In this article, we will discuss the 10 Worst Specialty Chemical Stocks To Buy According to Short Sellers.
Companies in the specialty chemicals sector produce value-added specialty chemicals that play an essential role across a wide range of industries. These chemicals are key components in products like polishes, adhesives, sealants, explosives, inks, paints, carbon black, acids, repellents, and cleaning solutions. They are uniquely formulated for specific performance characteristics, allowing manufacturers to provide tailored solutions that improve the functionality, durability, and efficiency of end products.
The sector has seen a year-to-date (YTD) rise of 8.11%, while the broader market has risen by 20.30% (as of writing this article). The sector’s growth is primarily driven by its increasing focus on sustainability and innovation. Companies in this space are adopting green chemistry practices, such as using renewable feedstocks, which not only improve operational efficiency but also reduce environmental impact. Additionally, robust demand in key sectors like construction, particularly in emerging regions like Asia Pacific, has contributed to the sector’s upward trend, according to Research and Markets.
In the U.S., the industry benefits from robust demand for paints, coatings, and industrial cleaning chemicals. Looking ahead, the North American for waterborne coatings is expected to reach $24 billion in the next five years, according to Grand View Research. The sector’s ability to meet rising demands across diverse markets will be key to sustaining its long-term positive trajectory.
Specialty Chemical Industry Outlook
Globally, some of the most in-demand specialty chemicals include electronic chemicals, specialty polymers, industrial and institutional cleaners, water-soluble polymers, and construction chemicals, as noted by S&P Global. Together, these chemicals held a market share of 38% as of 2023. The demand for these chemicals is expected to keep growing, with the market projected to expand at a compound annual growth rate (CAGR) of 5.2% from 2024 to 2030, according to Grand View Research.
Traditionally, specialty chemical companies sold their products based on value, as their costs made up only a small part of their customers’ overall expenses. However, advancements in supply-chain management, strategic sourcing, and e-commerce have increased transparency, pushing some companies to compete on price, rather than performance. To combat commoditization, many companies are shifting to a service-oriented approach, offering support services and tailored solutions to specific customers.
This strategy has proven effective in the sectors such as automotive coatings, pharmaceutical ingredients, and water treatment. As commoditization spreads, more companies are expanding their service offerings to create barriers to entry and stay competitive.
Growing Focus on Sustainable Chemicals
There is also a rising need for safe and sustainable specialty chemicals in the electronics and consumer goods sectors. For instance, big technology companies have implemented their regulations on the use of specialty chemicals, requiring compliance in the manufacturing of their products. They have issued public disclosures of how they intend to eliminate harmful substances from their product life cycle.
Key Market Trends
The CASE (Coatings, Adhesives, Sealants, and Elastomers) segment accounts for approximately 40% of the specialty chemicals market, according to Grand View Research. Increasing demand from industries like automotive, electronics, and construction, especially in high-growth regions, is expected to drive the adhesives and sealants market further. Asia Pacific, led by manufacturing hubs in China, India, Japan, Indonesia, and Vietnam, will maintain its leadership over the next five years. The electronic chemicals and materials market in the region is projected to grow, reflecting robust regional demand.
The industrial and institutional cleaning chemicals sector has emerged as one of the fastest-growing segments, with an expected growth rate of 6.3% over the next five years. Additionally, the packaging industry is becoming a significant market driver, with rising demand for specialty paper and pulp chemicals, making it one of the most valuable emerging sectors in the specialty chemicals market.
With this, let’s now move on to our list of the 10 Worst Specialty Chemical Stocks To Buy According to Short Sellers.
A technician performing quality checks on a range of specialty chemicals.
Methodology
To compile our list of the 10 Worst Specialty Chemical Stocks To Buy According to Short Sellers, we ranked the holdings by the percentage of outstanding shares that were sold short. Stocks with the highest short interest within the industry were then chosen. Additionally, we included the number of hedge funds that had invested in these stocks during the second quarter of 2024, according to Insider Monkey’s database. The stocks are ranked in ascending order of short interest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. Perimeter Solutions, SA (NYSE:PRM)
Number of Hedge Fund Holders: 20
Short % of Shares Outstanding: 1.89%
Perimeter Solutions, SA (NYSE:PRM), based in Clayton, Missouri, produces firefighting products and lubricant additives for international markets. It operates through two segments: Fire Safety, which provides fire retardants, foams, and specialized equipment, and the Specialty Products segment, which manufactures Phosphorus Pentasulfide for use in lubricant additives. It is one of the best chemical stocks to buy.
In Q2 2024, Perimeter Solutions, SA (NYSE:PRM) reported a 67% increase in net sales, reaching $127.3 million compared to the same quarter last year. Fire Safety revenues surged 85% year-over-year (YoY), driven by the growing use of fire retardants and suppressants, while the Specialty Products segment saw a 25% YoY increase, fueled by the development of innovative specialty products like the P2S5 SKU for wind turbines.
Despite strong revenue performance, net income fell by $30.3 million to $21.7 million, mainly due to higher non-operating costs, including interest expenses, depreciation, and amortization.
