Is Stepan Company (SCL) a worthy equity investment?
LRT capital management, an investment management firm, has released its letter to investors for the second quarter of 2021 – a copy of which can be downloaded here. A return of + 29.68% was recorded by the LRT Economic Moat strategy for the second quarter of 2021, extending its 12-month returns to + 42.18%. You can check out the top 5 holdings of the fund to get an idea of their top bets for 2021.
In LRT Capital’s Q2 2021 letter to investors, the fund mentioned Stepan Company (NYSE: SCL), and discussed his position on the company. Stepan Company is a Northfield, Illinois-based chemicals manufacturing company that currently has a market capitalization of $ 2.6 billion. SCL has returned -1.28% year-to-date, extending its 12-month returns to 2.64%. The stock closed at $ 117.79 per share on August 9, 2021.
Here’s what LRT Capital has to say about Stepan Company in its Q2 2021 letter to investors:
“Stepan is an under the radar company with a market capitalization of approximately $ 3.0 billion.48 The company is engaged in the manufacture of specialty chemicals, primarily for the cleaning industry. The company’s products are the primary ingredients in industrial and consumer cleaning products such as laundry detergents, as well as shampoos, body washes and fabric softeners. The company’s specialty products include emulsifiers, food stabilizers, flavors and nutritional supplements.
Don’t let the monotony of the company’s products fool you. While Stepan operates in a commoditized industry, the company has been an efficient operator and has been able to increase its margins over time. What at first glance looks like a cyclical, commoditized business is actually a very resilient supplier of key inputs for everyday necessities such as personal care and household products. Due to its resilience through different economic cycles, Stepan has been able to increase its annual dividend for 54 consecutive years. In addition, payments to shareholders did not come at the expense of reinvestment in the company. The company has increased its earnings per share fivefold over the past two decades while maintaining ROI in mid-teens.
Shares are -0.67% year-to-date and +9.68% over the past twelve months. “
Based on our calculations, Stepan Company (NYSE: SCL) was unable to land a spot on our list of the 30 most popular stocks among hedge funds. SCL was in ten hedge fund portfolios at the end of the first quarter of 2021, compared to 12 fund in Q4 2020. Stepan Company (NYSE: SCL) has generated a return of -14.30% in the last 3 months.
The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 115 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next big investing idea. For example, the pet market is growing at an annual rate of 7% and is expected to reach $ 110 billion in 2021. So we take a look at the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to choose the next Tesla which will offer a 10x return. Even though we only recommend positions in a tiny fraction of the companies we analyze, we check as many stocks as possible. We read letters from hedge fund investors and listen to equity pitches at hedge fund conferences. You can subscribe to our free daily newsletter at our home page.
Disclosure: none. This article was originally published on Monkey initiate.