In this article, we take a look at the 10 best chemical stocks to buy according to Jonathan Barrett and Paul Segal’s Luminus Management. The chemical industry fuels economic growth worldwide, be it manufacturing, construction, consumer products, packaging, or electronics. Chemical stocks experienced a tough time in 2020 in the midst of the pandemic, but they are ripe for growth in 2021. You can skip our detailed discussion detailing future growth catalysts for major chemical stocks and go to the 5 Best Chemical Stocks to Buy According to Jonathan Barrett and Paul Segal’s Luminus Management.
The chemicals industry lies at the center of the production, manufacturing, and industrial boom worldwide. The sector provides industrial chemicals that feed global production, construction, consumer products manufacturing, and plastics. The chemicals industry also converts raw materials to over 70,000 different products. The industry is notorious for its cyclical nature and was hammered badly by the coronavirus crisis. As the world came to a screeching halt, production and manufacturing crashed worldwide, resulting in massive revenue declines for top chemical companies in the U.S. and abroad. But a strong recovery is on the horizon as the world prepares to reopen following the availability of COVID-19 vaccines.
According to Deloitte’s 2021 chemical industry outlook, the chemical industry revenues are expected to grow about 8% in 2021 after facing a decline of 9% in 2020. The operating income of the industry is expected to jump by almost 17% in 2021 after a 14% decline in 2020. The report noted that although the chemical industry had downsized 2% of its entire workforce during the peak pandemic period, the demand for R&D experts, engineers, and chemical researchers is growing as chemical companies rethink their product strategies and prepare to adapt to the rapidly changing industry demands. Top chemical companies will shift their focus to areas like healthcare, microelectronics, advanced materials for construction, recycling technologies, new solvent cleaning technologies, and electric vehicles, the report said. Deloitte found in a survey that 64% of chemical executives believe that advanced chemicals and materials for construction applications will likely drive most of the industry’s growth in 2021. These emerging trends will fuel the growth of chemical stocks in 2021.
According to the American Chemistry Council’s 2021 outlook, chemical industry production volumes, shipments, and capital spending will rebound from the economic and business disruption caused by COVID-19. U.S. chemical volumes are expected to grow by 1.4% in 2021 and 3.2% in 2022, while shipments will increase 8.1% in 2021 and 8.2% in 2022 after falling 13.5% in 2020. Chemical industry capital spending will be up 11.9% to $30.6 billion in 2021 and rise 3.1% in 2022 after falling 17.6% in 2020. Basic chemicals will expand by 0.5% in 2021 and 3.4% in 2022. Specialty chemicals will expand by 3.8% in 2021 and 4.1% in 2022 after falling 10.8% in 2020.
Luminus Management is an investment management firm founded in 2002 by Jonathan Barrett and Paul Segal. The firm focuses on a low net, long/short, value-oriented strategy that invests opportunistically across the capital structure of companies within the broader energy ecosystem. Luminus’ coverage universe includes sectors that are interrelated fundamentally and synergistic from a research and information perspective, including power, utilities, MLPs, E&P, drillers, refiners, engineering and construction, and coal/steel. President and Portfolio Manager Jonathan Barrett manages over $686 million in 13F securities and leads a team of investment professionals who seek to generate alpha via deep fundamental analysis. The firm has a general focus on opportunities within North America.
Jonathan Barrett of Luminus Management
Why should we take a look at Luminus Management’s 10 best chemical stocks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Among top chemical companies that contributed the most to Luminus Management’s portfolio were Linde plc (NYSE: LIN), H.B. Fuller Company (NYSE: FUL), Atotech Limited (NYSE: ATC), The Chemours Company (NYSE: CC), and Ferro Corporation (NYSE: FOE).
Our Methodology
With this context in mind, here is our list of the 10 best chemical stocks to buy according to Jonathan Barrett and Paul Segal’s Luminus Management. These were ranked according to the investment portfolio of Luminus Management at the end of the second quarter of 2021. The analyst ratings of each company are also discussed to provide readers with some more context for their investment decisions.
Best Chemical Stocks to Buy According to Jonathan Barrett and Paul Segal’s Luminus Management
10. Ferro Corporation (NYSE:FOE)
Barrett and Segal’s Stake Value: $2,121,000
Percentage of Jonathan Barrett and Paul Segal’s 13F Portfolio: 0.3%
Number of Hedge Fund Holders: 23
Ferro Corporation (NYSE: FOE) produces and markets specialty materials in the United States, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. It operates through two segments, Functional Coatings, and Color Solutions. The company’s products are used in appliances, electronics, automotive, industrial products, building and renovation, packaging, consumer products, sanitary, construction, healthcare, food and beverage, information technology, energy, and defense industries. It markets and sells its products directly, as well as through agents and distributors. Ferro Corporation (NYSE: FOE) was founded in 1919 and is headquartered in Mayfield Heights, Ohio.
