The "New Gold Rush" in Materials

02/04/2013 11:00 am EST


High-tech materials are leading the way to a revolution in technology advancements, says Michael A. Robinson of Money Morning.

Who would have thought that the new gold rush would be in material sciences?
We're talking about everything from rare earths that drive precision lasers to the cobalt needed for rechargeable batteries. Not to mention the advanced materials that make computer chips run faster. Or the "smart" materials that are driving the nanotech revolution.
Of course, the big news in what I call the Golden Age of Materials Science came less than nine years ago, when two scientists discovered graphene. It's a revolutionary material that will yield flat-screen TVs as thin as Saran Wrap, nanotech supercomputers, and neural implants that combat brain disease. No wonder the two scientists who discovered it won the Nobel Prize.
Now, hundreds of scientists have hit the lab to look for new ways to tweak existing molecules—or create whole new synthetic substances. They've already produced a steady stream of breakthroughs.

Today, I want to show you how you can profit from all of this radical change. For most investors, that will mean focusing on the specialty chemicals sector, which is up about 22% in the past six months. That's more than double the market's overall move over the same time period.
Here are a couple of material sciences stocks that have caught my eye thanks to their strong fundamentals and solid charts:
Not only is mid-cap leader PolyOne (POL) on the cutting edge of high-tech materials, it has a rich history as well. The firm cut its teeth on plastics during the industry's dawn in the 1920s.
After lagging the market for much of the past decade, PolyOne is in the midst of a major turnaround. It has installed new management, sold off non-strategic assets, and charted a new growth strategy.
Today, PolyOne boasts some 10,000 global customers who can chose from among 35,000 products. PolyOne covers such sectors as electronics, health care, heavy industry, automotive, and aerospace.

And the story of the "New PolyOne" certainly has excited investors. With a market cap of $1.9 billion, the stock is up some 50% in the past six months, roughly double the return of the sector as a whole. Even better: the specialty chemicals company says it expects to expand sales by nearly 75% in the next four years to about $5 billion.

OM Group
As much as any firm in the space, OM Group (OMG) has worked hard to meet our changing material needs.
Indeed, back in 2007, the firm dumped a big play in basic resources when it sold off its nickel business. Since then, OMG has acquired firms that have given the company new entries in batteries, magnetics, and electronics.
As a result, OMG is profiting from the electronics revolution sweeping the world in the form of music players, smartphones, and game consoles. That same wave also is lifting sales of materials for the rechargeable batteries needed to drive the devices.

OMG has a diverse list of clients. It serves 4,000 customers in 50 industries. It still ranks as the global leader in cobalt specialty materials, which the auto industry increasingly needs to make electric cars.
In all, its advanced materials units serve 15 markets. These include everything from printed circuit boards to diamond tools to synthetic fibers and thermal sprays.
Recently trading at around $27, OMG has a market cap of about $875 million. It sells at just 0.48 times sales and just 0.66 times book value. Over the past six months, the stock has gained nearly 75%.

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