Should Investors Buy the Dip in Chemours (CC) Stock?
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 Q4 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 the chemical company. The stock is down 5.1% since the Greenlight Capital's pitch in January 2020, which suggests the investment firm was wrong in its decision. On a year-to-date basis, Chemours Co (NYSE:CC) stock has fallen by 13.6%.
On January 21, 2020, Greenlight Capital had released its Q4 2019 Investor Letter. Greenlight Capital said that Chemours Co (NYSE:CC) stock is poised to grow in 2020. This isn't the first time Greenlight Capital talked about Chemours favorably either. The investment firm has been a long time Chemours bull. Last year, we shared Greenlight Capital's bullish Chemours thesis in this article.
In 2019, the Greenlight Capital Fund recorded a return of 13.8% as compared to 31.5% of the S&P 500 Index.
Let’s take a look at comments made by Greenlight Capital about Chemours Co (NYSE:CC) in the letter.
"CC makes titanium dioxide (TiO2) and refrigerants. Both businesses came under pressure in 2019. TiO2 suffered from cyclical excess supply and customer destocking, and CC lost market share by demanding inflexible contract terms from customers. Refrigerants suffered from smuggled product into Europe, in response to rising prices as Europe phases out environmentally-damaging refrigerants. The company also has liability related to PFOA, a so-called forever chemical that DuPont (CC’s former parent) used to manufacture Teflon. Recently, there was a feature film, “Dark Waters,” which tells the story of pollution and various misdeeds at DuPont’s Washington Works plant in West Virginia. Due to a combination of cyclically-challenged business conditions and concern over legal risk, CC shares have fallen approximately 70% from their late 2017 highs.
We believe CC’s results are set to improve. The TiO2 cycle is turning more favorable as the destocking has run its course and CC is poised to retake lost share. Refrigerants should improve in 2021 as European fluorinated gas legislation mandates a further phase-out of older refrigerants, raising demand for the new-generation refrigerants where CC holds valuable intellectual property.
Finally, we think the legal liability concerns are vastly overstated. DuPont curtailed PFOA emissions in 2004 and has been remediating its sites (which are now part of CC) ever since.
Further, CC settled health claims related to the Washington Works plant in 2017. There is market concern that Congress may pass legislation or the EPA may pass rules to address forever chemicals in a way that creates substantial new liabilities for CC. However, we believe that most of the legitimate remaining concern is about a sister chemical called PFOS that is used in firefighting foam. While this is a real concern for the largest PFOS manufacturer, 3M, neither DuPont nor CC ever made or sold it (though they did sell a nontoxic ingredient that was used in firefighting foam). We don’t believe CC has material liability for PFOS. However, every time there is a headline about regulating forever chemicals, the story invariably lumps PFOA with PFOS and CC gets dragged through the mud along with 3M.
Analysts currently expect CC to earn $3.20 and $3.99 per share in 2020 and 2021, respectively. If our view of the improving cycle plays out, we believe those estimates should be exceeded by a very large margin."
In Q1 2020, the number of bullish hedge fund positions on Chemours Co (NYSE:CC) stock increased by about 10% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Chemours's growth potential. Our calculations showed that Chemours Co (NYSE:CC) isn't ranked among the 30 most popular stocks among hedge funds.
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Video: Top 5 Stocks Among Hedge Funds
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. You can subscribe to our free enewsletter below to receive our stories in your inbox:
Disclosure: None. This article is originally published at Insider Monkey.