This February, Deutsche Bank analyst David Begleiter raised his price target on Ferro Corporation (NYSE: FOE) from $16 to $18 and kept a Buy rating on the shares.
Ferro Corporation (NYSE: FOE) is ranked 10th on our list of 10 best chemical stocks to buy according to Jonathan Barrett and Paul Segal’s Luminus Management. Based on the latest 13F filings, Jonathan Barrett and Paul Segal’s Luminus Management holds more than 98,000 shares of Ferro Corporation (NYSE: FOE), worth $2.12 million as of the second quarter of 2021. These shares represent 0.3% of Luminus Management’s investment portfolio.
As of the fiscal second quarter of 2021, Ferro Corporation (NYSE: FOE) reported earnings per share of $0.20, missing estimates by -$0.07. Ferro Corporation (NYSE: FOE) also generated revenues of $294.33 million, representing a 43.72% year-over-year growth rate, beating estimates by $31.04 million. On top of this, the share price for Ferro Corporation (NYSE: FOE) has gained 18.42% over the past 6 months, and 43.85% year to date.
By the end of the second quarter of 2021, 23 hedge funds out of the 873 tracked by Insider Monkey held stakes in Ferro Corporation (NYSE: FOE) worth roughly $388 million. This is compared to 12 hedge funds in the previous quarter with a total stake value of approximately $181.8 million.
Like Linde plc (NYSE: LIN), H.B. Fuller Company (NYSE: FUL), Atotech Limited (NYSE: ATC), and The Chemours Company (NYSE: CC), Ferro Corporation (NYSE: FOE) is one of the 10 best chemical stocks to buy according to Jonathan Barrett and Paul Segal’s Luminus Management.
Madison Funds, an investment management firm, published their “Madison Small Cap Fund” second-quarter 2021 investor letter in which they mentioned Ferro Corporation (NYSE: FOE) and discussed their stance on the firm. Here’s what they had to say:
“Another core position, Ferro Corp (FOE) announced its acquisition by private equity in the second quarter. Ferro was a relatively new addition to the portfolio in 2020, but a company that we have invested in multiple times over our strategy’s history. The company had recently divested its least attractive division, fixed its balance sheet, and was focused on growing its core inorganic materials and pigments businesses. We had posited that there was a myriad of small M&A opportunities for the company now that the balance sheet was de-levered. While we were happy to book a solid gain for our investors, we were disappointed that the company chose to continue this strategy in private, denying us the opportunity to participate.”
9. Linde plc (NYSE:LIN)
Barrett and Segal’s Stake Value: $4,989,000
Percentage of Jonathan Barrett and Paul Segal’s 13F Portfolio: 0.72%
Number of Hedge Fund Holders: 55
Linde plc (NYSE: LIN) operates as an industrial gas company in North and South America, Europe, the Middle East, Africa, and the Asia Pacific. It offers oxygen, nitrogen, argon, rare gases, carbon dioxide, hydrogen, helium, electronic and specialty gases, acetylene, and carbon monoxide. The company also designs and constructs turnkey process plants, such as olefin, natural gas, air separation, hydrogen and synthesis gas, and other plants. It serves healthcare, petroleum refining, manufacturing, food, beverage carbonation, fiber-optics, steel making, aerospace, electronics, chemical, and water treatment industries. Linde plc (NYSE: LIN) was founded in 1879 and is based in Guildford, the United Kingdom.
This August, Wells Fargo analyst Michael Sison raised his price target on Linde plc (NYSE: LIN) from $340 to $360 and kept an Overweight rating on the shares. The analyst maintains his favorable view on industrial gases and Linde plc (NYSE: LIN) as a quality earnings growth leader within the sector. He continues to expect +10% EPS growth in the coming years, given the company’s $7.5 billion order backlog, with additional upside opportunities from clean hydrogen driving the next leg of growth through the next decade.
Linde plc (NYSE: LIN) is ranked 9th on our list of 10 best chemical stocks to buy according to Jonathan Barrett and Paul Segal’s Luminus Management. Based on the latest 13F filings, Jonathan Barrett and Paul Segal’s Luminus Management holds a little over 17,000 shares of Linde plc (NYSE: LIN), worth $4.98 million as of the second quarter of 2021. These shares represent 0.72% of Luminus Management’s investment portfolio.
