TAKING STOCK: Specialty chemical companies

prev
next

Dear Mr. Berko:

I have a five-year horizon and $15,000 to $20,000 of new money to invest. My broker has suggested buying 100 shares each of three specialty chemical companies, and I would like your opinions of them. They are Balchem, PolyOne and RPM International.

-GS, Wilmington, N.C.

Dear GS:

I am not unimpressed. You are a fortunate lady, because this broker selected three excellent issues, each of which should do better than the market during the next few years. You might also ask him or her about Minerals Technologies (MTX-$64), Ashland (ASH-$119) and LyondellBasell (LYB-$101). These three specialty chemical companies are long-term favorites of mine, and I expect that they will also outperform the market during your five-year time horizon.

Balchem (BCPC-$55) is a very classy $675 million-revenue designer, manufacturer and seller of specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical and medical sterilization markets. Products from the animal nutrition and health segment generate 52 percent of revenues. The sensory effects (nutritional and pharmaceutical) segment provides 38 percent of revenues. And the specialty products segment is responsible for the remaining 10 percent. BCPC, with only 800 employees, is one of the most interesting and consistently profitable specialty chemical companies I know. Its recent investment in new technology and production equipment should greatly improve bottom-line growth, and management, with plenty of cash, is looking for complementary acquisitions. It's a classy long-term investment, and its steady revenue and earnings growth during the past 15 years suggests that BCPC's products are very nearly impervious to recession, inflation and the economic cycle. After two 50 percent stock splits (2006 and 2010), there are just 31 million shares outstanding. Wall Street suggests a $90 price target in 36 months and a 22 percent increase in earnings. I think BCPC has the right stuff to be an exceptional medium- to long-term investment in your portfolio.

PolyOne (POL-$39) produces 3,500 different grades of thermoplastic compounds, polyvinyl chloride resins, polymer colorings and additives used in vinyl flooring, bottles, piping, appliance parts, wiring and cable coating. Most of POL's products are made from petroleum and natural gas. And because the prices of oil, natural gas and coal have fallen in the past year, POL has passed some of that savings to its large customer base. However, there is plenty of room left to grow operating margins to 12.8 percent and grow its dividend by 30 percent this year and by 20 percent in 2016. This $3.7 billion-revenue company has 7,000 employees and, since 1927, has been providing specialized polymer materials and solutions, with operations in materials, services, unique polymer formulations, colorings, additive systems and packaging systems for various industry processes. BlackRock, Fidelity, Vanguard and AllianceBernstein hold significant positions, and their price consensus for the next three years is $65-$70. Meanwhile, Value Line, Thomson Reuters and Market Edge have a long-term bullish recommendation on POL, and so does Goldman Sachs.

RPM International's (RPM-$49) do-it-yourself products are found in every Home Depot and Lowe's store, every hardware store, most hobby shops and certainly every handyman's kit bag. Back in the 1960s and 1970s, RPM was probably in the portfolios of most investment clubs because of its exceptional history of growing revenues, earnings and dividends. This impressive special chemical company has, since 1947, been home-ported in Medina, Ohio. Sometimes you can judge a book by its cover, and in this instance, investors can judge RPM by its products, which last year booked over $5 billion in revenues. Some of those DIY products that you might recognize are Rust-Oleum, DAP, Wolman, Krud Kutter, Mathys, Spraymate, Zinsser, Restore, DayGlo Color, Mohawk, Tremco, Carboline, Watco, Pettit, Modern Masters, Stonhard, Vandex, Ecoloc, Dryvit, Testors and Tor Coatings. Earnings for 2016 should improve by 20 percent, to $2.73 a share. The 2 percent dividend is expected to grow by 5 percent annually. Net profit margins are expected to reach a record high of 7.4 percent. And the Street has a three-year target price of $85.

--------

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

©Copyright 2015 Creators.com

Published: Tue, Jul 21, 2015

Comments

  1. No comments
Sign in to post a comment »