However, the company’s liquidity remains healthy, with $43.2 million in cash. Looking ahead, ongoing investments in air base upgrades and fluorine-free technologies are expected to fuel future growth.
Perimeter Solutions, SA (NYSE:PRM), in partnership with AUXQUIMIA, has announced an automated fire test system for firefighting foams, aimed at speeding up R&D and enhancing quality control.
In terms of stock performance, Perimeter saw a 17.57% increase over the past month and a remarkable 183.7% YTD, reflecting strong investor confidence due to robust revenue growth. Strategic moves, such as reincorporating in Delaware and effectively using excess cash flow, have further boosted market sentiment.
As of Q2 2024, 20 hedge funds with a combined investment of $292.4 million remain bullish on the stock, according to Insider Monkey’s database. PRM is one of the worst specialty chemical stocks to buy.
9. Ashland Inc. (NYSE:ASH)
Number of Hedge Fund Holders: 25
Short % of Shares Outstanding: 2.22%
Headquartered in Wilmington, Delaware, Ashland Inc. (NYSE:ASH) is a global leader in additives and specialty ingredients, catering to markets across North and Latin America, Europe, the Asia-Pacific region, and beyond. The company serves a wide range of industries, including architectural coatings, construction, energy, and food and beverage, becoming one of the best chemical stocks in the industry.
In Q3 2024, Ashland Inc. (NYSE:ASH) reported relatively flat YoY revenue at $544 million. Notably, the Personal Care segment saw a robust 22% growth in sales volume, significantly boosting overall performance. The Specialty Additives segment achieved a 5% sales volume increase, primarily due to strong demand recovery in coatings, contributing 26.7% to total revenue.
Net earnings benefited from margin improvements, with adjusted EBITDA rising by 5% to $139 million, reflecting higher volumes and favorable product mixes across segments. The adjusted EBITDA margin increased to 25.6%, up from 24.4% in the previous year, despite some pricing pressure.
In terms of liquidity, Ashland Inc. (NYSE:ASH) generated $112 million in free cash flow, up 15% YoY for the quarter. With $399 million in cash on hand and no significant debt maturities over the next three years, the company continued its shareholder-friendly policies, repurchasing $130 million worth of shares during the quarter.
In August 2024, Ashland expanded its pharmaceutical injectables manufacturing and R&D lab in Ireland, boosting its bioresorbable polymer chemistry capabilities to meet rising market demand. This expansion strengthens Ashland’s pharmaceutical portfolio and reinforces Ireland’s position as a life sciences hub.
Despite rising net income, the stock declined by 3.78% in the past month, driven by weaker demand in key markets such as Life Sciences and increased competition in Asia. However, it saw a 1.09% YTD increase, reflecting long-term confidence in the company’s strategic initiatives, including portfolio optimization and growth in Personal Care and Specialty Additives.
Given the factors discussed above, 2.22% of outstanding shares have been sold short, earning it a place on our list of the worst specialty chemical stocks to buy. However, as of Q2 2024, 25 hedge funds with a combined investment of $540.7 million remain bullish on the stock, according to Insider Monkey’s database.
8. Huntsman Corporation (NYSE:HUN)
Number of Hedge Fund Holders: 32
Short % of Shares Outstanding: 2.39%
Huntsman Corporation (NYSE:HUN) is a publicly traded global manufacturer and marketer of specialty chemicals. The company operates more than 60 manufacturing, R&D, and operations facilities across approximately 25 countries. It is one of the best chemical stocks to consider.
In Q2 2024, Huntsman Corporation (NYSE:HUN) reported revenue of over $1.5 billion, a dip of 1.4% compared to the same quarter last year. The company experienced a decline in its revenue across all segments. The Performance Products segment, which manufactures specialty amines and other products, saw lower average selling prices due to competitive pressure, partially offset by higher sales volumes driven by improved industrial activity and increased demand.
Net income for the quarter was $24 million, continuing the downward trend, driven by lower selling prices, higher fixed costs, and increased corporate overhead. LIFO valuation losses further impacted profitability, despite the higher sales volumes.
Despite lower earnings, Huntsman Corporation (NYSE:HUN)’s liquidity remained strong in the quarter, with $1.3 billion in cash and unused borrowing capacity, generating $5 million in free cash flow in Q2 2024 – a significant improvement compared to the $11 million outflow in Q2 2023.
In April 2024, Huntsman Corporation (NYSE:HUN) launched a new range of lightweight, durable SHOKLESS polyurethane foam systems for EV batteries, offering structural and thermal protection with flexible manufacturing processes.
Despite a revenue decline, Huntsman’s stock saw a 7% rise over the past month, likely due to earnings beats, cost control measures, cash flow management, and improved sales volumes. However, a 6.67% YTD decline reflects broader challenges faced by the company, including pricing pressure and operational challenges that have weighed on investor confidence over the long term.
As a result, 2.39% of outstanding shares have been sold short. As of Q2 2024, 32 hedge funds, with a combined $429.8 million investment, remained bullish on the stock, according to Insider Monkey’s database.