One of the challenges with investing in “specialty materials” is that the materials often aren’t as special as investors would like to believe. Investors can look across a range of names like Allegheny Technologies (ATI), Carpenter Technology (CRS), and Materion (MTRN) and see that, although these materials may be technically demanding to manufacture, they don’t generally support margins or returns meaningfully better than those from well-run steel companies like Acerinox (OTCPK:ANIOY) or Steel Dynamics (STLD), and they’re subject to largely similar cyclical demand patterns.
I wasn’t eager to overpay for Materion back in 2019, and the shares are only about 10% higher now, with a big decline and rebound in between now and then. I do like the Optics Balzers acquisition, though, and there had been steady (if slow) progress in metrics like margins and ROIC before the pandemic threw handfuls of sand into the gears.
As far as the stock goes, I’m stuck between a near-term outlook that should be quite positive on rebounding end-markets, and an improving long-term profitability outlook, but mixed valuation metrics. With a high single-digit total annualized return potential on cash flow, I do lean positive, but investors will need some patience
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Materion's Multiyear Self-Help Drive Should Get A Boost From End-Market Recoveries
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