Chemical Industry: A Focus on Innovation and Sustainability
The chemical industry plays a crucial role in the global economy, contributing trillions of dollars to the world’s GDP. This sector is essential for producing a wide range of materials used in everyday products, from fertilizers and plastics to pharmaceuticals and construction materials.
Recent trends in the chemical industry indicate a strong focus on sustainability and innovation. Companies are increasingly investing in low-carbon technologies and circular economy practices, aiming to reduce greenhouse gas emissions and improve resource efficiency. According to a report by The Business Research Company, the green chemicals market was valued at $108.53 billion in 2023. The market is expected to grow at a compound annual growth rate (CAGR) of 10.4% during 2024-2028 to reach a value of $179.96 billion by the end of the forecast period.
The rise in demand for biodegradable materials and eco-friendly chemicals reflects shifting consumer preferences towards sustainability. This trend is driving companies to innovate and diversify their product offerings.
According to the IONICS report on Chemicals & Mining Industry Trends for 2025, biodegradable chemicals are set to gain widespread adoption in agriculture and consumer products over the next 4-6 years. This shift is largely fueled by advancements in technology and increased support from regulations, as more consumers seek sustainable alternatives. As a result, the market for these eco-friendly products is expected to grow significantly.
Government regulations promoting the use of green chemicals also play a crucial role, as they encourage industries to shift towards renewable resources and reduce reliance on non-renewable materials.
Deloitte’s 2025 chemical industry outlook highlights that to remain competitive in a low-carbon economy, companies are focusing on innovation in three main areas: products, processes, and ecosystems. Many chemical firms are enhancing their product offerings to improve both performance and sustainability. Additionally, they are adopting process innovations, such as digital automation and process intensification, to make operations more efficient and environmentally friendly. For example, some companies are using AI-driven analytics to optimize production and reduce waste.
Ecosystem innovation is also becoming important as companies collaborate with other industry players, research institutions, and startups to develop sustainable solutions. This collaborative approach includes initiatives that aim to promote recycling and material reuse. To strengthen their market position, chemical companies are increasingly integrating these innovative strategies, combining capital investments in process improvements with research and development efforts for product enhancements.
Aerial view of a titanium dioxide pigment manufacturing facility, showing the scale and magnitude of the company's production capabilities.
Our Methodology
To compile our list of the 11 best small-cap chemical stocks to buy according to hedge funds, we used stock screeners from Finviz and Yahoo Finance. We also reviewed our own rankings and consulted various online resources to compile a list of the best small-cap chemical stocks. Please note that we defined small-cap stocks as those with a market capitalization between $300 million and $2 billion.
From an initial pool of more than 20 small-cap chemical stocks that met our criteria, we focused on the top 11 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s Q3 2024 database of 900 elite hedge funds. The 11 best small-cap chemical stocks to buy are ranked in ascending order based on the number of hedge funds holding stakes in them.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Kronos Worldwide Inc. (NYSE:KRO) is a chemical company that specializes in producing and marketing value-added titanium dioxide pigments, which are essential for adding whiteness, brightness, and opacity to a variety of products. Titanium dioxide (TiO2) is widely used in industries such as paints, coatings, plastics, cosmetics, and pharmaceuticals.
In the third quarter of 2024, Kronos Worldwide Inc. (NYSE:KRO) reported net sales of $484.7 million, an increase of $87.8 million or 22% compared to the same quarter in 2023. Kronos Worldwide Inc. (NYSE:KRO) achieved a net income of $71.8 million, translating to $0.62 per share, a significant turnaround from a net loss of $20.4 million in the prior year. This improvement is attributed to higher sales and production volumes, along with reduced production costs for energy and raw materials.
The company has seen increased demand across all major markets in the first nine months of 2024, contributing to improved profitability. A key strategic move was the acquisition of the remaining 50% interest in Louisiana Pigment Company, effective July 16, 2024, making it a wholly-owned subsidiary. This acquisition added approximately 13,000 metric tons of production capacity in the third quarter. Additionally, during the third quarter, Kronos Worldwide Inc. (NYSE:KRO) closed its sulfate process line in Canada, which is expected to enhance long-term cost efficiency despite incurring short-term charges.
KRO ranks among the best chemical stocks to buy. With strong financial performance, strategic acquisitions, and ongoing improvements in production efficiency, Kronos Worldwide Inc. (NYSE:KRO) is well-positioned for future growth.
Overall, KRO ranks 8th among the 11 best small-cap chemical stocks to buy according to hedge funds. While we acknowledge the potential of chemical companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than KRO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
