IRON Incertus Portfolio

We decreased our allocation to Vanguard Materials ETF (Ticker: VAW) to initiate a position in Air Products & Chemicals (Ticker: APD) and increase cash.

New Weights: 
VAW: 2.00%
APD: 0.75%
Cash: 3.10%

We identified Air Products & Chemicals (APD) as a winner for these reasons:

  • High quality industrial gas producer
  • Customers from diverse set of industries
  • Strong balance sheet
  • Management with a great record of capital allocation

High quality industrial gas producer
Air Products & Chemicals is one of the leading industrial gas suppliers globally, with operations in 50 countries and 19,000 employees. The company is the largest supplier of hydrogen and helium in the world. It serves clients in several industries, including chemicals, energy, healthcare, metals, and electronics.

Customers from diverse set of industries
Industrial gas companies possess very competitive position within the global supply chain. Products such as industrial gases, which are basically commodities, typically account for a relatively small portion of customers’ costs but are a crucial input to ensure continuous production. This makes consumers of industrial gases willing to pay a premium and enter long-term contracts with reputable distributors to ensure uninterrupted supply. Further, the industry structure makes it inconvenient to switch industrial gas companies, allowing such companies to generate a predictable cash flow stream and lucrative returns. Industrial gases are distributed through three supply modes: on-site, merchant, and packaged. An industrial gas company will build an on-site plant, sell excess capacity through merchant (tanker trucks), and packaged (cylinders and dewars) supply channels. APD generates over 90% of its revenue through on-site plants and merchants, with both those segments holding high switching cost for customers. The company has minimum exposure to packaged gases, which is an advantage because packaged gases are essentially commodities without any switching costs.

Management with a great record of capital allocation
APD has a strong balance sheet and substantial ability to pursue growth by investing in new projects. Management's capital allocation history is commendable, as APD has considerably increased its profitability and enhanced growth through its capital deployment plan in recent years.

As always, please don't hesitate to reach out with any questions. 

Your IRON Financial Contact
Howard Nixon, CEO & Co-Founder | 847-721-4766

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of this email and may change without notice. The information and opinions are derived from proprietary and non-proprietary sources deemed by IRON Financial to be reliable, are not necessarily all-inclusive, and their accuracy is not guaranteed. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by IRON Financial, its officers, employees, or agents. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
The information herein has not been based on the consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal, or regulatory advice. Investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

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