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Get paid a solid dividend while waiting for catalysts to arrive. Pick Update on Rockwood Holdings



January 19, 2013 – Comments (0) | RELATED TICKERS: ROC.DL

Whenever possible I try to provide updates on my stock ideas, particularly he ones that I personally own with real money.  Today I am revisiting a stock that I bought in real life and in CAPS back in November, Rockwood Holdings.  Hmmmm, I thought that it was longer ago than that, but that's when it was.  Since that date ROC is up a tad under 14% versus a 2.75% gain in the S&P, not too shabby.  And that doesn't even include the 2.6% dividend.  At the time of the pick, I had the following to say about the company:

"This is one of Alex Roeper's ideas from the Value Investing Congres. Lithium, a key battery component, is one of this cheap specialty chemical company's products. It will benefit as manufacturers introduce more hybrid vehicles.

Furthermore, he claims that the stock trades largely based on fluctuations in the Titanium Dioxide market, despite the fact that it only accounts for 15% of Rockwood's business. Rockwood actually plans to spin-off the TiO2. This move will help to lower its debt and cedouple it from the swings in the price of this commodity." 

I believe that one of my favorite investors to follow, Meryl Witmer's of Eagle Capital Partners is bullish on the stock as well.  

When I purchased ROC, the company was in the process of making a significant acquisition, Talison Lithium.  I viewed this move as a positive because I see lithium as a growth market with increased usage in batteries going forward.  Fast forward to November and another company swooped in and outbid Rockwood for Talison.  At the time, I was disappointed that the deal wasn't going through.  Interestingly, as more often than one would think is the case this negative actually turned out to be a positive. 

Rockwood just made its Investor's Day presentation last week and the market absolutely loved it.  I think that ROC was up over 5% on Friday.  Rockwood decided to take the money that it had earmarked for the acquisition and use it to make a major share repurchase.  Here's what the Credit Suisse analyst, John McNulty, had to say about the company after the recent presentation:

"Catalysts—We believe there are two major catalysts likely for investors in 2013: 1) we expect ROC’s $400 mil share repurchase program (~9-10% of market cap) to be an accelerated program that may be completed by as early as March, and 2) mgmt. indicated that they are committed to separating ROC from the TiO2 business in 2013—while we don’t expect much value for this business, given its drag on the core ROC multiple, regardless of the method (sale or spin-off) this “separation” should drive the stock higher." 

Did you see the magic not please as the Dad in me would say..."Catalysts". As an investor, that word music to my ears (or eyes I suppose that I should say since no one is reading this stuff out loud to me).  It looks like the company's management is on tract to spin-off the crummy Titanium Dioxide business some time this year.  I say good riddance, I've seen people trying to make money in that chemical sub-sector for years now in companies like Tronox without much success.  The sooner TO2 is gone from OC, the sooner it will likely see multiple expansion.

I continue to own Rockwood in real life and in CAPS as I collect its old dividend and wait for additional catalysts to materialize.  Just how I like it. 

Thanks for reading everyone. I hope that you're all having great weekends. 


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