Seeking Alpha: OM Group Hasn't Transformed Fast Enough

It wasn't supposed to be this way for OM Group (NYSE:OMG). Selling its cobalt and ultra-pure chemicals businesses and acquiring an advanced magnets business was supposed to transform this company from a cyclical commodity business to a growth-oriented specialty materials business. As it happens, though, the company has seen a much weaker recovery in Europe than hoped, not to mention lower demand in renewable energy, medical batteries, and electronics.

Management meaningfully lowered full-year EBITDA expectations after the second-quarter report, and more recently, laid out a medium-term growth outlook that calls for just 2%-3% annual revenue growth through 2017. The combination of relatively low expected growth and investors allocating away from specialty materials stocks has led to a one-third drop in OM Group's share price from the time of my last update in April.

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OM Group Hasn't Transformed Fast Enough

Seeking Alpha: OM Group Could Be Ready To Run On A Stronger Europe

Many specialty chemicals spent the last six months going nowhere fast, OM Group (OMG) included. I've been watching this one, wondering if there might be a chance to get shares before the business started to improve on better demand in Europe. I don't think you can say that a recovery in Europe is a fait accompli, particularly in the passenger vehicle industry, but demand for automation, electrical, energy conversion, and alternative energy seems to be picking up. Considering the combination of recovering markets and a clean balance sheet with which to make accretive acquisitions, I like OM Group at these levels.

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OM Group Could Be Ready To Run On A Stronger Europe

Seeking Alpha: KMG Chemicals Hopes To Leverage Chip Turnaround And Synergies

KMG Chemicals (KMG) is a small player in the specialty chemicals space, with only about $350 million in annualized revenue and about half that amount of market cap. Despite this limited scale, KMG is a significant player in parts of the electronic chemicals and wood treatments markets. Improvements in the consumer electronics market, coupled with synergies from the acquisition of a business from OM Group (OMG) should drive improving results in the coming years, and management is hoping to augment this with the acquisition of a third standalone unit.

KMG Chemicals has established sizable market positions in its targeted markets, but it is not so clear that those are valuable markets for the long term. With that, KMG's financial performance has been erratic and the stock is barely followed on Wall Street. I'm optimistic that a turnaround in the chip space, coupled with merger synergies, can drive better near-term performance but investors need to consider the ramifications of the company's preference to focus on established markets when evaluating this as a potential long-term holding.

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KMG Chemicals Hopes To Leverage Chip Turnaround And Synergies

Seeking Alpha: Materion's Opportunities In Specialty Materials Well Worth Watching

Specialty materials companies can be, well, special. Oftentimes there is a lot of knowhow and technological capability that goes into the development and manufacture of specialty materials, and that can lead to market-beating stocks. "Can" is an important word here, though, as the performance of companies like Carpenter Technology (CRS), OM Group (OMG), and Rockwood (ROC) has certainly been erratic and volatile and the label of specialty material does not guarantee any particular level of sales growth, margins, or stock market performance.

This brings me to Materion (MTRN). Like OM Group and Rockwood, Materion's shares have enjoyed a good run this year, even though many of the company's core markets (including defense, industrial, and healthcare) aren't enjoying the best of times. While Materion is still a leader in its traditional beryllium market, the future of this company is much more about a broad and diversified approach to specialty materials and alloys for a wide range of markets. I don't believe that Materion is tremendously undervalued today, but I do believe it could be worth a small "starter position" or at least a spot on a watchlist.

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Materion's Opportunities In Specialty Materials Well Worth Watching

Seeking Alpha: OM Group An Interesting, Still-Evolving Story

OM Group (OMG) is another one of those "blast from the past" stocks for me. I have owned this own profitably more than once, with multiple opportunities to buy and sell provided largely by the historical volatility in the company's cobalt operations.

Today OM Group is a very different company. The volatile cobalt operations are gone, and the company is focused specialty chemicals and materials company with good global share in specialty batteries and magnets. Better still, OM Group has a clean balance sheet and is still of a size where small strategic acquisitions can make a real difference.

OM Group is not the cheapest stock out there, having risen almost 80% over the past year on Wall Street's enthusiasm for the evolution towards a cobalt-free specialty chemicals/materials company. Although I do believe weakness in Europe (a major market for the magnetic technologies business), electronics, and defense could be challenges for a couple of quarters, and the shares are not cheap enough to be an enthusiastic buy, this is a stock worth some due diligence today and a spot on watch lists.

