We advocate a balanced view of exposure to Chemicals. After two consecutive years of relative under-performance, chemicals sector valuation is near the long-term average, so decent yet not compelling. As the year progresses, the flight to safety witnessed in 2019 could give way to a “creep toward risk” as commodity chemical markets and earnings estimates stabilize. For now, we favor (A) specialty chemical stocks that offer resilient growth at a reasonable relative price; and (B) commodity chemical names that offer superior balance sheets, healthy FCF, and idiosyncratic growth.
- Huntsman Corporation (HUN)