4. LyondellBasell Industries N.V. (NYSE:LYB)
Number of Hedge Fund Holders: 41
Cramer recently introduced his YEV stocks list during an episode of Mad Money, focusing on companies that offer the highest yields. Among these, LyondellBasell Industries N.V. (NYSE:LYB) caught his attention and he mentioned its yield of 5.62%. The company, recognized as a significant player in the commodity chemicals sector, has faced a challenging year. Cramer pointed out that while its performance has been relatively stable, it has significantly underperformed compared to the S&P 500, trailing by nearly 20% during the same timeframe.
Cramer commented that the company’s stock, along with similar stocks, is experiencing the expected cyclical nature of the industry. According to him, these types of companies thrive when the global economy is strong but tend to struggle during economic downturns. This cyclical behavior explains why it has been lagging this year, as broader economic challenges have impacted its performance. He further explained:
“Until very recently, the two largest economies of the world, the United States and China were both deteriorating. But think about what’s happened just in the past few weeks. First, the Fed officially kicked off a new easing cycle, starting with that double rate cut I just mentioned. And then there’s a clear consensus that we are going to get several more rate cuts done before the Fed is finished.
Wall Street is expecting that the Fed funds rate will be down to 3.5 to 3.75% by next June’s meeting. That’s down 125 basis points from where it stands right now. What really matters, though, is that the general direction of interest rates is lower, which means the Fed is your friend. Don’t fight the Fed. At moments like this, the textbook cycle stocks tend to become big winners.”
Cramer emphasized that the time to buy chemical commodity stocks like LyondellBasell is when the Fed is cutting rates. He further highlighted:
“Second, in the past two weeks, the Chinese government has announced the most aggressive stimulus efforts that [it] has put in place since the end of the pandemic. And for once, China is actually putting money in people’s pockets. For a communist regime, they seem to really hate handouts, but they’re finally taking action to bolster their ailing economy, which is good news both for their own companies and for cyclicals worldwide that are levered to the Chinese economy, including… LyondellBasel.”
Cramer has made note of the company releasing its third-quarter earnings report on October 1. He stated:
“A couple of weeks ago, analysts at JPMorgan published a note on the chemicals group. Basically said that they expect these companies to report weak third-quarter results… The analysts at JPMorgan went on to explain that these stocks have been what we call de-risked, meaning the near-term earnings headwinds are already baked into the share price. If you’re willing to look past that and see further into the future, though… LyondellBasel should be on the road to recovery now that interest rates are coming down. You got to anticipate, anticipate, anticipate, that makes a lot of sense to me.”
Cramer emphasized that a shift in the Federal Reserve’s policy, particularly when it starts lowering interest rates, signals a good time to invest in cyclical stocks. He noted that while many sectors respond quickly to such changes, the commodity chemical companies, like LyondellBasell, typically take longer to recover.
Cramer highlighted that companies like LyondellBasell (NYSE:LYB) are often significantly influenced by the decisions of the Federal Reserve. He cautioned that if investors do not expect a consistent series of rate cuts, these companies may struggle to meet their earnings targets. This could make their stocks appear more expensive than they actually are, leading to potential declines in value. He gave his opinion, saying:
“If, like me, you believe the Fed will continue cutting, then bond yields will come down, too, and economies around the world will reaccelerate, bolstering the commodity chemical business as a whole… LyondellBasel. Well, then you got to pull the trigger.
So here’s the bottom line: In this quiet period before earnings season gets crazy, okay? We got to search for new ideas. These are ideas that represent the highest quality stocks for the current moment, the ones that fit the YEV paradigm: yield, earnings growth, and value.”
Cramer concluded by saying that the company is an ideal candidate for investment right now. He pointed out that this aligns perfectly with what hedge fund strategies typically recommend at this stage in the business cycle.
LyondellBasell (NYSE:LYB) is a global leader in the production of petrochemicals, polymers, and fuels, with a significant presence in various markets. The company has been actively working on improving its operational performance while pursuing strategic initiatives aimed at long-term growth.
During the second quarter, it generated $1.3 billion in cash from its operating activities. The substantial cash flow has been essential in supporting the company’s disciplined approach to executing its business strategy. As highlighted in its fourth-quarter earnings call, the company is making strides toward its objective of achieving an additional $3 billion in normalized EBITDA by 2027, with nearly one-third of that goal already reached in 2023.