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OM Group An Interesting, Still-Evolving Story

Investopedia: It's Volatile, But Materion Is Worth A Look

Specialty metals and materials don't often end up looking so special, as they are often just as cyclical as other industrial metals like copper or zinc. That said, Materion (NYSE:MTRN) has consistently looked to find new value-added uses for beryllium and related alloys, ceramics and specialty products. Admittedly, the company's long-term cash flow production and returns on capital are not stellar, but recoveries in consumer electronics and telecom equipment could push this company into another cyclical upswing.

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http://stocks.investopedia.com/stock-analysis/2012/Its-Volatile-But-Materion-Is-Worth-A-Look-MTRN-OMG-MCP-LYSDY0627.aspx

Seeking Alpha: Seeds And TiO2 Tiding DuPont Over For Now

I was surprised to see relatively little coverage of DuPont's (DD) earnings on Seeking Alpha. This is, after all, one of the largest American companies, a Dow Jones Industrial component, and a major bellwether in multiple industries. All told, then, a stock worth following. So, once more into the breach ...

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Seeds And TiO2 Tiding DuPont Over For Now

Investopedia: How Much Further To Bottom For OM Group?

Part of what makes commodity-driven stock investments so frustrating is that they so often rise much further than common sense says they should in the good times and likewise fall so far in the tougher times. Right now, OM Group (NYSE:OMG) is seeing tougher conditions in Europe, lingering impacts from the Thai flooding and a market that has soured on commodities in general, due to fears of shrinking growth in Chinese imports. While this stock looks cheap, investors cannot afford to ignore the risks that things will get worse before they get better.


A Disappointing Fourth Quarter
OM Group didn't help their case with the fourth quarter results. Revenue was up 50%, but that was a byproduct of the VAC acquisition. Organic revenue seems to have dropped about 8%, with advanced materials down 7%, specialty chemicals revenue was down 9%, while battery revenue fell 13%.

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http://stocks.investopedia.com/stock-analysis/2012/How-Much-Further-To-Bottom-For-OM-Group-OMG-DOW-EMN-ALB0309.aspx

Investopedia: Molycorp Setting Up A Second Chance

Almost every stock will give the patient investor a second chance, and now may be that time for investors looking to get exposure to the rare earth metal space. Severe Chinese export controls have led to demand destruction (mostly through accelerated substitution and recycling) and prices have plunged. While a tough pricing environment does no favors to Molycorp (NYSE:MCP), the quality of this American miner merits a second look at today's prices.

Few Surprises to Close the Year  
For all of the rare earth metal pricing drama, Molycorp's fourth quarter went more or less as expected. Revenue dropped 4% sequentially as strong volume growth (237% in cerium products) was offset by a nearly 50% quarter-to-quarter price cut.

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http://stocks.investopedia.com/stock-analysis/2012/Molycorp-Setting-Up-A-Second-Chance-MCP-REE-RIO-BHP0228.aspx

Investopedia: OM Group - Just Another Cheap Commodity Play, Or Something More?

At first glance, it probably seems fair that OM Group (NYSE:OMG) is trading at a low valuation. The company's cobalt business has seen significant price erosion in cobalt, the battery business is heavily weighted towards defense and aerospace, the electronics/chip business is terrible and the company doesn't seem to know what it wants to be.

Despite all of this, the company has good positions in growth markets, a well-respected new CFO and a relatively clean balance sheet. It is by no means the safest stock in the market today, but if OM Group can exercise on its apparent vision of becoming a leading player in multiple specialty chemical markets, the stock is too cheap today. (For more, see Earning Forecasts: A Primer.)

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http://stocks.investopedia.com/stock-analysis/2012/OM-Group---Just-Another-Cheap-Commodity-Play-Or-Something-More-OMG-DOW-SOA-GB0116.aspx

Investopedia: OM Group - Unreasonably Cheap, Or Cheap For A Reason?

Though I have not owned it in many years, I've been a fan of OM Group (NYSE:OMG) for some time, particularly as the company's management tries to diversify the business and steer it away from such heavy reliance on cobalt. Although this is not a well-followed company at all, is still quite dependent on cobalt prices, and has not proven that it can deliver consistently strong returns on capital, today's valuation seems to expect far too little from this specialty materials company.

