04 February 2008

Delving into Zacks Top 10 Stocks for 2008 - ALB

Zacks Investment Research offers up a Top 10 list of stocks to be bought, held, and forgotten about for 2008. '07's list scored 9 winners with an average return of over 30%.

A quick Google search turned up the list for 2008.

I'm going alphabetically, by ticker. First up is Albermarle (ALB):

"Stock #9: Industrial-strength supplier engineers dynamic growth. Strong margins, geographical diversification, and great management make for a winning combination."

According to Morningstar, Albermarle is the:

world's leading manufacturer of flame retardants typically found in consumer electronics, automobiles, and other goods. In addition, the company produces oil-refining catalyst chemicals, herbicides, and ibuprofen.

Albermarle makes this:

and (sorta) this, too:

Morningstar is mixed on the prospects for Albermarle:

Specialized chemical manufacturer Albemarle currently leads the brominated product market as the low-cost provider. Over the long term, however, we think the firm's advantages will go up in smoke.

Albemarle produces a wide variety of plastic additives that are mainly used as flame retardants in consumer durables such as electronics, cars, and home insulation. These end markets are notoriously cyclical and subject to pricing wars, and Albemarle's volume has suffered as of late. Nonetheless, the current price environment has bucked this trend. Competitor Chemtura recently raised prices to recapture costs, and Albemarle followed suit. A heightened pricing environment strongly favors Albemarle, as it is the low-cost manufacturer of bromine, an element used in one third of the company's products. Three firms worldwide--Albemarle, Chemtura, and Israel Chemicals--control production of this raw material, which is found most abundantly in Arkansas and Jordan's Dead Sea. Albemarle has facilities in both locations, and its Arkansas plant runs at a lower cost than rivals' comparable facilities. Robust demand for recently acquired chemical processes further suggests near-term success for Albemarle.


We think Albemarle's short-term prospects look favorable, but we believe competitive pressures will erode its advantages in the long run.

ALB has good value characteristics. The company generates considerable free cash flow and has an attractive PEG of 0.6. A cursory reading of these data made me curious about Morningstar's pessimism about ALB as a long-term holding. I do appreciate the M'star analyst's attempt at humor (the "up in smoke" part).

Nevertheless, as an investment for '08, Zacks and Morningstar do seem to be in agreement.

And we may not have to worry about holding ALB for long enough to care about Morningstar's down-the-road concerns:

Rumor: BASF Bidding for Albemarie
posted on: February 04, 2008 | about stocks: ALB

I'm hearing some chatter saying BASF A.G., one of the largest chemical companies in the world is close to making a $4.9 billion offer for Albemarle (NYSE:ALB).

Since I've been following ALB for quite some time, I thought to give some quick colour on the topic. While one has to treat all market rumors with a fair dose of skepticism, there may be some truth to this one. Why?

- First of all, ALB does have a very good petroleum refining catalyst business, which they bought from Akzo Nobel back in 2004. One of the main products is a hydroprocessing catalyst that removes sulfur from heavy crude oil, turning it into more expensive light sweet crude. The deal proved to be a brilliant one as demand for refining catalysts surged. Customer list includes Exxon, RDS, Chevron as well as many independent refiners like VLO & TSO. Today the business accounts for about 40% of total revenue (and 50%+ of profits).

This is definitely something BASF would want to have complementing their existing refinery catalysts business.

- Secondly, BASF has a history of making acquisitions in the space. They bought Englehard, another big player in the refining catalysts business in 2005/2006. If my memory serves me correct, the deal was a hostile one.

- Third, BASF sure has the firepower to do the deal. The co has around EUR10 billion available for deals and the management is on record saying they have identified catalysts as an area of potential interest.

So there you have it. Hope it helps.

This is a fascinating first pick from Zacks--a fundamentally strong company with growth characteristics and an intriguing bit of rumor-mongering, too.

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