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Chemours (CC) Has Risen 37% in Last One Year, Outperforms Market

If you are looking for the best ideas for your portfolio you may want to consider some of Greenlight Capital’s top stock picks. Greenlight Capital, an investment management firm, is bullish on Chemours Co (NYSE:CC) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Chemours Co (NYSE:CC) stock. Chemours Co (NYSE:CC) is a chemical company.

On July 25, 2019, Greenlight Capital had released its Q2 2019 investor letter. Chemours Co (NYSE:CC) stock has posted a return of 36.8% in the trailing one year period, outperforming the S&P 500 Index which returned 12.6% in the same period. This suggests that the investment firm was right in its decision. On a year-to-date basis, Chemours Co (NYSE:CC) stock has risen by 12.9%.

In Q2 2019 investor letter, Greenlight Capital said the fund posted a return of 5.8% in the second quarter of 2019, outperforming the S&P 500 Index which returned 4.30% in the same period. Let’s take a look at comments made by Greenlight Capital about Chemours Co (NYSE:CC) stock in the Q2 2019 investor letter.

“CC makes titanium dioxide and fluoroproducts and was a 2015 spin-out from DuPont, which forced CC to provide indemnification for a variety of legacy environmental liabilities. We have a history with CC – it was our biggest winner in 2016-17, as the stock went from a low of $3.12 to a high of $57.23. During our first go, we debunked a bear case that the company faced $5 billion in liabilities related to a class action for those exposed to PFOA (a chemical used to make Teflon), which DuPont ceased emitting in 2004. We thought the liabilities would be much less, and ultimately, CC settled the outstanding claims for $335 million (with DuPont making an equal payment). This quarter, CC shares declined sharply in response to a new bear case that new liabilities related to firefighting foams (which contain a related chemical, PFOS) as well as continuing legacy liabilities related to PFOA will cost the company billions of dollars.

We have researched the liabilities extensively and disagree. First, neither DuPont nor CC ever made PFOS or sold firefighting foam. Second, the PFOA suits for 3,500 plaintiffs diagnosed prior to 2017 have been settled. We estimate that the liability for the 54 post-settlement suits (on behalf of plaintiffs who were diagnosed subsequently) could run into the tens of millions of dollars, not the billions claimed by the bears. We have also reviewed the environmental liabilities and observe that they have a very long tail and the contaminated sites are already under remediation.

With CC’s shares having fallen from their 2017 peak of $57.23 to our average entry price of $23.18, we think a lot of bad news is priced in. The company’s fluoroproducts business has high margins and favorable secular growth prospects, and we believe it is worth more than the entire current value of the company. It represents almost half of the company’s earnings and should command a higher multiple.

CC is a global low-cost supplier of high-quality titanium dioxide in a highly cyclical sector. Management is attempting to reduce the cyclicality of that segment by entering into long-term pricing contracts with customers. In the meantime, it is suffering a downcycle, as earnings that peaked at $5.78 per share in 2018 are forecast to be less than $4.00 this year. However, with a year of industry destocking behind us, we expect CC’s earnings to stabilize and grow in the coming years. CC has demonstrated a willingness to use free cash flow to buy back stock. That, along with a somewhat more favorable industry environment, leads us to see $10 per share in earnings power in 2021. CC shares ended the quarter at $24.00.”

Soonthorn Wongsaita/Shutterstock.com

In Q2 2020, the number of bullish hedge fund positions on Chemours Co (NYSE:CC) stock increased by about 9% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Chemours’ growth potential. Our calculations showed that Chemours Co (NYSE:CC) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.