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Chemicals are cyclical stocks. They go down sharply during recessions and they outperform the market in boom times. Last September, many of these stocks were down relative to their highs earlier in the year. LyondellBasell (LYB) was above $45 per share at the beginning of May. The stock went below $24 at the end of September. It is currently trading above $34 and also distributed $4.75 per share since September. Chemicals increased significantly, but there is still significant upside potential. The economy was more resilient than expected and stock prices started to reflect the optimistic expectations. We believe the stock market will keep increasing in 2012 and gain around 10%. Chemicals will perform better than the market. Here are the 7 most popular chemicals among hedge funds:

Company

Ticker

No. of HF (Q3)

No. of HF (Q3)

Return

LyondellBasell

LYB

44

58

13%

DuPont

DD

33

32

-5%

W.R. Grace & Co.

GRA

33

35

31%

Chemtura Corp

CHMT

26

29

29%

Eastman Chemical

EMN

23

26

-5%

Solutia Inc.

SOA

22

31

-27%

Albemarle Corp

ALB

21

19

-7%

1. LyondellBasell Industries NV: LyondellBasell is a chemicals company based in Netherlands. It mainly produces polypropylene and related products. The company has a market cap of more than $20 billion. LYB returned 13% last year and was held by more hedge funds – in fact, 44 – during the third quarter 2011. Christopher Pucillo’s Solus Alternative Asset Management had the most in LYB in terms of common share at that time. The firm boosted its position by 12% and had nearly 3.4 million shares by the end of September.

2. E.I. du Pont de Nemours & Co (DD): The company has a market cap of $42 billion and offers various products and services through its 7 segments. DD currently trades at about $46. It failed to beat the market and lost 5% in 2011. Thirty-three hedge funds invested in DD during the third quarter, with a total investment of more than $500 million. Donald Chiboucis’ Columbus Circle Investors increased its position by 13% and had 1.88 million shares as of the end of September, becoming DD’s biggest hedge fund stakeholder.

3. W.R. Grace & Co. (GRA) provides specialty chemicals and materials worldwide. The company has a more than $3 billion market-cap and is now hovering at $46 per share. The stock performed really well in 2011 and had advanced a whopping 31%. There were 33 hedge funds’ portfolios held the stock in the third quarter 2011. Frank Brosens’ Taconic Capital had the most among the hedge funds we track, with 1.9 million shares, which was more than doubled from Q2.

4. Chemtura Corp. (CHMT) Chemtura has a comparatively smaller market cap – slightly more than $1 billion. It’s now trading at about $11 per share, and returned 29% in 2011. Twenty-six hedge funds invested in Chemtura at the end of the third quarter last year. Joshua Friedman and Mitchell Julis’ Canyon Capital Advisors had more shares of Chemtura than any other hedge funds. The firm retained 5.41 million shares, after it decreased its position by 5%.

5. Eastman Chemical Co. (EMN) provides a range of chemicals, plastics and fibers. The company has a market cap of nearly $6 billion, and is currently trading at about $41 per share. The stock lost 5% in the past year and was held by 23 hedge funds’ portfolios in the third quarter 2011. Jean-Marie Eveillard’s First Eagle Investment Management decreased its position by 57% and had 909 thousand shares. Jim Simons’ Renaissance Technologies came second and had 727 thousand shares of EMN, after the firm boosted its position by more than 6 times during the third quarter.

6. Solutia Inc. (SOA): Solutia mainly provides performance materials and specialty chemicals to consumer and industrial applications. The company has a more than $2 billion market-cap and trades at about $17.50. The stock is the biggest loser in this list, dropping 27% in 2011. Among twenty-two hedge funds that invested in Solutia in the third quarter 2011, Eric Bannasch’s Cadian Capital had the largest chunk. The firm had more than 6 million shares of Solutia as of the end of September.

7. Albemarle Corp (ALB) through its three segments - Polymer Solutions, Catalysts and Fine Chemicals - provides engineered specialty chemicals worldwide. It has a market cap of nearly $5 billion and is trading at about $54. The stock lost 7% last year. 21 hedge funds' portfolios had Albemarle in the third quarter 2011. Thomas E. Claugus’ GMT Capital increased its position by 21% and revealed nearly 1.3 million shares of Albemarle as of the end of September. Jim Simons and Chuck Royce also had large chunk of shares in the stock during Q3, 2011.

Overall, three stocks out of seven managed to beat the SPY during 2011. These 7 stocks averaged a return of 4% last year, which slight beat the SPY’s return of 2.1% over the same period.

Source: 7 Most Popular Chemicals Stocks Among Hedge Funds