Five Basic Materials Stocks Hedge Funds Love

Material stocks are the basis of the global economy. Without copper, chemicals, fertilizer, and crude, there would be no modern day economy as we know it. Given materials essential place in the economy, many smart money funds have invested in them. In this article, we take a look at five basic material stocks that hedge funds love, Monsanto Company (NYSE:MON), Air Products & Chemicals, Inc. (NYSE:APD), Dow Chemical Co (NYSE:DOW), Freeport-McMoRan Inc (NYSE:FCX), and U.S. Silica Holdings Inc (NYSE:SLCA).

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#5 U.S. Silica Holdings Inc (NYSE:SLCA)

– Number of Hedge Fund Holders (as of December 31): 43
– Total Value of Hedge Fund Holdings (as of December 31): $1.07 billion
– Hedge Fund Holdings as Percent of Float (as of December 31): 23.80%
U.S. Silica Holdings Inc (NYSE:SLCA) is an indirect play on shale competitiveness. If shale crude production increases, demand for fracking sand will rise, and U.S. Silica Holdings’ fundamentals will benefit. If shale production succumbs to the low oil prices, however, the inverse could occur. At the moment, the market is undecided, as crude prices have dipped below the psychological important $50 per barrel level. In terms of smart money sentiment, 43 funds owned $1.07 billion of U.S. Silica Holdings Inc (NYSE:SLCA) and accounted for 23.80% of the float on December 31, up from 39 funds and $750.75 million respectively on September 30. Those numbers are out of the 742 total funds we track.

#4 Freeport-McMoRan Inc (NYSE:FCX)

– Number of Hedge Fund Holders (as of December 31): 43
– Total Value of Hedge Fund Holdings (as of December 31): $2.17 billion
– Hedge Fund Holdings as Percent of Float (as of December 31): 11.40%

Although copper prices have rallied since November of last year on Trump’s infrastructure plan hopes, Freeport-McMoRan Inc (NYSE:FCX) hasn’t done as well as other infrastructure plays. The main culprit has been due to the uncertainty surrounding the company’s giant Grasberg copper mine in Indonesia, which accounts for around a third of the company’s annual copper production. If the uncertainty with the Indonesian government — which wants to renegotiate terms — continues or the final terms in potential arbitration or settlement aren’t as favorable as expected, Freeport-McMoRan could continue to lag its peers. If the terms are better, the stock could rally. Many bulls and 43 elite funds at the end of 2016 certainly hope the latter occurs.

#3 Dow Chemical Co (NYSE:DOW)

– Number of Hedge Fund Holders (as of December 31): 55
– Total Value of Hedge Fund Holdings (as of December 31): $4.54 billion
– Hedge Fund Holdings as Percent of Float (as of December 31): 7.10%

Laurence Alexander of Jefferies recently upgraded Dow Chemical to ‘Buy’ from ‘Hold’ and set a price target of $75, up from the previous $65. Alexander believes Dow Chemical’s pending merger with DuPont will close and that the synergies from the deal will unlock substantial upside. Of the 742 elite funds we track, 55 funds owned $4.54 billion of Dow Chemical Co (NYSE:DOW) and accounted for 7.10% of the float on December 31, versus 47 funds and $2.69 billion respectively on September 30.

#2 Air Products & Chemicals, Inc. (NYSE:APD)

– Number of Hedge Fund Holders (as of December 31): 57
– Total Value of Hedge Fund Holdings (as of December 31): $3.1 billion
– Hedge Fund Holdings as Percent of Float (as of December 31): 9.90%

57 elite funds reported owning stakes in Air Products & Chemicals, Inc. (NYSE:APD) at the end of Q4, up from 56 at the end of the third quarter. Besides smart money funds, Credit Suisse is a fan of the company, with analyst Christopher Parkinson setting a $151 price target on the stock. That’s up from the previous $145. Many bulls believe Air Product management’s capital allocation going forward will help drive shares higher over the long term.

#1 Monsanto Company (NYSE:MON)

– Number of Hedge Fund Holders (as of December 31): 73
– Total Value of Hedge Fund Holdings (as of December 31): $4.27 billion
– Hedge Fund Holdings as Percent of Float (as of December 31): 9.30%

With 73 elite funds holding positions at the end of 2016, Monsanto Company (NYSE:MON) is the smart money’s favorite basic materials stock on our list. In terms of Monsanto’s pending merger with Bayer, the two companies have begun the divestment process of assets of around $2.5 billion to win government approval around the globe. Given the perception among investors that the EU will approve a similar merger between Dow Chemical and DuPont, bulls hope that the Bayer/Monsanto combination will also get the thumbs up from the EU. If that happens and the U.S. government also approves, Monsanto stock could rally.

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