Valuation Complicates An Otherwise Interesting Story At W.R. Grace

W.R. Grace's (NYSE:GRA) shares have enjoyed a healthy valuation for most, if not all, of the time since the company emerged from bankruptcy, and that probably explains at least some of the underperformance relative to other specialty chemical companies like Albemarle (NYSE:ALB), BASF (OTCQX:BASFY), and Evonik (OTCPK:EVKIF) over the last few years. And that's the problem with valuation - there is a lot to like about W.R. Grace, one of the leaders in an oligopolistic sector and a chemicals company with uncommonly good margins, but it takes some stretching to drive an attractive fundamentals-based fair value.

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Valuation Complicates An Otherwise Interesting Story At W.R. Grace

Seeking Alpha: Albemarle Pays A Stiff Price For A Premium Asset

I wrote about Rockwood Holdings (NYSE:ROC) in December of 2013 and thought at the time that it was a very high-quality specialty chemical company, with an attractive cost-advantaged lithium business, but an expensive stock. That opinion worked reasonably well until today, as other chemical companies like BASF (OTCQX:BASFY) and Taminco (NYSE:TAM) had been outperforming the shares. That's all moot now, though, as Albemarle (NYSE:ALB) has stepped up with a premium buyout offer for this specialty chemical company.

For Albemarle's part, they're paying up to add a well-run surface treatments business and grab the growth potential of Rockwood's top-notch lithium operations. Paying 14x 2014 pro-forma EBITDA (and more than 11x assuming synergies) is steep, but Rockwood is a unique asset with both strong internal returns and good growth potential leveraged to the developing electric vehicle market.

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Albemarle Pays A Stiff Price For A Premium Asset

Investopedia: W.R. Grace - Maybe The Most Valuable Bankrupt Company Going

While individual/personal bankruptcy is pretty straightforward, the same cannot be said for corporate bankruptcy. Airlines go through bankruptcy seemingly about as often as most people buy and sell cars, while in other cases bankruptcy is the end of the story – whatever assets are worth something are sold off and the company ceases to be.

Then there's the case of W.R. Grace (NYSE:GRA). Technically in bankruptcy, Grace did not go into bankruptcy because of any flaws in its core business, but rather the rapidly-accelerating and virtually uncontrollable costs of settling asbestos litigation. With a valuable catalyst business, a stable coatings business, and a construction products business leveraged to a recovery, Grace is most definitely a going concern. On the other hand, a better-than-60% jump in the stock over the past year and a nearly 20-fold increase from the 2009 lows seems to already recognize the ongoing value in this business.

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Investopedia: Should Huntsman Really Be Trading At Such A Discount?

Relative performance can be a tricky metric to use when assessing whether a particular company's stock is getting its due in the market; significant factors like debt, margins and management's competence all make a difference. Nevertheless, the valuation on Huntsman (NYSE:HUN) puzzles me a bit, especially in relation to other chemical companies such as Albemarle (NYSE:ALB), Ashland (NSYE:ASH), Dow (NYSE:DOW) and BASF (OTC:BASFY). Although Huntsman has not fully executed a transition to a specialty chemicals company and there is a lot of debt here, this could be an interesting name to watch.

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Investopedia: At The Right Price, Albemarle Would Be A Great Idea

There's a big difference between commodity chemical companies and specialty chemical companies - both can make you money, but companies with more of a commodity orientation have to be sold more nimbly. That's not to say, however, that investors can just buy a company like Albemarle (NYSE:ALB) whenever they may like. While this is a very interesting and well-run chemical company, today's valuation doesn't offer much discount despite multiple challenges to the business.

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Investopedia: Flotek Looks To Keep Growth Flowing

There's a lot to be said for better mousetraps in any industry, but service companies that can help energy producers reliably increase their well productivity are almost always popular. With its patented and proven surfactant, Flotek (NYSE:FTK) has battled back from near bankruptcy with strong growth. Given that management has big expectations for its fluids business, the growth story may yet have room to run.

A Diverse Set of Services 

Flotek offers a relatively diverse array of services across chemicals, drilling equipment and artificial lift, but the chemicals business is more than half of sales and gross profits. We'll get back to the chemicals business in a moment, but the company's tools and drilling equipment (which are sold under brand names like Teledrift and Cavo) appear on as many as one-quarter of the rigs in North America. While the artificial lift business has historically been weighted toward gas production, some of the technologies and products can be used in oil production.

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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: 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: Industry At A Glance - Specialty Chemicals

The chemicals industry is one of the most economically-sensitive industries around, and many of the major chemical companies are very nearly proxies for global GDP growth. Specialty chemicals, though, is a subsector with some notable differences. It is certainly not fair to say that these companies are neither cyclical nor invulnerable to global growth trends, but many of these companies offer products or serve niches that tend to be a little more stable.


There are ample worries about growth in the market today. If the economy is truly headed into a double-dip recession, these companies are not going to be notable outperformers. On the other hand, many of these stocks have been hit on growth worries and investors may find that these companies have either been sold too far, or at least merit spots on watchlists for the recovery in growth expectations.

Air Products (NYSE:APD)
If you want hydrogen or helium, there's a good chance you'll do business with Air Products. APD is a global leader in atmospheric and process gasses. These are critical inputs in many industrial and manufacturing processes and there are substantial advantages to scale and scope. That said, APD has about 20% exposure to the electronics industry (good in most periods, but arguably a negative today) and the company's profitability goals for 2015 are starting to look a little too ambitious. That said, the stock looks undervalued today and a 3% dividend yield is not a bad sweetener.




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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.)

