In this piece, we will take a look at the ten best US chemical stocks to invest in now. If you want to skip our overview of the US chemicals industry and the latest news, then you can skip ahead to the 5 Best US Chemical Stocks To Invest In Now.
The chemicals industry is one of the most technologically complex, important, and capital intensive sectors in the world and in America. Chemicals run the world and they often form the backbone of important industrial processes such as semiconductor fabrication or aerospace exploration. In chip fabrication, a wafer has to be cleaned multiple times during the manufacturing process. This is because modern day semiconductors have transistors (a simple electrical circuit) that are thousands of times smaller than the width of a human hair. Therefore, even the tiniest of impurities introduced either through the manufacturing process itself or the environment in which the chips are being made can render products that are worth thousands of dollars worthless.
As a result, analysts believe that more than a thousand separate chemicals and metals are used in chipmaking, ensuring that semiconductor fabrication firms such as Intel Corporation (NASDAQ:INTC) and the Taiwan Semiconductor Manufacturing Company (NYSE:TSM) have a robust chemical supply chain that is ready to meet their needs at a moment’s notice. For the US chemicals industry, this means that the future might hold some additional promise. This is because the US government, after realizing that most of the world’s supply chain for advanced semiconductors is located in Asia, has earmarked billions of dollars in funding to firms that are willing to set up facilities in America. Both Intel and TSMC are working with the Biden-Harris Administrator under this, and April 2024 came with a major announcement that saw the latter agree to a multi billion dollar funding deal with the government to set up new facilities in Arizona.
While semiconductors are all the hype, particularly due to the surge in Wall Street interest surrounding the potential application of advanced data science techniques called artificial intelligence to industrial, business, and consumer use, the US chemicals industry saw its own set of major developments in April. This came in the form of a new set of rules from the Environmental Protection Agency (EPA). In April, the EPA’s new rules targeted ethylene oxide and chloroprene emissions in America, and aimed to reduce more than 6,200 tons of pollution annually in a bid to reduce cancer and other health risks to Americans. The EPA believes that the industrial processes targeted by these rules will be able to cut down their emissions by a cool 80%, but as is nearly always the case with such legislation, it was met by a strong push back from the US chemicals industry.
After the rule changes were announced, the American Chemistry Council, a lobby group of nearly two hundred companies raised concerns about the EPA’s use of a flawed benchmark value to determine the toxicity of ethylene oxide. Dubbed as EtO, this chemical is used in several industrial processes, including the crucial medical devices industry since it is among a handful of substances that are suitable for sterilization use.
News such as stringent new rules aren’t tailwinds by any account for stocks; however, US chemical stocks were left unfazed by the EPA’s announcement, perhaps because it covered only a couple of chemicals and not the broader industry. In fact, US chemical stock investors should actually be pleased with their investments this year. Like other industrial stocks, US chemical stocks are also dependent on economic performance. The more money that is changing hands in the economy and the easier access to capital is, the better chemical stocks perform. Looking at this, the year to date and 12 month performance of the Dow Jones U.S. Chemicals Index is unsurprising.
The index is up 8.5% over the past twelve months, and year to date the US chemical stock index has delivered 5% through price appreciation. Since chemicals stocks are unlikely to be trailblazers than say the US chip design star NVIDIA Corporation (NASDAQ:NVDA), their shares are preferred for their relative stability and a lack of volatility.
Before we head to our list of the best US chemical stocks, it’s also important to see what the hedge funds are saying about the sector. On this front, here’s what White Brook Capital Partners had to say about Green Plains Inc. (NASDAQ:GPRE) in its fourth quarter of 2023 investor letter:
Green Plains is a troubled investment. The stock did not perform as expected in 2023 and has had a difficult start to 2024. The Company continues to be well positioned, generating solid margins on each kernel of corn as the corn crush margin stays meaningfully positive. Furthermore, the industry’s progression is clear. There is an opportunity for ethanol producers to increase short and long term profitability by deriving higher amounts of corn oil, specialty alcohols, and high-density feed protein from each kernel of corn. It’s also increasingly clear that the required capital will prevent many current operators from transitioning. Green Plains was fortunate to begin its conversion relatively early and to have the scale necessary to complete the transition.
During the year, the regulatory environment bent towards ethanol producers as the federal government stopped preventing several midwestern states from blending a higher percentage of ethanol into gasoline and included their substrates in Inflation Reduction Act climate change subsidies.
Finally, the company is at the forefront of the ethanol industry’s sustainable aviation fuel (SAF) development, a future use case that would use a substantial portion of the US’ current ethanol production if today’s ethanol plants were to supply it. This year’s developments were positive for Green Plains and portend a dramatically higher earnings stream within a year, even higher in two and higher still in three, making the stock incredibly cheap, particularly looking two or three years out.
