Lanxess (LNXSF): A Contrarian Gem in Greenlight Capital’s Bear Market Arsenal

In a world where Greenlight Capital’s David Einhorn warns of recession risks, trade wars, and a potential de-dollarization crisis, one might expect his investment portfolio to mirror the gloom. Yet, among the firm’s largest disclosed long positions in Q1 2025 sits Lanxess AG (LNXSF)—a German specialty chemicals giant. This paradox isn’t accidental. Lanxess embodies the rare contrarian opportunity Einhorn seeks: a company undervalued by market pessimism, yet fortified to thrive in the very macroeconomic storms Greenlight predicts.

The Bearish Macro, Bullish Lanxess Paradox

Greenlight’s Q1 letter paints a grim picture: protectionist policies, inflation spikes, and a consumer divide between “Dems” cutting spending and “Reps” clinging to optimism. The firm’s response? Reduce equity exposure, double down on gold, and hunt for mispriced assets in sectors where the market’s fear overshadows fundamentals. Lanxess fits this mold perfectly.

While the chemical sector overall slogs through a 70% utilization rate and tariff-induced volatility, Lanxess has quietly engineered a turnaround. Its Q1 EBITDA surged 32% year-over-year, driven by a rebound in agrochemical orders and disciplined capital moves. This outperformance isn’t luck—it’s strategy.

Why Lanxess Defies the Downturn

1. Tariff Engineering and Pricing Power
Approximately 30–40% of Lanxess’ U.S. sales come from tariff-exempt products like its Bayferrox pigments. As trade tensions escalate, competitors face cost hikes, while Lanxess capitalizes on pricing advantages. The firm expects these benefits to materialize starting in June 2025, a tailwind investors have yet to fully price in.

2. Balance Sheet Strengthening Through Divestiture
The early completion of its Urethanes division sale—once a drag on cash flow—has slashed debt and freed capital for higher-margin ventures. This move aligns with Greenlight’s preference for companies that “cut the fat” to survive downturns.

3. Inflation and Energy Hedges for a Volatile World
Lanxess’ full currency hedging for 2025 and partial coverage in 2026 shield it from exchange rate swings, a critical edge as Greenlight bets on dollar depreciation. Meanwhile, its ability to pass energy costs to customers in key segments ensures margins stay intact.

4. Niche Dominance in Resilient Markets
The company’s Consumer Protection segment—agrochemicals and specialty materials—is thriving as farmers and builders demand stability. With Chinese competitors muted in these niches, Lanxess faces less pricing pressure than broader industrial peers.

The Contrarian Edge: Mispriced in a Bear Market

Markets often overreact to sector-wide gloom, discounting stocks like Lanxess as “chemicals = cyclicals = risky.” But Lanxess isn’t a bulk commodity player—it’s a specialty chemicals specialist with pricing power and structural tailwinds. Its 32% EBITDA growth and 18% Q1 stock rally defy the sector’s malaise, yet valuations remain muted.

Einhorn’s thesis here is clear: own the company that thrives in the downturn. While others flee chemicals, Lanxess’ tariff advantages, hedging, and niche focus make it a “recession hedge” within a bearish portfolio.

Risks? Yes. But Mitigated.

Critics will cite macro risks: a U.S. recession could dampen demand, and energy costs remain volatile. Yet Lanxess’ hedging, cost discipline, and tariff-protected revenue streams blunt these blows. Even Greenlight’s own bearish stance includes Lanxess as a “low-correlation” long—a sign it’s no reckless bet.

The Call: Act Before the Market Catches On

Lanxess is a textbook contrarian play. It’s cheap relative to its peers, yet its fundamentals are improving as the macro backdrop worsens—a rare asymmetry. As Einhorn once said, “Investors should buy fear and sell greed.” Today, fear is driving Lanxess’ valuation down, but its resilience and Greenlight’s imprimatur make this a “buy the dip” moment.

The clock is ticking. With tariff benefits set to kick in and its hedging strategy primed for dollar volatility, Lanxess could be the one chemical stock that outperforms even as others sink.

Act now—before the market realizes this gem isn’t just surviving the storm, but thriving in it.

This article is for informational purposes only and not a recommendation to buy or sell securities. Always conduct your own research.