In this piece, we will take a look at the ten best small cap chemical stocks to buy. If you want to skip our overview of small cap stocks and the chemical industry, then you can take a look at the 5 Best Small Cap Chemical Stocks to Buy.
Investing in small cap stocks is different from investing in others. These companies, whose market capitalization sits below $2 billion, are present by the thousands on the stock market. Even though they do not receive significant media coverage, small caps form the backbone of the economy, and when it comes to American small cap stocks, the performance of these firms is more closely tied to the U.S. economy. While firms such as those belonging to the semiconductor industry can rely on a global market courtesy of robust logistics networks, small cap firms such as Banc of California, Inc. (NYSE:BANC) often do not have the funds to establish a global presence.
However, this doesn't mean that if a firm is a small cap stock then it can not have a global presence. For instance, small caps such as Star Bulk Carriers Corp. (NASDAQ:SBLK) operate all over the world and if their operations are disrupted, then the consequences can be far reaching.
The ability of small cap stocks to play a central role in global economies and industries provides them an added advantage. This comes in the form of lower share prices that can significantly appreciate in the future if a small cap firm's management executes a growth strategy to increase the value of its balance sheet. The potential for share price gains stands in contrast to established companies such as Apple Inc. (NASDAQ:AAPL), whose stock is preferred primarily due to the stability that billions of dollars in assets and an established global presence provide a company with.
One sector of the stock market that is closely tied to the performance of the global economy is the chemicals sector. Chemicals are used for industrial and consumer applications, and they are essential for the smooth functioning of vast and unrelated industries such as hospitality and semiconductor fabrication. In fact, chemicals created quite a bit of controversy in one of the most popular industries in the world today, i.e., semiconductor fabrication.
Chip fabrication companies such as the Taiwan Semiconductor Manufacturing Company (NYSE:TSM) and Intel Corporation (NYSE:INTC) require copious amounts of chemicals to ensure product purity. Chip fabrication is an intensive process, and even the slightest impurities can affect quality and performance. Subsequently, wherever chip firms set up shops, such as TSMC and its new facilities in Arizona, they require a well developed supply chain to ensure smooth raw material procurement.
One chemical needed for making chips is per- and polyfluoroalkyl substances or PFAS. PFAS are used in making jet engines, cars, and chips. For chips, the chemicals are present in the chip manufacturing machines as well as during the lithography process to print billions of nanometer sized circuits on a chip. However, these chemicals have also been shown to potentially have links to thyroid cancer, and while their properties such as durability and corrosion resistance make them suitable for industrial uses, these same properties also mean that PFAS are called 'forever chemicals.'
These have led to global calls to stop their use, and in 2023, when one of the world's biggest industrial firms 3M Company (NYSE:MMM) announced that it would stop PFAS production by 2025, the chip companies weren't happy. In fact, according to a report in the Financial Times, 3M's decision led to Intel and TSMC springing to action. According to FT's source in an American Intel and TSMC supplier, the two firms "summoned" suppliers to make sure they'd have enough supplies for production as 3M left the industry.
As to the current environment in the chemicals industry, here's what the management of The Chemours Company (NYSE:CC) had to say during the firm's Q3 2023 earnings call:
You know, 2023 has been a challenging year with a weaker second-half than we expected. But The Chemours team remains focused on driving long-term shareholder value and improvements in our three industry-leading businesses. Most of our year-over-year performance deterioration has been driven really by lower TT volumes, and we have responded with reductions of the TT Transformation Plan, which will shine through in 2024, as we see demand weakness decelerating. Our APM business is also seeing some demand weakness, especially in advanced materials, but we have achieved, again, double-digit growth year-to-date of 11% in our performance solutions. And this business remains tied in to long-term secular gains in advanced electronics and clean energy, which we’re hugely excited about.
And then finally, our TSS business continued with strong performance with another record net sales. This is the seventh quarterly net sales record in a row. And as we look again to 2024, we have the step down in the AMAC that's going to drive further Opteon adoption and beyond ‘24 [Technical Difficulty] of immersion cooling in 2025. So again, we're excited about the work that's on the way here at the company. And despite the challenging environment we see ourself in, remain focused on what we have to do going forward into 2024.