Crosscurrents in Q3 

Given that there is only one published earnings estimate for OM Group, the question of whether the company disappointed with its third quarter results, is largely irrelevant. Nevertheless, it was a quarter that seemed to be mixed with good and bad news.

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http://stocks.investopedia.com/stock-analysis/2011/OM-Group---Unreasonably-Cheap-Or-Cheap-For-A-Reason-OMG-FCX-SOA-ALB-GB-STP-SCCO-AMSC1115.aspx

Investopedia: Can Driling Growth Prop Up Carbo Ceramics?

Love it or hate it, hydraulic fracturing (also called fraccing or fracking) is a part of life in the oil and gas business today. The easy oil and gas is largely gone in North America and producers like Exxon Mobil (NYSE:XOM), Chesapeake Energy (NYSE:CHK) and Apache (NYSE:APA) increasingly have to resort to more and more technology like fracking to meet their production targets. That has created a huge market for Carbo Ceramics (NYSE:CRR) and its ceramic proppants, but the question remains whether there is enough growth to fuel still more gains in the stock.

A Quiet Second Quarter   
Carbo Ceramics did more or less what analysts expected it to do this quarter. Revenue was up 34% from last year, but down about 1% from the first quarter. While Carbo Ceramics saw better than 2% price growth from the first quarter, volume fell about 3%. Gross margins picked up a bit (40 basis points), but operating earnings still slid slightly from the first quarter. 


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http://stocks.investopedia.com/stock-analysis/2011/Can-Drilling-Growth-Prop-Up-Carbo-Ceramics-CRR-BHI-SLB-HAL-CHK-KEG-FTK0805.aspx

Investopedia: OM Group Looks Too Cheap

The first week of May has not been a good one for speculators on the long side of many metals trades. Silver took a significant plunge, gold sold off and copper cracked the $4 level. Not too surprisingly, then, it was a rough week for major metal commodity stocks like Vale (Nasdaq:VALE), Freeport-McMoRan (NYSE:FCX) or Barrick Gold (NYSE:ABX).


Investors who want to play commodities from a more strategic, and generally less volatile, angle may want to consider OM Group (NYSE:OMG). While OM Group is not a pure commodity company in the sense that it sells raw metal, the company does offer a way to play the demand for cobalt through its cobalt-based specialty products businesses. Better still, it seems too cheap.

A Great Quarter That Most Won't Notice
OM Group has precious little institutional coverage, so it's not exactly front page news when the company reports earnings. Moreover, 9% revenue growth probably does not seem all that exciting, even if it is well ahead of even the highest published revenue estimate. Top line growth was certainly boosted by the inclusion of a full quarter of the battery business; the pre-existing and fully comparable advanced materials and specialty chemicals businesses posted growth of 6% and 5% respectively on modest volume growth. 



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http://stocks.investopedia.com/stock-analysis/2011/OM-Group-Looks-Too-Cheap-OMG-VALE-FCX-ABX-GB-JCI-RTN0510.aspx

Investopedia: Johnson Controls Seeing Multiple Recoveries

Passenger vehicles and non-residential building are two sectors that have seen some pretty ugly conditions in recent memory, and that certainly showed up in a 25% revenue decline for Johnson Controls (NYSE:JCI) in 2009. Economic conditions have turned around, though, and the company has seen a strong rebound in its results. Now with signs of life in the building efficiency segment, could even better results be on the way for shareholders? 

A Mixed Fiscal Second Quarter 

Like so many other companies this quarter, Johnson Controls gave investors a mix of good news and some disappointment in its fiscal second quarter results. Revenue jumped 22% and was comfortably above even the high end of the range, as all units posted solid progress. The auto business led with over 25% growth, but even the building efficiency segment saw better than 18% improvement from last year. (For more, see Johnson Controls Sitting Well.)

Margins were more problematic, though. Gross margin ticked down 20 basis points, due largely to commodity inflation and product mix. Segment income did improve by over 30% and all segments did show year-on-year improvements in their operating margins. Unfortunately, analysts had expected even better improvement, particularly in the building segment. So while patient shareholders may not be too bothered or disappointed with 30% segment income growth, the short-term trading tenor may be negative. 