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Investopedia: DuPont Nets Out To Lukewarm

The good news about DuPont (NYSE:DD) is that it is not just some commodity chemical player, forever at the mercy of cycles it cannot control. No, DuPont is a highly-diversified player in a wide variety of businesses, many of which are either counter-cyclical to each other or not especially cyclical at all. Well, in point of fact that is actually both good news and bad news - for while DuPont has enough diversification to smooth out some of the worst of the cyclical swings, it also has enough diversification to tone down even hot segments to an overall level of lukewarm. 

A Good Enough Finish to the Year
Even DuPont's fourth quarter earnings were an exercise in good news and bad news. To the good, the company reported that sales climbed 15% to about $7.4 billion - a fine performance that surpassed even the highest estimates. Growth was fueled in part by double-digit volume growth, and the company saw strength in the U.S., Asia and Latin America.

Unfortunately, the company did not do nearly so well on its profitability. The company did okay at the gross margin level, but operating income was a little disappointing. Moreover, while the company did beat the average estimate by 18 cents, 15 cents of that came from an unexpectedly low tax rate. Consequently, a much better top-line performance delivered only three extra pennies of earnings. Not exactly an exciting result.

Looking at the segments, some of the trouble becomes more apparent. Revenue in the sector was up a solid 13%, but the company actually worsened its operating loss from a year ago. Although the company did see very solid operating leverage in electronics and communications and performance chemicals, businesses like Performance Coatings and Safety/Protection weren't so exciting. Some of the trouble was due to input costs, ironic in a sense given that DuPont is so often grouped with those basic input producers.


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The Good and Bad of DuPont's Strength

If no good deed goes unpunished, then maybe it is true that good news from DuPont (NYSE:DD) can often come with a catch. While DuPont is a highly diversified chemicals and materials company, the company's products are all largely inputs for other companies' products. This sets up the good news/bad news dilemma - solid volume growth at DuPont should be reasonable confirmation that economic growth really is recovering, but solid price growth also points to the risk of oncoming cost-push inflation.

DuPont's Third Quarter
DuPont disappointed no one with its sales performance in the third quarter, as revenue rose 17% and surpassed even the highest published analyst estimate. Growth was fueled both by mid-teens volume growth (14%) and mid-single digit price growth (5%).

This revenue growth was not necessarily balanced, however. Agriculture and coatings grew by single-digit amounts (and had the lowest volume-based growth), while electronics, chemicals, materials, and safety/protection all grew in excess of 20% (and all had volume growth above 15%).


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http://stocks.investopedia.com/stock-analysis/2010/The-Good-And-Bad-Of-DuPonts-Strength-DD-HUN-MRK-ALB-STP-JASO-DOW1028.aspx

Praxair's Success Not Just Hot Air

I have been somewhat obsessed with trying to figure out the real tenor of the economy during this earnings season. Specialty chemical companies like Albemarle (NYSE:ALB) have been strong, coal companies like Peabody (NYSE:BTU) have been reasonably positive and industrials like Dover (NYSE:DOV) have had pretty solid guidance. In fact, the only major notes of caution have been from steel companies like Nucor (NYSE:NUE). 

Industrial gas provider Praxair (NYSE:PX) goes solidly in the camp of "good news for the economic recovery". Although industrial gas companies sign customers to long-term contracts and do not tend to be quite as cyclical as you might immediately think, the volume growth that this company is seeing is nevertheless a pretty strong testament to growing economic activity around the world. 


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http://stocks.investopedia.com/stock-analysis/2010/Praxairs-Success-Not-Just-Hot-Air-PX-ALB-BTU-DOV-NUE-ARG-APD0730.aspx

Recovery? Specialty Chemicals Lead The Way

Although consumers are not necessarily feeling much better yet, the recovery in the industrial side of the economy seems to be real. Over the last week or so, we have seen several large industrial concerns report strong earnings and cautiously optimistic guidance. Turning to one of the basic feed stocks of industry, specialty chemicals, we see a similar trend at work. Let's take a look at some of the top-performing
companies in this sector.

Albemarle
Albemarle (NYSE:ALB) is mostly a niche producer of specialty chemicals, but do not be fooled into thinking that "niche" is somehow a bad word. Albemarle is a leading producer of refinery catalysts, fire retardants and pharmaceutical inputs and those can be lucrative segments.

For the complete article, please go to:
http://stocks.investopedia.com/stock-analysis/2010/Specialty-Chemicals-Looking-Special-ALB-RPM-HXL-CYT-DD-DOW-BA0728.aspx.

Can Investors Capture Gains In Carbon Capture?

Carbon capture and storage (CCS) seems to be an inevitable emerging technology over the next few decades. CCS holds the promise of cutting CO2 emissions from power plants by up to 80-90%, while not imposing a crippling cost burden on energy producers and customers. As increased legislation aimed at controlling green house gas emissions seems like a done deal in the years to come, investors should look to see how they might position themselves to profit. 

Look to the Oil FieldsOne of the early adopters of CO2 capture and storage has been the oil and gas industry. Companies including Statoil (NYSE:STO), Kinder Morgan (NYSE:KMP), and Denbury Resources (NYSE:DNR) have been early movers in this field, which involves injecting CO2 far beneath the ground to stimulate better oil and gas production. Kinder Morgan operates CO2 pipelines and reported a few years ago that in the Permian Basin and Mississippi nearly 11 trillion cubic feet of CO2 had been used to generate and incremental 1.2 billion barrels of oil that might otherwise have remained in place.

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http://stocks.investopedia.com/stock-analysis/2010/Can-Investors-Capture-Gains-In-Carbon-Capture-STO-KMP-DNR-ALB-GRA0616.aspx