So, if you're interested in small cap and chemical stocks, then find out more below. Some notable small cap chemical stocks are Select Water Solutions, Inc. (NYSE:WTTR), Perimeter Solutions, SA (NYSE:PRM), and Orion S.A. (NYSE:OEC).
10 Best Small Cap Chemical Stocks to Buy
An industrial complex with its towering smokestacks, showing the scale of the company's specialty chemicals operations.
Our Methodology
To make our list of the best small cap chemical stocks to buy, we ranked all small cap chemical companies by the number of hedge funds that had bought their shares in Q3 2023. Out of these, the top small cap chemical stocks were selected.
Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Mativ Holdings, Inc. (NYSE:MATV) is a mid sized American company headquartered in Alpharetta, Georgia. It sells paper, polymer, resin, and other associated chemical products. The firm divested its paper business division in December 2023, to reduce its debt and focus more on the chemical industry.
As of Q3 2023 end, 11 out of the 910 hedge funds part of Insider Monkey's database had bought and owned a stake in Mativ Holdings, Inc. (NYSE:MATV). David Rosen's Rubric Capital Management was the firm's largest shareholder due to its $57 million investment.
Along with Perimeter Solutions, SA (NYSE:PRM), Select Water Solutions, Inc. (NYSE:WTTR), and Orion S.A. (NYSE:OEC), Mativ Holdings, Inc. (NYSE:MATV) is a top small cap chemical stock.
Kronos Worldwide, Inc. (NYSE:KRO) is a specialized chemical company that sells titanium dioxide all over the world for industrial uses. Despite seeing notable hedge fund interest for a small cap chemical stock, the stock isn't seeing much love from Wall Street as analysts have rated the shares as Hold on average.
Insider Monkey dug through 910 hedge fund holdings for last year's third quarter and found that 12 had invested in the firm. Kronos Worldwide, Inc. (NYSE:KRO)'s biggest investor in our database is Jim Simons' Renaissance Technologies as it owns $5.7 million worth of shares.
Koppers Holdings Inc. (NYSE:KOP) is a global chemical company that focuses on providing products used to treat and preserve wood. The firm has been doing well when it comes to share price performance as of late since its shares have gained more than 55% over the past twelve months.
For their September quarter of 2023 shareholdings, 14 out of the 910 hedge funds covered by Insider Monkey's research were Koppers Holdings Inc. (NYSE:KOP)'s investors. David Rosen's Rubric Capital Management was the largest stakeholder, owning 1.1 shares that are worth $45 million.
Ingevity Corporation (NYSE:NGVT) is a diversified chemical company that makes and sells petroleum and wood based products. Despite struggling on the financial front, it was eager to expand operations in November 2023 by announcing a partnership to increase the market penetration of its polymer products.
By the end of last year's third quarter, 16 out of the 910 hedge funds profiled by Insider Monkey had bought a stake in the company. Ingevity Corporation (NYSE:NGVT)'s biggest investor in our database is Jeff Ubben's Inclusive Capital through its $114 million stake.
Hudson Technologies, Inc. (NASDAQ:HDSN) sells chemicals used primarily in refrigerators. One of the more stable companies on our list of the best small cap chemical stocks, the firm has beaten analyst EPS estimates in all four of its latest quarters, and the shares are rated Buy on average.
17 out of the 910 hedge funds part of Insider Monkey's Q3 2023 research were Hudson Technologies, Inc. (NASDAQ:HDSN) shareholders. Small cap guru Chuck Royce's Royce & Associates was the largest shareholder as it owned $21 million worth of shares.
Select Water Solutions, Inc. (NYSE:WTTR), Hudson Technologies, Inc. (NASDAQ:HDSN), Perimeter Solutions, SA (NYSE:PRM), and Orion S.A. (NYSE:OEC) are some small cap chemical stocks that hedge funds are piling into.
