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.

Top Picks:

  • Eastman Chemical (EMN)
  • W. R. Grace & Co. (GRA)
  • Univar Inc. (UNVR)

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