Aceto Shifting Its Unusual Model Toward Generics

Aceto (NASDAQ:ACET) is an odd duck. Classified in the past as a "specialty chemical" company, Aceto has indeed sold a range of products like nutritional ingredients (vitamins, amino acids, etc.), active pharmaceutical ingredients, pharmaceutical intermediaries, dyes, resins, agricultural productivity chemicals, and so on. What's different is that Aceto's expertise has never been in developing or manufacturing them, but rather working with customers to understand their needs, assembling third-party manufacturers, overseeing regulatory and quality control functions, and handling the marketing and distribution. It's a curious model, but it is one that has allowed the company to generate decent returns on capital, pay a cash dividend for close to 30 years, and beat the S&P 500 over the past decade.

Over the past couple of years, management has sought to more actively change the business, using the company and product acquisitions to shift ACET more dramatically toward generic pharmaceuticals (albeit with basically the same asset-light model). Given the higher margins that go with generics and the ongoing growth in pharmaceutical consumption in the U.S., this seems like a credible approach. Aceto is barely covered, though, and much to my own surprise, these shares look as though they could be undervalued.

Continue here:
Aceto Shifting Its Unusual Model Toward Generics

Investopedia: Aceto Looking At A Tough Future

The chemicals industry is a tough one in the best of times, with many companies like Dow (NYSE:DOW) largely dependent on global economic cycles and others like DuPont (NYSE:DD) having to spend billions on mergers and acquisitions or research and development to stay out of cutthroat commodity competition. While Aceto (Nasdaq:ACET) addresses what looks like long-term growth markets (particularly healthcare), investors need to be wary of a relatively poor history of cash flow generation as well as strong competition from China and India.

Please click here for more:
http://stocks.investopedia.com/stock-analysis/2012/Aceto-Looking-At-A-Tough-Future-ACET-TEVA-DOW-DD0515.aspx

Investopedia: Buffett Brings Lubrizol Into The Fold

Buffett-spotting is practically a cottage industry in the financial media, as is predicting the next thing that the Berkshire Hathaway (NYSE:BRK.A) CEO is going to buy. These predictions tend to be consistently off the mark, though, and so there is almost always an element of surprise to Buffett's next buy. So too was it with Monday's announcement that Berkshire Hathaway would acquire Lubrizol (NYSE:LZ) - while the deal makes a great deal of sense, precious few people were publicly predicting this one. (Check out some of Buffett's other surprise picks in 4 Lesser-Known Companies Buffett Owns.)

Berkshire Hathaway Buys Lubrizol  

Buffett is striking the kind of deal here that he prefers - an all-cash transaction for 100% control. Berkshire Hathaway will be paying $135 per share in cash for all of Lubrizol's outstanding shares. Including Lubrizol's net debt, this is a $9.7 billion transaction for Berkshire Hathaway - and a 28% premium for Lubrizol shareholders. All in all, shareholders who bought or held Lubrizol through the worst of the recession have seen these shares come back more than fives times over since early 2009.

What Berkshire Hathaway Is Getting 

Lubrizol is a chemical company, but it is not so much a commodity player like Huntsman (NYSE:HUN) or Westlake (NYSE:WLK). Instead, Lubrizol focuses on additives and advanced materials. Lubrizol has a leading share in additives for products like motor oil, gear oils and transmission fluids, as well as significant businesses in engineered polymers, performance coatings, and so on.

Although many chemical companies struggle to attain a double-digit return on equity, let alone maintain it, Lubrizol has done quite well by this metric. Likewise, although Lubrizol was not immune to the effects of the recession, the company has shown a relatively uncommon ability to deliver consistent revenue growth compared to other chemical companies. (For more, see How Return On Equity Can Help You Find Profitable Stocks.)

Please continue to the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Buffett-Brings-Lubrizol-Into-The-Fold-BRK.A-LZ-DD-ALB-FUL-ACET-CYT0314.aspx

A Few Fruits From This Week's Research

When you're a stock junkie (to say nothing of a financial writer), you're pretty much always doing stock research. Sometimes you go a while before finding good ideas, and then sometimes you find them in bunches.

This week turned up a few interesting tidbits, as I was looking mostly at the chemicals sector.

Goodyear (GT) - Analysts seem to like this one, and it was up more than 10% in the past week. But a tire company? Really? Sure, the EV/EBITDA ratio isn't bad, but this company's historical ability to produce real returns (ROIC) isn't very good.

Aceto (ACET) - I like the idea of a company that makes the chemical underpinnings of pharmaceuticals, particularly generics. By and large, these guys don't mess with the legal patent wrangling like a TEVA. The EV/EBITDA is on the high side, but this one looks interesting.

Calgon Carbon (CCC) - Wow. Great business and decent returns on capital, but a pretty poor long-term record of growth and doesn't look at all cheap to me (though the analysts seem to like it well enough).

Hexcel (HXL) - Nice story (carbon fiber for Boeing and Airbus), but I can't even get close to making this one work on a valuation basis.

Lubrizol (LZ) - Am I the only one who didn't know this company was producing double-digit ROICs, good growth, and a strong free cash flow yield? Unfortunately, as much as the company looks like a winner, the stock seems to be there already.

Metabolix (MBLX) - You either win big or lose big. It's a nice idea, making plastics out of corn, switchgrass, and the like, but valuation is an exercise in faith. Treat it like a biotech. I probably should go back and double-check the IP here, because that will be the real deciding factor.

Methanex (MEOH) - I was shocked at how cheap this one looks when I value it by a forward EBITDA basis. It's been a volatile commodity business in the past, but they have a lot of unused capacity (good for margins if volumes go up) and China seems poised to use a lot more methanol.

Sigma Aldrich (SIAL) - Great company. No bargain in the stock, though.

Huntsman (HUN) - Hmmm. This one could be interesting. It's a diversified chemicals business, but a little less commoditized than your average commodity business. This one could be worth a closer look.

Landec (LNDC) - This was a popular "little known" growth stock a few years ago. It was supposed to be a company that "looked like a commodity business, but really wasn't". Guess what? It was. At least enough to knock the wind out of its sales. I'm intrigued, though, and if my numbers are right this could be a cheap one.

And so ends the gleanings from this week's research. There were a lot more names I looked at, but I feel like 10 at a time is about all anybody wants to read about.

Happy hunting!