Atlantic Investment Management Likes This Chemicals Company

Atlantic Investment Management, a fund run by Alexander Roepers with about $2 billion in assets under management, has filed with the SEC to disclose that it has purchased 3.9 million shares of Rockwood Holdings, Inc. (NYSE:ROC). Rockwood is a $4 billion market cap company which developed specialty chemicals that are then used for a variety of functions, including auto bodies and pharmaceutical-related uses. Atlantic had initiated a position in the company in the fourth quarter of 2011, opening 2012 with 600,000 shares in its portfolio. The fund then approximately doubled its position in each of the last two quarters and reported owning 3 million shares at the end of June (find out what other stocks it owned in its portfolio). Atlantic’s most recent purchases give it 5.1% of Rockwood’s shares outstanding, triggering the requirement to file a 13D. So far this year the stock is up 27%, outperforming the market, though thanks to a rough period towards the end of last year it is only up 5% compared to a year ago.

Alexander Roepers

Atlantic now owns about the same number of shares- 3.9 million- that Iridian Asset Management owned at the end of the second quarter. Iridian is managed by special situations investors David Cohen and Harold Levy (see more stocks that Iridian likes). Event-driven investor Barry Rosenstein’s JANA Partners initiated a position of 1.1 million shares in Rockwood during the second quarter of 2012 (research more stock picks from JANA Partners).

According to Rockwood’s 10-Q, the business is down compared to 2011; revenue in the second quarter of 2012 was down 9% from the figures in the second quarter of last year. Operating income fell 7%. A large income tax benefit pulled net income higher than a year ago, but this only serves to mask the company’s struggles. Revenue in the first quarter of the year was about the same as in the first quarter of 2011, and over the first half of the year operating income was about flat. Just over half the company’s business in 2011 came from Europe, so the financials reflect negative impacts both from poor European macro and from the rise of the dollar compared to the euro.

As a basic materials company with significant exposure to Europe, Rockwood Holdings, Inc. carries a high beta of 2.5 and so would not make for a good investment for an investor who is bearish on global macro. The company has started paying a dividend, with a yield of 2.9%, but this amount of money could easily be lost in an investment in the company due to a bad day in the market. The stock trades at 9 times trailing earnings and 11 times forward earnings estimates, and so along with the yield there is some case to be made for it as a value play. However, investors would have to have some confidence (as Atlantic apparently does) that the company will be able to get through the next few quarters with its current revenue and earnings numbers intact.

PolyOne Corporation (NYSE:POL) is the closest peer for Rockwood Holdings, Inc. PolyOne carries a trailing P/E of 20, but sell-side expectations are for strong earnings per share growth next year and so the forward P/E is 13 (still above Rockwood’s despite the smaller market cap of $1.5 billion). Between the two we think that Rockwood is the better buy. Other specialty chemicals companies include RPM International Inc. (NYSE:RPM), Cytec Industries Inc (NYSE:CYT), and Huntsman Corporation (NYSE:HUN). RPM and Cytec look very similar from a valuation perspective- they both trade at 18 times trailing earnings and 14 times forward estimates- while Huntsman is considerably cheaper at a trailing P/E of only 11. All three of these companies grew their earnings last quarter compared to the same period in 2011. We would want to take a closer look at Huntsman but Rockwood looks cheaper than the rest of its peers.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!