With the bull market still roaring in its seventh year, Insider Monkey has put together a list of basic materials stocks that the smart money likes.
Although they are not exactly high-tech, basic material companies play an integral part in the U.S. and global economy. As the U.S. and world economies gain strength, so should basic material companies’ profits. In this article, we examine five of the smart money’s favorites among the sector, including Monsanto Company (NYSE:MON), Air Products & Chemicals, Inc. (NYSE:APD), Barrick Gold Corporation (USA) (NYSE:ABX), Dow Chemical Co (NYSE:DOW), and W. R. Grace & Co (NYSE:GRA).
At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on, can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see the details here).
#5 W. R. Grace & Co (NYSE:GRA)
– Number of Hedge Fund Holders (as of June 30): 47
– Total Value of Hedge Fund Holdings (as of June 30): $1.48 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 28.60%
W. R. Grace & Co (NYSE:GRA) reported mixed results for its second quarter. Although the company’s profits of $0.74 per share came in $0.07 per share ahead of analysts’ estimates, W.R. Grace’s revenue of $390.5 million missed the expectations by $16.86 million. However, the second half looks better, as W. R. Grace’s management expects accelerated volume growth and more robust business overall. For the full year, the management sees adjusted EPS in the range of $3.05 to $3.10 and adjusted EBITDA in the range of $500 million to $505 million. In terms of hedge fund activity, the number of investors tracked by us long the stock rose by one to 47 at the end of June. The largest shareholder, David Cohen and Harold Levy‘s Iridian Asset Management, trimmed its holding by 18% quarter-over-quarter to just under 4.5 million shares.
#4 Dow Chemical Co (NYSE:DOW)
– Number of Hedge Fund Holders (as of June 30): 48
– Total Value of Hedge Fund Holdings (as of June 30): $2.54 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 4.50%
Hedge funds like Dow Chemical Co (NYSE:DOW) due to the potential synergies it will unlock from the potential merger with fellow chemical giant E I Du Pont De Nemours And Co (NYSE:DD). Dow’s management estimates that the merger will yield $3 billion in cost synergies achievable within the first 24 months and potentially $1 billion more in growth synergies further down the road. Once the synergies are realized, management intends to separate DowDuPont into three independently-traded companies through tax-free spin-offs. The three companies, a leading global Material Science company, a leading global Agriculture company, and a leading innovation-driven Specialty Products company, will be more focused and will deliver more value to shareholders.