As of the fiscal second quarter of 2021, Linde plc (NYSE: LIN) registered an EPS of $2.70, beating estimates by $0.17. The company also reported revenues of up to $7.58 billion, up 18.93% year-over-year, and beating estimates by $202.68 million. Linde plc (NYSE: LIN) has gained 16.15% over the past 6 months, and 20.97% year to date.
By the end of the second quarter of 2021, 55 hedge funds out of the 873 tracked by Insider Monkey held stakes in Linde plc (NYSE: LIN) worth roughly $5.92 billion. This is compared to 43 hedge funds in the previous quarter with a total stake value of approximately $4.63 billion.
Like H.B. Fuller Company (NYSE: FUL), Atotech Limited (NYSE: ATC), The Chemours Company (NYSE: CC), and Ferro Corporation (NYSE: FOE), Linde plc (NYSE: LIN) is among the 10 best chemical stocks to buy according to Jonathan Barrett and Paul Segal’s 13F portfolio.
8. H.B. Fuller Company (NYSE:FUL)
Barrett and Segal’s Stake Value: $4,991,000
Percentage of Jonathan Barrett and Paul Segal’s 13F Portfolio: 0.72
Number of Hedge Fund Holders: 12
H.B. Fuller Company (NYSE: FUL), together with its subsidiaries, formulates, manufactures, and markets adhesives, sealants, coatings, polymers, tapes, encapsulants, additives, and other specialty chemical products worldwide. H.B. Fuller Company (NYSE: FUL) operates through three segments: Hygiene, Health and Consumable Adhesives; Engineering Adhesives; and Construction Adhesives. The company sells its products directly through distributors and retailers. H.B. Fuller Company (NYSE: FUL) was founded in 1887 and is headquartered in Saint Paul, Minnesota.
This June, Deutsche Bank analyst David Begleiter raised his price target on H.B. Fuller Company (NYSE: FUL) from $65 to $67 and kept a Hold rating on the shares post the fiscal second-quarter results.
H.B. Fuller Company (NYSE: FUL) is ranked 8th on our list of 10 best chemical stocks to buy according to Jonathan Barrett and Paul Segal’s Luminus Management. Based on the latest 13F filings, Jonathan Barrett and Paul Segal’s Luminus Management holds more than 78,000 shares of H.B. Fuller Company (NYSE: FUL) worth $4.99 million as of the second quarter of 2021. These shares represent 0.72% of Luminus Management’s investment portfolio.
As of the fiscal second quarter of 2021, H.B. Fuller Company (NYSE: FUL) reported earnings per share of $0.94, beating estimates by $0.02. The company also reported revenues amounting to $827.87 million, up 22.72% year-over-year, and beating estimates by $63.51 million. On top of this, H.B. Fuller Company (NYSE: FUL) has gained 0.35% over the past 6 months, and 18.72% year to date.
By the end of the second quarter of 2021, 12 hedge funds out of the 873 tracked by Insider Monkey held stakes in H.B. Fuller Company (NYSE: FUL) worth roughly $161 million. This is compared to 16 hedge funds in the previous quarter with a total stake value of approximately $177.5 million.
Like Atotech Limited (NYSE: ATC), The Chemours Company (NYSE: CC), Ferro Corporation (NYSE: FOE), and Linde plc (NYSE: LIN), H.B. Fuller Company (NYSE: FUL) is among the 10 best chemical stocks to buy according to Luminus Management.
7. Atotech Limited (NYSE:ATC)
Barrett and Segal’s Stake Value: $7,159,000
Percentage of Jonathan Barrett and Paul Segal’s 13F Portfolio: 1.04%
Number of Hedge Fund Holders: 23
Atotech Limited (NYSE: ATC) is a chemicals technology company that provides specialty electroplating and surface finishing solutions worldwide. Atotech Limited (NYSE: ATC) operates in two segments, Electronics (EL) and General Metal Finishing (GMF). The company’s products and technologies serve the primary surface finishing end markets comprising the automotive, consumer electronics, construction, sanitary, white goods, and oil and gas industries. The company also offers on-site support and training services. Atotech Limited (NYSE: ATC) was founded in 1851 and is headquartered in West Bromwich, United Kingdom.
This March, Jefferies analyst Laurence Alexander initiated coverage of Atotech Limited (NYSE: ATC) with a Buy rating and $26 price target. The company is the market leader in plating chemicals for decorative finishes and functional surfaces in electronics and general metal applications, noted Alexander, who sees an attractive opportunity given his view that Atotech “combines double-digit growth prospects with relative undervaluation.”
