Huntsman Stock Is Down 45% This Past Year, but One Fund Is Doubling Down With a $10 Million Bet

First Wilshire Securities Management increased its Huntsman (HUN) position by 431,403 shares in Q3, taking its post-trade holding to roughly 1.13 million shares valued at $10.13 million (about 2.7% of its 13F assets). Huntsman trades at $9.90 (down ~45% Y/Y) with TTM revenue of $5.78 billion and a TTM net loss of $329 million; the company generated $200 million in operating cash flow and $157 million in free cash flow in the quarter, holds about $1.4 billion of liquidity, is pursuing >$100 million of restructuring savings and implemented a 65% dividend reset — a mix of balance-sheet resilience and cyclical weakness that explains why an asset-focused fund added to the position.

Analysis

Market structure: Huntsman (HUN) is a cyclicals/commodity-chemicals winner if industrial volumes and pricing normalize; winners also include upstream commodity producers (ethylene/propane sellers) and funds that can tolerate cyclicality. Losers are downstream discretionary end-markets (auto, construction) while higher-multiple specialty chemical names lose relative demand as capital rotates to value cyclicals. Cross-asset: a sustained recovery would tighten HUN credit spreads (6–12 months), lower equity implied volatility, and lift commodity-linked names and FX-sensitive EM exporters; a deeper downturn would do the opposite.

Risk assessment: Tail risks include a material feedstock spike, environmental/legal liabilities, or a failed $100m+ restructuring triggering covenant pressure — any of which could push HUN toward distress within 3–12 months. Near-term (days/weeks) risk is headline-driven volatility; short-term (1–6 months) hinges on Q4 volumes and cash generation; long-term (12–36 months) depends on cyclical recovery and successful cost takeouts. Hidden dependency: raw-material input margins (naphtha/ethane) and top-10 customer concentration; catalysts are Chinese demand shifts, oil moves, and activist/strategic M&A.

Trade implications: Tactical long exposure (1–3% portfolio) to HUN is justified given Q3 FCF $157m and $1.4bn liquidity, but size into weakness and use 12-month timeframes. Use pair trades (long HUN vs short PPG or SHW) to isolate cyclical commodity recovery vs durable specialty demand. Options: buy 9–15 month call spreads to cap premium or sell covered calls if establishing long; protect with 30% stop or buy protective puts if volatility spikes.

Contrarian angle: Market prices a prolonged cyclic slump (−45% YTD) despite positive operating cash flow and large liquidity — that may be overstated. The 65% dividend cut reduces near-term cash burn and raises probability of restructuring success or eventual consolidation—histor parallels: post-cycle chemicals rebounds (2009, 2020) delivered 50–150% recoveries over 12–24 months. Unintended consequence: dividend reset could invite activism or M&A; if commodity prices bounce, upside is asymmetric relative to downside limited by liquidity and restructuring.

Key Decisions for Investors

• Establish a staged long in HUN equal to 2% of portfolio: deploy 50% at market (~$9.90), add the remainder if HUN < $8.00 or if 12-month LTM EBITDA margin improves by ≥200 bps; set a hard stop-loss at −30% from average cost or a time-based review at 12 months.
• Implement a bullish options hedge: buy HUN Jan 2026 10/20 call spread (or nearest liquid 9–15 month equivalent) sized to represent 1.5% portfolio upside exposure; this limits premium outlay while capturing a cyclical rebound above $10–12 within 9–15 months.
• Run a relative-value pair: long HUN (1.5% notional) funded by short PPG (PPG) or SHW (0.7–1.0% notional) to bet on commodity-chemicals recovery vs premium specialty pricing; rebalance if spread narrows by <−20% or widens >+40% within 6 months.
• Avoid concentrate exposure to commodity-chemical ETFs; instead shift 1–3% into higher-margin specialty chemical names (e.g., ECL/Ecolab or DSM-equivalents) as defensive ballast until raw-material spreads normalize — re-evaluate in 6–12 months based on feedstock trend and Huntsman’s restructuring updates.