In this article, we will explore the 11 best small-cap chemical stocks to buy according to hedge funds.
Chemical Industry: A Focus on Innovation and Sustainability
The chemical industry plays a crucial role in the global economy, contributing trillions of dollars to the world’s GDP. This sector is essential for producing a wide range of materials used in everyday products, from fertilizers and plastics to pharmaceuticals and construction materials.
Recent trends in the chemical industry indicate a strong focus on sustainability and innovation. Companies are increasingly investing in low-carbon technologies and circular economy practices, aiming to reduce greenhouse gas emissions and improve resource efficiency. According to a report by The Business Research Company, the green chemicals market was valued at $108.53 billion in 2023. The market is expected to grow at a compound annual growth rate (CAGR) of 10.4% during 2024-2028 to reach a value of $179.96 billion by the end of the forecast period.
The rise in demand for biodegradable materials and eco-friendly chemicals reflects shifting consumer preferences towards sustainability. This trend is driving companies to innovate and diversify their product offerings.
According to the IONICS report on Chemicals & Mining Industry Trends for 2025, biodegradable chemicals are set to gain widespread adoption in agriculture and consumer products over the next 4-6 years. This shift is largely fueled by advancements in technology and increased support from regulations, as more consumers seek sustainable alternatives. As a result, the market for these eco-friendly products is expected to grow significantly.
Government regulations promoting the use of green chemicals also play a crucial role, as they encourage industries to shift towards renewable resources and reduce reliance on non-renewable materials.
READ ALSO: 8 Best Fertilizer Stocks To Buy Now and 8 Best Plastics Stocks To Invest In Now.
Deloitte’s 2025 chemical industry outlook highlights that to remain competitive in a low-carbon economy, companies are focusing on innovation in three main areas: products, processes, and ecosystems. Many chemical firms are enhancing their product offerings to improve both performance and sustainability. Additionally, they are adopting process innovations, such as digital automation and process intensification, to make operations more efficient and environmentally friendly. For example, some companies are using AI-driven analytics to optimize production and reduce waste.
Ecosystem innovation is also becoming important as companies collaborate with other industry players, research institutions, and startups to develop sustainable solutions. This collaborative approach includes initiatives that aim to promote recycling and material reuse. To strengthen their market position, chemical companies are increasingly integrating these innovative strategies, combining capital investments in process improvements with research and development efforts for product enhancements.
With this background in mind, let’s take a look at the 11 best small-cap chemical stocks to buy according to hedge funds.
A chemist in a laboratory mixing specialty chemicals and materials for research.
Methodology
To compile our list of the 11 best small-cap chemical stocks to buy according to hedge funds, we used stock screeners from Finviz and Yahoo Finance. We also reviewed our own rankings and consulted various online resources to compile a list of the best small-cap chemical stocks. Please note that we defined small-cap stocks as those with a market capitalization between $300 million and $2 billion.
From an initial pool of more than 20 small-cap chemical stocks that met our criteria, we focused on the top 11 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s Q3 2024 database of 900 elite hedge funds. The 11 best small-cap chemical stocks to buy are ranked in ascending order based on the number of hedge funds holding stakes in them.
Why do we care about what hedge funds do? 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).
11 Best Small Cap Chemical Stocks to Buy According to Hedge Funds
11. AdvanSix Inc. (NYSE:ASIX)
Market Capitalization: $845.77 Million
Number of Hedge Fund Holders: 14
AdvanSix Inc. (NYSE:ASIX) is a chemical company that produces essential materials for various industries, including nylon, fertilizers, and chemical intermediates. Their products are vital in sectors such as construction, agriculture, and packaging.
In the third quarter of 2024, AdvanSix Inc. (NYSE:ASIX) reported impressive sales of $398 million, reflecting a 23% increase compared to the previous year. This growth was driven by an 11% rise in sales volume, an 8% increase in raw material pass-through pricing, and a 5% favorable impact from market-based pricing. AdvanSix Inc. (NYSE:ASIX) achieved a net income of $22.3 million, marking a significant improvement of $30.2 million from the prior year.
Adjusted EBITDA for the quarter reached $53.2 million, up $45.8 million year-over-year, indicating strong operational performance. Cash flow from operations also improved significantly to $57.3 million, an increase of $36.4 million compared to the previous year. AdvanSix Inc. (NYSE:ASIX) is focused on targeted growth in profitable areas and has been awarded a $12 million grant from the US Department of Agriculture to expand its production capacity for premium-grade products.
ASIX is one of the best chemical stocks to buy. With robust financial results, strategic investments in growth initiatives, and a commitment to sustainability, AdvanSix Inc. (NYSE:ASIX) is well-positioned for future success. Analysts are also bullish on ASIX. Analysts currently hold a consensus buy rating on the stock and the 1-year median price target of $38.50 set by analysts indicates a potential upside of 22% from current levels.
10. Koppers Holdings Inc. (NYSE:KOP)
Market Capitalization: $708.4 Million
Number of Hedge Fund Holders: 15
Koppers Holdings Inc. (NYSE:KOP) is a global leader in producing carbon compounds, chemicals, and treated wood products. The company plays a vital role in various industries, including railroad, steel, and construction, by producing, protecting, and preserving essential infrastructure products like railroad crossties and utility poles.
In the third quarter of 2024, Koppers Holdings Inc. (NYSE:KOP) reported record consolidated sales of $554.3 million, a slight increase of $3.9 million or 0.7% compared to the previous year. The net income for the quarter was $22.8 million, translating to $1.09 per diluted share, down from $26.3 million or $1.22 per share in the same quarter last year. This change reflects the impact of the acquisition of Brown Wood Preserving Company, completed on April 1, 2024, which enhances Koppers’ (NYSE:KOP) utility product offerings.
The company generated an adjusted EBITDA of $77.4 million, up from $70.7 million in the prior year, indicating improved operational efficiency with an adjusted EBITDA margin of 14% compared to 12.8% previously. Koppers Holdings Inc. (NYSE:KOP) generated improved sequential profitability in its railroad and carbon materials businesses, largely driven by cost reduction initiatives undertaken earlier in 2024.
Koppers Holdings Inc. (NYSE:KOP) is focused on expanding its market presence, particularly in the Texas and Midwest regions, and anticipates modest growth in utility product volumes due to a healthier market environment. The acquisition of Brown Wood is expected to yield significant benefits over the coming year. With strong sales growth, strategic acquisitions, and a commitment to improving operational efficiency, Koppers Holdings Inc. (NYSE:KOP) presents a compelling investment opportunity.
