

In recent years, acquisitions have played a big part in Shulman's plans to expand its business. The deal to buy competitor Citadel is a good example. On its own, Shulman's U.S. and Canadian revenue represented around 23% of the top line, but with Citadel that's expected to reach 34%. That helps to even out the company's global footprint.

Basically, Shulman is using deals to expand its reach, increase its product portfolio, and create business synergies. All good things. Look for acquisitions to continue at this plastics player. That said, from an investor standpoint, if you're watching plastics, this is probably the purest play of the three companies here.

Ubiquitous, but someone's making it
Plastics are all around us. Key areas where you're likely to see it show up are in packaging, which is Bemis' specialty, and medical care, which is what West Pharmaceutical does. The success of these companies will come from providing ever more complicated plastic items to the world. That said, if you're watching the plastics industry and you want to get back to basics, A. Shulman may be the best option, since it provides the building blocks others use to make plastic products.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

A. Schulman, Inc. Stock Quote
A. Schulman, Inc.
SHLM
Bemis Company, Inc. Stock Quote
Bemis Company, Inc.
BMS
West Pharmaceutical Services, Inc. Stock Quote
West Pharmaceutical Services, Inc.
WST
$301.18 (0.76%) $2.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
321%
 
S&P 500 Returns
111%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.