Balchem Corp: A Diamond in the Rough

Balchem Corporation (BCPC) is engaged in the development, manufacture and marketing of specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical and medical sterilization industries.

The Company has three segments: specialty products, encapsulated/nutritional products and the unencapsulated feed supplements segment (BCP Ingredients). The Company operates four subsidiaries, all of which are wholly owned: BCP Ingredients, Inc. [BCP], Balchem Minerals Corporation [BMC], BCP St. Gabriel, Inc. (BCP St. Gabriel) and Chelated Minerals Corporation [CMC].

In August 2006, Balchem acquired from BioAdditives, LLC, CMB Additives, LLC and CMB Realty of Louisiana, an animal feed-grade aqueous choline chloride manufacturing facility and related assets located in St. Gabriel, Louisiana. In May 2007, the Company completed acquisition of the European-based choline chloride and methylamines businesses of Akzo Nobel Chemicals S.p.A. in Marano Ticino.

It's a bit difficult to get a good grasp of what this company actually does, but SmallCapInvestor.com recently wrote an outstanding research piece on the company. It does require registration to read the entire article but it's worth it if I've piqued your interested.

FUNDAMENTALS:

Balchem (BCPC) is a diamond in the rough, with the combination a history of strong earnings growth but virtually no Wall St. coverage. That's a good thing for self investors like you and I because once Wall St starts covering it with more analysts, the stock will continue to rise, in my opinion. Over nearly the last decade, this is a company that has posted year over year revenue growth in each and every year.

With the exception of 2003, it has done the same with EPS growth with an average in the 20 - 25% range. That's expected to continue in 2008 with estimates calling for growth of 23%. Margins have been quite good throughout its history, fluctuating between 10 - 13% and well above the industry average. Return on Equity is more impressive at 19% , indicating a strong management team. All in all, this company isn't an exceptional grower but one with exceptional consistency for such a small company.

TECHNICAL:

BPCP is a thin stock, trading just 70K shares a day so it will be prone to higher volatility on a day to day basis. Over the long term though, this is a stock that has been in a steady uptrend for several years now, dating back to early 1999. In that time, the stock has soared from just 1.50 a share to its current levels above 20. Wow!

Taking a look at the daily chart below, you see that the stock broke out to a new all time high in December.. .then the market sell off hit and BCPC was far from immune. It brought the stock back all the way to its long term upward trend line where once again (as it has for the past 9 years) found support and is again chugging right along.
On Wednesday it surged again off that 200 day moving average with very heavy volume. It probably goes on to form a new base from this point point forward but I'd be looking to add shares on any pull back from here as close to support levels as possible. This is the kind of stock that is good for scaling into. Adding small positions on pull backs. Then, should the market get going again and the stock breaks out from a new base, you can add shares their as well with a nice profit cushion in the bag.

Full Disclosure/Disclaimer: I currently do not own a position in Balchem (BCPC).