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http://stocks.investopedia.com/stock-analysis/2011/Johnson-Controls-Seeing-Multiple-Recoveries-JCI-NSANY-SI-HON-UTX-GNTX-XIDE0426.aspx

Heavy Metal

I'm wondering if this little mini-meltdown in commodity names has any real legs to it. One of my bigger regrets from 2010 is that I couldn't manage to part with any of my current holdings and make room for some quality "stuff" companies. If we could get a nice little correction in materials stocks, though, I'd be happy to do some cherry-picking. After all, I do happen to believe that there is a general link that goes something like "higher global growth = higher commodity prices" - at least for the next few years, at any rate, and before a lot of major new capacity/supply comes on line.

I am not all that interested in gold at this point. There are just too many nuts still beating the "you'll all be sorry when the dollar goes to zero" drum for me to be comfortable with it. I prefer to swim alone and there are just too many other people in the gold pool these days.

Silver and platinum are different stories, though, and I might be interested in Silver Wheaton (NYSE: SLW) or Impala (Nasdaq: IMPUY). I need to do more work on SLW, particularly with respect to what sort of future silver price is baked into the stock today. As for Impala ... well, this may be a name where I just have to swallow hard and hope for the best.

A lot of Impala's future value is predicated on resources in Zimbabwe and that looks like a dangerous bet to me. Zimbabwe's dictator Robert Mugabe (who is theoretically part of a "power sharing" arrangement so not technically a dictator) is a pretty awful fellow even by the low standards of Africa and I don't see how any investor can ever be completely comfortable with a thesis that rests on Mugabe respecting law and honoring contracts. Then again, maybe Mugabe would think twice about messing with a South African company; alienating the West is one thing as they are not likely to interfere directly in Zimbabwe's affairs. South Africa can, and given the right provocation, probably would.

Beyond this, though, there is a short list of names I'm following closely.

Freeport-McMoRan (NYSE: FCX) - owner of one of the best mines in the world, and a major player in copper and gold (as well as molybdenum).

OM Group (NYSE: OMG) - traditionally a player in cobalt, but trying to move into more advanced materials as well.

Vale (Nasdaq: VALE) - a huge Brazilian mining company with interests in iron ore, nickel, potash, and many other resources. I'm not sure any company in the world has a more aggressive expansion plan over the next five years than Vale.

Xstrata (XTA.L) - a global miner of copper, coal, nickel, lead, and alloys.

Thompson Creek (NYSE: TC) - long a player in molybdenum, the company is expanding into gold and copper.

Teck Resources (NYSE: TCK) - met coal, copper, zinc - Teck is leveraged to some of the best commodities for ongoing industrial growth in the developing world.

These are the major names I'm circling right now and hoping that the stocks fall to me. I'm also looking at a host of junior miners in a variety of metals (gold, zinc, potash, etc), but this post is already running on the longish side. When I come up with some actionable ideas there, I'll write a separate post.

OM Group is cheap enough to interest me today and Freeport McMoRan is oh-so-close. I'd need to see about a 10% pullback in the other names to get really excited, though, and maybe actually a bit more with Thompson Creek. Of course, trying to really get a firm sense of fair value on these companies is almost fatuous - I just generally try to pay less than 7x forward EBITDA and pay attention to the underlying commodity charts (as well as the growth in emerging economies and general investor sentiment). After all, why waste my time trying to be precisely wrong instead of vaguely right?

So maybe I get lucky and get to add some quality materials names at attractive prices. Time will tell...

OM Group Under The Radar But Worth A Look

Hard as it may be to believe, there actually are other metals in the world beside gold, copper and rare earth elements. Still, with investors' attention elsewhere, relative value hounds may want to do some due diligence on OM Group (NYSE:OMG). OMG is not a miner, nor a major company, but it has an interesting materials business all the same.


OM Group is, to a large extent, in the business of cobalt. More specifically, the company takes raw cobalt (and other metals like copper, nickel, and so on) and turns them into a wide range of powders, coatings, ceramics, additives and other value-added formulations. Like Titanium Metals (NYSE:TIE), and unlike some advanced materials companies like Brush Engineered (NYSE:BW), OM Group does not actually mine or own the mines that produce the cobalt (though OMG does own a smelter). That makes this company a somewhat different type of commodity play - they can benefit with generally higher commodity prices, but only if they succeed in pushing along higher input prices.

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http://stocks.investopedia.com/stock-analysis/2010/OM-Group-Under-The-Radar-But-Worth-A-Look-OMG-BW-TIE-JCI-AONE1105.aspx