Atotech Limited (NYSE: ATC) is ranked 7th on our list of 10 best chemical stocks to buy according to Jonathan Barrett and Paul Segal’s Luminus Management. Based on the latest 13F filings, Jonathan Barrett and Paul Segal’s Luminus Management holds more than 280,000 shares of Atotech Limited (NYSE: ATC) worth $7.15 million as of the second quarter of 2021. These shares represent 1.04% of Luminus Management’s investment portfolio.
As of the fiscal second quarter of 2021, Atotech Limited (NYSE: ATC) registered an EPS of $0.29 beating estimates by $0.15. The company also generated revenues that amounted to $376.6 million beating estimates by $40.47 million. On top of this, Atotech Limited (NYSE: ATC) has gained 9.99% over the past 6 months, and 25.25% year to date.
Like The Chemours Company (NYSE: CC), Ferro Corporation (NYSE: FOE), Linde plc (NYSE: LIN), and H.B. Fuller Company (NYSE: FUL), Atotech Limited (NYSE: ATC) is among the 10 best chemical stocks to buy according to Luminus Management.
6. The Chemours Company (NYSE:CC)
Barrett and Segal’s Stake Value: $7,496,000
Percentage of Jonathan Barrett and Paul Segal’s 13F Portfolio: 1.09%
Number of Hedge Fund Holders: 24
The Chemours Company (NYSE: CC) provides performance chemicals in North America, the Asia Pacific, Europe, the Middle East, Africa, and Latin America. It operates through four segments: Titanium Technologies, Thermal & Specialized Solutions, Advanced Performance Materials, and Chemical Solutions. The company sells its products through direct channels, as well as through a network of resellers and distributors. The Chemours Company (NYSE: CC) was founded in 2014 and is headquartered in Wilmington, Delaware.
This August, RBC Capital analyst Arun Viswanathan raised his price target on The Chemours Company (NYSE: CC) from $35 to $40 and kept an Outperform rating on the shares. The analyst believes that the anticipated industrial recovery this year will drive more favorable titanium dioxide conditions, which will be the first to recover as automotive and industrial production recovers in a post-COVID environment.
The Chemours Company (NYSE: CC) is ranked 6th on our list of 10 best chemical stocks to buy according to Jonathan Barrett and Paul Segal’s Luminus Management. Based on the latest 13F filings, Jonathan Barrett and Paul Segal’s Luminus Management owns more than 215,000 shares of The Chemours Company (NYSE: CC) worth $7.49 million as of the second quarter of 2021. These shares represent 1.09% of Luminus Management’s investment portfolio.
As of the fiscal second quarter of 2021, The Chemours Company (NYSE: CC) registered earnings per share of $1.20, beating estimates by $0.26. The company also generated revenues that amounted to $1.66 billion, up 51.42% year-over-year, and beating estimates by $125.78 million. On top of this, the share price for The Chemours Company (NYSE: CC) has seen gains of 11.83% over the past 6 months and 23.81% year to date.
By the end of the second quarter of 2021, 24 hedge funds out of the 873 tracked by Insider Monkey held stakes in The Chemours Company (NYSE: CC) worth roughly $562 million. This is compared to 27 hedge funds in the previous quarter with a total stake value of approximately $544.7 million.
Like Atotech Limited (NYSE: ATC), Ferro Corporation (NYSE: FOE), Linde plc (NYSE: LIN), and H.B. Fuller Company (NYSE: FUL), The Chemours Company (NYSE: CC) is among the top 10 picks for best chemical stocks to buy according to Luminus Management.
Greenlight Capital, an investment management firm, published its “Global Growth Fund” second quarter 2021 investor letter, in which the firm mentioned The Chemours Company (NYSE: CC) and shared its stance on the company. Here’s what they had to say:
“Titanium Dioxide
Titanium dioxide is the chemical that makes coatings and plastics white or opaque. There was substantial capacity added in China between 2011 and 2013, but little since. In fact, some Chinese capacity has been shuttered for economic and/or environmental reasons. The last plant built in the U.S. came on-line in 2016 and added 2.8% to global capacity. There had been no Western capacity built for many years prior to that, and presently, no Western company has announced plans to build new plants. The post-COVID construction boom (possibly followed by an infrastructure boom) has left the world structurally short titanium dioxide. Spot pricing is up substantially this year in the face of supply shortages.
We own Chemours (CC), which is one of the few industry players with some spare capacity and is poised to benefit from higher prices and volumes. It trades for around 10x this year’s consensus earnings estimates.”
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Disclosure: None. 10 Best Chemical Stocks to Buy According to Jonathan Barrett and Paul Segal’s Luminus Management is originally published on Insider Monkey.
