Iridian Asset Management Owns 6% of W.R. Grace

Iridian had been the largest holder of the stock at the end of September in our database of 13F filings, but other hedge funds and notable investors were interested in W.R. Grace & Co. as well. Billionaire Richard Chilton’s Chilton Investment Company initiated a position of 1.4 million shares during the third quarter of 2012 (see more of Chilton’s stock picks). Tiger Cubs John Griffin (of Blue Ridge Capital) and Andreas Halvorsen (or Viking Global) also had large positions in the stock. Blue Ridge reported owning 1.9 million shares (check out more stocks Griffin was buying) while Viking Global had 1.6 million shares in its own portfolio (research more stocks Viking Global owned).

Other specialty chemicals companies include Albemarle Corporation (NYSE:ALB), Rockwood Holdings, Inc. (NYSE:ROC), RPM International Inc. (NYSE:RPM), and Methanex Corporation (NASDAQ:MEOH). W.R. Grace’s trailing P/E of 21 places it in the middle of the range formed by these peers, with RM and Methanex trading at 25 times their trailing earnings- though current-year estimates put those stocks in the same range as W.R. Grace in terms of valuation- and the other two stocks being cheaper. Specifically, Albemarle carries trailing and forward P/Es of 18 and 11, respectively, while Rockwood’s trailing P/E is 10 with a significant decline in net income expected for this year. Albemarle’s earnings were down 62% last quarter versus a year earlier, but apparently as with many of these other chemical companies the business is expected to bounce back in 2013. We would note that as a general pattern most of these stocks have high betas, since the demand for chemicals is dependent on the broader economy. W.R. Grace and Albemarle, for example, have betas of 1.8.

We’re not sure what the Iridian investment team sees in W.R. Grace. It’s possible that the company is in a period of transition, and that its business will improve going forward, but for now we would not call it undervalued and as a result we would avoid the stock.

Disclosure: I own no shares of any stocks mentioned in this article.