Even in times of serious volatility, the chemical industry has been one of the most stable and consistent dividend paying segments of the economy during the past few years. However, in the last two months, the Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), has turned negative and shown declines of 0.1% and 0.3% in July and August respectively after remaining up by 0.5% in May and June. Although the CAB was still up 1.8% year-over-year on August 25, according to the Chief Economist at ACC, Kevin Smith, it is pointing towards “slow gains in business activity into the early part of 2016”. For an investor keeping track of the trends in an industry is important, but equally if not more important is to keep a track on what smart money thinks of companies from the particular industry. To figure that out, we decided to go through the recent 13F filings submitted by over 700 hedge funds we track and uncover three most popular chemical industry stocks among hedge funds heading into the third quarter, which we will be revealed further in this article.
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We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by over 60 percentage points (118% return vs. S&P 500’s 57.6% gain) over the last 36 months (see the details here).
3. Eastman Chemical Company (NYSE:EMN)
Investors with Long Positions (as of June 30): 39
Aggregate Value of Investors’ Holdings (as of June 30): $1.368 Billion
The Eastman Chemical Company (NYSE:EMN)’s stock had a terrific rise of 18.7% during the second quarter, which perhaps explain why the number of hedge funds that held the stock went up by one and the aggregate value of hedge funds’ holdings jumped by $195 million during this period. However, despite that significant appreciation during the April-June period, the stock has dropped significantly in the past two months and are now trading 8.2% in red in year-to-date terms. The company has consistently increased its quarterly dividend during the past six years and its annual dividend yield currently hovers around 2.30%. Though the company’s sales on a constant currency basis are growing at around 8%, the appreciation of the dollar can have a significant impact on its top line results because it operates 45 plants in 16 countries and 57% of its revenues come outside the United States. Analysts have also raised concerns over the very high debt of $7.323 billion the company currently carries on its balance sheet. Meanwhile, David Cohen and Harold Levy‘s Iridian Asset Management inched up its stake in Eastman Chemical Company (NYSE:EMN) by 10% to over 4.83 million shares during the April-June period and continued to remain its largest shareholders among the hedge funds we track.
