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You Can Get This Chemical Stock Cheaper Than Its Insider

Albemarle Corporation (NYSE:ALB)’s stock has not performed well over the last three months, down about 15% versus the S&P 500’s 5%. The company’s 10-Q, released last week, did little to change the stock’s fortunes as Albemarle, a specialty chemicals company with polymer, catalyst, and fine chemistry divisions, beat earnings estimates by only a penny per share. Revenue and earnings were substantially down compared to the second quarter of 2011, and the same is true if investors look at the first half of 2012 against the same period in the previous year.

James O’Brien, a member of Albemarle’s Board of Directors, purchased a little over 1,000 shares this past month at an average price of $57.19. Albemarle is currently trading between $55 and $55.50, so O’Brien has lost a slight amount of ground on his position. If investors think that this insider purchase signifies confidence in the company, as insiders would generally prefer to diversify their investments unless they honestly believe that the company’s stock is a good value. O’Brien, in addition to being on Albemarle’s Board, is the CEO of chemicals company Ashland (NYSE:ASH) and sold a number of shares in that company earlier this month through a 10b5-1 trading plan. Perhaps O’Brien believes that Albemarle is better positioned than Ashland to benefit from developments in the chemicals area, though his purchase does not seem to be a particularly large position for him.

Andreas Halvorsen

O’Brien’s buy comes off of disappointing quarterly results. To be specific, quarterly revenue fell 8% from a year ago and much of this change dropped straight to the bottom line. Combined with restructuring charges, earnings were down by two-thirds. The first quarter of 2012 was essentially flat compared to the first quarter of 2011, making the first half results disappointing overall. On a divisional basis, the polymer segment has seen a fall in sales, the catalyst segment has seen flat performance, and the fine chemistry segment has seen growth. That is also the order of the company’s segments from largest to smallest, explaining the overall revenue decrease.

Tiger Cub Andreas Halvorsen’s Viking Global reported 4.1 million shares of Albemarle in its 13F portfolio for the first quarter of 2012, up from the 3.3 million shares the fund had owned at the beginning of the year. Viking Global had first entered the stock in the fourth quarter of 2011 (see what other stocks Halvorsen liked). Thomas Claugus’s GMT Capital was also a major hedge fund holder of the stock with 1.5 million shares owned; GMT is a long-term investor in the stock but has been increasing and reducing its exposure over the last several quarters (look at the rest of GMT Capital’s portfolio’s activity).

Albemarle now trades at a trailing P/E ratio of about 14. Ashland’s trailing earnings ratio is not meaningful due to recent unprofitability, and as a larger business it is more diversified compared to the specialty-chemicals focused Albemarle. Two peers in the specialty chemicals industry are Chemtura (NYSE:CHMT) and W.R. Grace (NYSE:GRA). While GRA’s P/E of 15 is much in line with Albemarle’s, that company is seeing growth in revenue and earnings. Chemtura is seeing low revenue growth and earnings that are up from a very low level a year ago, and has a P/E of 10. Compared to these two peers, we see little reason for investors to put their money behind Albemarle outside of O’Brien’s relatively modest purchase of the stock.

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