The problem is that Green Plains management consistently overpromises and underdelivers, having pushed out the monetization of its high protein feed and carbon sequestration approval timelines multiple times. Today, the stock price indicates that the street has little confidence in management’s ability to execute on the communicated vision. Activist investors are already involved, and I expect one, given the strong strategic position of the company but the flailing stock price, will become active in the stock in the short term. White Brook’s view of the company’s intrinsic value is a multiple higher than today’s price.
So, with these details in mind, let’s take a look at the best US chemical stocks that hedge funds are buying. A couple of notable picks are Ecolab Inc. (NYSE:ECL), The Sherwin-Williams Company (NYSE:SHW), and Axalta Coating Systems Ltd. (NYSE:AXTA).
A chemist in a laboratory mixing specialty chemicals and materials for research.
Our Methodology
For our list of the best US chemical stocks, we ranked all US based chemical companies by the number of hedge funds that had bought the shares in Q4 2023 and picked out the top chemical stocks.
For these best US chemical stocks, we used hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
10 Best US Chemical Stocks To Invest In Now
10. Eastman Chemical Company (NYSE:EMN)
Number of Hedge Fund Investors In Q4 2023: 31
Eastman Chemical Company (NYSE:EMN) is a sizeable chemical company headquartered in Kingsport, Tennessee. The firm has been doing well on the financial front as of late since it has beaten analyst EPS estimates in all four of its latest quarters.
As of Q4 2023 end, 31 out of the 933 hedge funds part of Insider Monkey’s database had bought and owned Eastman Chemical Company (NYSE:EMN)’s shares. Israel Englander’s Millennium Management was the firm’s biggest investor due to its $184 million stake.
The Sherwin-Williams Company (NYSE:SHW), Ecolab Inc. (NYSE:ECL), and Axalta Coating Systems Ltd. (NYSE:AXTA) are met by Eastman Chemical Company (NYSE:EMN) in our list of the top US chemical stocks that hedge funds are buying.
9. Olin Corporation (NYSE:OLN)
Number of Hedge Fund Investors In Q4 2023: 36
Olin Corporation (NYSE:OLN) is a well heeled and diversified chemical company with a global operations base. It sells vinyl, epoxy, alkali, and other products. 2024 is shaping up to be a crucial year for the firm as it has joined other American companies in a lawsuit against India, China, and other countries for countervailing and dumping practices.
By the end of last year’s December quarter, 36 out of the 933 hedge funds covered by Insider Monkey’s research had invested in the firm. Olin Corporation (NYSE:OLN) biggest hedge fund shareholder is Donald Yacktman’s Yacktman Asset Management as it owns $229 million worth of shares.
8. DuPont de Nemours, Inc. (NYSE:DD)
Number of Hedge Fund Investors In Q4 2023: 39
DuPont de Nemours, Inc. (NYSE:DD) is the well known and iconic American chemical company headquartered in Wilmington, Delaware. Its heft and experience enable it to be at the leading edge of the industry, and DuPont de Nemours, Inc. (NYSE:DD) took advantage of this in April 2024 when it announced a new laminate material for aerospace use.
During 2023’s fourth quarter, 39 out of the 933 hedge funds tracked by Insider Monkey had held a stake in the firm. DuPont de Nemours, Inc. (NYSE:DD)’s largest stakeholder in our database is Dan Loeb’s Third Point as it owns $266 million worth of shares.
7. PPG Industries, Inc. (NYSE:PPG)
Number of Hedge Fund Investors In Q4 2023: 39
PPG Industries, Inc. (NYSE:PPG) makes and sells paints, coatings, and other products for use in armor, food, and other items. The shares are rated Buy on average, and the average analyst share price target is $159.24.
After digging through 933 hedge fund portfolios for their December quarter of 2023 shareholdings, Insider Monkey found 39 PPG Industries, Inc. (NYSE:PPG) shareholders. Israel Englander’s Millennium Management owned the biggest stake which was worth $293 million.
6. Avantor, Inc. (NYSE:AVTR)
Number of Hedge Fund Investors In Q4 2023: 41
Avantor, Inc. (NYSE:AVTR) is a sizeable chemical company headquartered in Radnor, Pennsylvania. It primarily deals with the needs of the medical industry. Heading into its first quarter earnings report later this month, analysts have penned in a 20 cent estimate for the earnings.
41 out of the 933 hedge funds part of Insider Monkey’s Q4 2023 database were the firm’s investors. Avantor, Inc. (NYSE:AVTR)’s largest stakeholder in our database is Israel Englander’s Millennium Management through its $232 million investment.
Ecolab Inc. (NYSE:ECL), Avantor, Inc. (NYSE:AVTR), The Sherwin-Williams Company (NYSE:SHW), and Axalta Coating Systems Ltd. (NYSE:AXTA) are some top hedge fund US chemical stock picks.
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Disclosure. None. 10 Best US Chemical Stocks To Invest In Now was initially published on Insider Monkey.