Ingevity (NGVT) has been on the verge of making fresh 52-week highs as shares flirt with key resistance at the $80 level and the stock’s early January peak at $79.68. The company, which produces a variety of carbon materials and specialty chemicals, was spun out of WestRock (WRK) in 2016 at $25 a share.
NGVT carries a range of proprietary formulated products for adhesives, oil drilling, pavements, and other uses. One sector of interest that is very appealing is activated carbon, which is used in automobiles to absorb gas fumes.
Every car in the U.S. and most around the world must have a system that absorbs gas fumes, so activated carbon serves as an earnings growth engine, with more stringent regulations in the United States, China, and Brazil.
Strong automotive production and a favorable shift to trucks and SUVs in the U.S. and Canada have been key catalysts in growing earnings over the past few years. Sales in China are also rebounding.
In February, NGVT reported earnings of $1.33 a share on revenue of $325 million. Analysts were expecting a profit of $0.77 on revenue of $283 million. On the earnings call, the company’s CEO said NGVT is also benefitting from promising increases in sales of engineered polymers and slight growth in North American paving sales.
The recently passed COVID-19 relief bill included $30.5 billion for struggling transit agencies, which historically have sent 80% of their money to roads and highways. This should benefit NGVT once the initiatives are rolled out.
Shares are down from a two-year high north of $115 and could easily make a run towards $100 on a breakout above $80. The chart below shows key support at $75, with a break below this level likely leading towards a retest towards the $73–$72 area and the 50-day moving average.
Longer-term traders may want to wait for the breakout above $80 to start a position but the fundamentals of the company remain strong despite a challenging 2020. If this level is cleared and held, option traders can target the NGVT July 82.50 calls that are currently trading near the $3 level.
