Why it was purchased: The Fund invested in Chemours (NYSE:CC) in January 2018. The company, which had spun out of DuPont in 2015, appeared to be a secular growth stock trapped within a commodity chemical company. This year, forty-two percent of Chemours’ earnings have come from its fluoroproducts division, which makes the next generation of environmentally friendly refrigerants as well as products that are used in electric vehicles, renewable energy storage and 5G connectivity. Fifty -six percent of Chemours’ earnings have come from TiO2 (a key ingredient in paint) which is a commodity chemical. Our thesis was predicated primarily on the growth of the fluoroproducts division and not dependent on the stage of the TiO2 business within its commodity cycle.
Why it has not worked this year: The stock has traded almost entirely on the basis of its exposure to TiO2, which has modestly weakened this year versus previous expectations. The market has ignored the success of the fluoroproducts division.
Why it remained in the portfolio: The fluoroproducts division exhibited the growth on which the investment thesis was based. While the TiO2 business can be volatile, it has generated significant cash flow over the cycle, and at the current share price, little if any value was ascribed to it. Furthermore, management authorized a share buyback program that equated to greater than 10% of the share count at the quarter-end price. Chemours’ shares appeared in our view to be significantly undervalued.
From First Eagle Investment (Trades, Portfolio)'s First Eagle Fund of America's third-quarter 2018 shareholder commentary.
