Seeking Alpha: Materion Executing On A Multi-Armed Growth Strategy

Kudos to Materion (NYSE:MTRN) for creating a plan to emphasize value-added products, improve margins, and generate more free cash flow and then executing, or at least starting to execute, on it. The shares aren't much higher than when I last wrote about the stock, but I thought the shares looked a little pricey then and there haven't been too many outperformers in the specialty alloy space.

I do still like this company, and I think the company's leverage to advanced industrial components, auto electronics, consumer products, and so on will serve it well. I also like the prospects for margin leverage and improved asset efficiency leading to free cash flow that can be reinvested into complementary acquisitions that will further stimulate revenue growth and margin leverage.

All of that said, it's unusual for a specialty alloys company to generate FCF margins above the mid-single digits for any sustained length of time and I think my 7% annualized organic revenue growth number is generous as is. I like the prospects for Materion to do well against undemanding growth comps this year and tomorrow's investor day could be a catalyst, but there's not very much fundamental undervaluation here that I can see.

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Materion Executing On A Multi-Armed Growth Strategy

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: 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%.

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

Investopedia: Eastman Chemical Seems To Get The Long-Term Picture

It's interesting that Eastman Chemical (NYSE:EMN), Eastman Kodak's discard, is going to be the company that survives as the more viable going concern. To management's credit, they seem to understand the value of defensible markets and the need to wall off and dispose of businesses in long-term decline. With the announced acquisition of Solutia (NYSE:SOA), Eastman Chemical is taking another important step towards being a diversified specialty chemical company.

Is Solutia the Solution?
Eastman is paying about $4.7 billion in total enterprise value for Solutia, or about nine times trailing EBITDA. That's not an especially cheap price, but it's not so unusual for a takeout of a quality specialty chemical name. When Berkshire Hathaway (NYSE:BRK.A) acquired Lubrizol, the premium it paid was only about 80% less even though that was a very different market at the time. (For related reading, see EBITDA: Challenging The Calculation.)


Read the full piece here:
http://stocks.investopedia.com/stock-analysis/2012/Eastman-Chemical-Seems-To-Get-The-Long-Term-Picture-EMN-SOA-BRK-A-DD-DOW0201.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.




Read more by clicking below:
http://stocks.investopedia.com/stock-analysis/2011/Industry-At-A-Glance--Specialty-Chemicals-APD-ALB-CBT-EMN-HUN-ASH-HXL0830.aspx