International Flavors & Fragrances Inc (IFF), Sensient Technologies Corporation (SXT): Specialty Chemical Companies for You to Buy

The major specialty chemical companies are highlighted by excellent margins, usually thanks to a sizable share of one particular end market. With manufacturing activity likely on the rise, it may be a good industry to choose from for portfolio additions.

I would like to provide an overview of a few companies from the group, along with some important metrics (may differ for each firm) and investment recommendations.

Food and fragrance-related firm on the rise

The first company I will present is one of the largest producers of flavors and fragrances for use by the food, beverage, personal care, and household industries, namely International Flavors & Fragrances Inc (NYSE:IFF) . It is, in fact, a global supplier, with 32% of last year’s sales derived from Europe, 27% out of Asia, 25% contributed by North America, and 16% Latin America.

What I immediately recognized about this entity was its solid rate of profit growth, including during the March quarter, when share earnings rose to $1.10 from $0.99. A quick review finds that the increase was mostly attributable to its fragrances business line, and much of that stemmed from cost containment. In fact, segment earnings climbed 22% year-over-year.

This company is noteworthy for strong product (gross) margins within its industry, and this metric appears to be on the upturn further. In terms of cash use, its investments in emerging market expansion, mostly Asia of late, are evident and bearing fruit. Specifically, fragrance sales from such regions increased 18% in the March quarter.

The shares are trading at a 16.4 forward P/E, based on guidance that should hold firm when the company reports earnings on August 6. As a top company in the end markets it serves, the stock is advised as a good long-term portfolio selection.

A food additive company with turnaround potential

After a record sales and earnings year in 2012, Sensient Technologies Corporation (NYSE:SXT) is likely on pace to again top previous-year results. The major theme among chemical makers I like has been better-than industry average gross margins, and expansion of that measure. Sensient Technologies Corporation (NYSE:SXT) is no exception, as it is benefiting from a higher-profit merchandise mix in both its food and non-food colors business.