OM Group (OMG) is another one of those "blast from the past" stocks for me. I have owned this own profitably more than once, with multiple opportunities to buy and sell provided largely by the historical volatility in the company's cobalt operations.
Today OM Group is a very different company. The volatile cobalt operations are gone, and the company is focused specialty chemicals and materials company with good global share in specialty batteries and magnets. Better still, OM Group has a clean balance sheet and is still of a size where small strategic acquisitions can make a real difference.
OM Group is not the cheapest stock out there, having risen almost 80% over the past year on Wall Street's enthusiasm for the evolution towards a cobalt-free specialty chemicals/materials company. Although I do believe weakness in Europe (a major market for the magnetic technologies business), electronics, and defense could be challenges for a couple of quarters, and the shares are not cheap enough to be an enthusiastic buy, this is a stock worth some due diligence today and a spot on watch lists.
The Selling Part Of The Transformation Is Done...
While I do not believe OM Group's cobalt-centric Advanced Materials business was a bad business per se, it was definitely volatile and it had transformed into more of a commodity-like business. Seeing it as an obstacle to both sustainable long-term growth and a better valuation, management made the decision to divest this business.
OM Group found a buyer in a joint venture formed by Freeport McMoRan (FCX) and Lundin Mining (LUNCF.PK). Looking at the price, the company didn't get the greatest deal - OM Group got $325 million upfront and up to $110 million in future milestones, or about 4x the average of the trailing three years' adjusted EBITDA - but it was likely the best deal
