Other options
Albemarle competes with W.R. Grace & Co. (NYSE:GRA), Chevron Corporation (NYSE:CVX) and a few private players in the refinery-catalyst segment.
W.R. Grace & Co. (NYSE:GRA) generates roughly 40% of its revenue through selling catalysts and the remaining 60% from different construction and industrial products, thereby helping it to diversify. So those who are looking to benefit from the growth in the construction and industrial markets in the U.S. might opt for W.R. Grace & Co. (NYSE:GRA) instead of Albemarle Corporation (NYSE:ALB). The company’s diversification was a reason behind its decent performance in the second quarter.
Revenue remained flat but earnings dropped slightly in the previous quarter; but the important fact is that the company is profitable and its diversified business is helping. So it does not come across as a surprise that analysts are expecting W.R. Grace to grow earnings almost 16% next year, giving it a forward P/E of 16 against the trailing P/E of 68, which means that solid growth is expected by analysts.
Chevron Corporation (NYSE:CVX) is an integrated energy company with exploration and refining operations across the globe. Its chemicals business is not big enough to make a dent in its overall performance, but since we are discussing companies that compete with Albemarle on some count, a look at Chevron as an investment is not out of place.
The huge size of the company and a dividend yield of 3.1% make it a solid defensive investment. Also, it is not expensive at current levels as it has a trailing- P/E ratio of 9.5 and is expected to deliver earnings growth in the next five years of 3.4%, according to analyst estimates. This might not look huge but Chevron is a robust defensive investment with a good dividend, a low payout ratio of 27% and terrific operating cash flow.
So it is clear that going for diversified companies like W.R. Grace and Chevron Corporation (NYSE:CVX) over a focused player like Albemarle is a better idea.
Conclusion
Albemarle Corporation (NYSE:ALB) has been struggling and its flat share-price performance this year reflects that fact. It pays a dividend and is buying back shares but with falling revenue and earnings, I would suggest staying away from it.
The article Stay Away From This Specialty Chemicals Company originally appeared on Fool.com and is written by ANUP SINGH.
ANUP SINGH has no position in any stocks mentioned. The Motley Fool recommends Chevron. ANUP is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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