GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

High Trade Volume, and Gurus’ 2013 Preferred Stock

April 21, 2014 | About:

At the beginning of April, the trade alarm for Sigma-Aldrich (SIAL) set off due to a larger seller coming together with the buyers to raise a posted offer. The phenomena pushed up stock face value, however unable to continue the previous trend. Hence, stock value has been on a decline since the month of March. Reasoning about the sources for the stagnation, will give potential investors important insight for a current or future investment. Given the nature of the firm, close attention should be paid to research and development. But, most importantly, to the business model as a whole and market environment. Looking at recent full year reports can also offer important information about specific performance indicators. In the middle, there is an important number of new positions consolidated by gurus through 2013, who would like to see new investors enter the business.

A Questioned Present

Sigma-Aldrich reported for fiscal year 2013 another year of strong performance with record sales, profits and free cash flow. Another important information presented by the report is the implementation of a major realignment of the company into three market-facing business units focused on the unique needs of Research Laboratory customers (Research BU), Diagnostic and Industrial customers (Applied BU), and Pharma and Electronics manufacturers (SAFC Commercial BU). In between the strong performance and model alignment lies the stagnant performance.

Part of the realignment for Sigma-Aldrich implied changes at managerial level and the introduction of new products. Darryl Goss has been promoted the past February as President of SAFC Hitech, the company’s manufacturer of specialty chemicals and biologics for commercial life science applications. Also, the firm announced the launching of the genetically-modified HepaRG human liver cell line, and introduced four new Certified Spiking Solutions of the corticosteroids pregnenolone, 17alpha-hydroxypregnenolone, cortisone, and 11-deoxycorticosterone at concentrations of 100 ug/mL in methanol.

Most importantly for Sigma-Aldrich, new partnerships in order to distribute metals, alloys, and ceramics. The firm reached an agreement with Goodfellow Cambridge, Ltd., a leading international supplier of metals and materials for research and industry. "The addition of the Goodfellow portfolio expands Sigma-Aldrich's robust family of products for engineers and materials scientists. These products complement our current metals and ceramics offering and are aligned with our strategic focus areas," Bryce P. Nelson, Initiative Lead for Aldrich Materials Science said.

Looking Ahead

Sigma-Aldrich reported to be confident in the ability to deliver solid earnings growth. At the same time, the company identifies the development of new market tendencies. A more stable funding environment for U.S. academic and government institutions as the year progresses, improves the conditions of important end markets for the firm. Most importantly, growth opportunities were identified thanks to a strong product portfolio and longstanding relationships with more than a million customers.

The new opportunities for Sigma-Aldrich have elicited significant investments in sales, marketing and R&D initiatives are creating demand for its products. Also, the company has leveraged its SAFC business through the revitalization of core product lines, and widening of product offerings through acquisitions and licensing arrangements. Additionally, has extended the partnership with Sangamo Biosciences and continues to search for new acquisitions. The restructuring engaged by the firm entails a new retirement program to adjust costs and capacity.

Currently trading at 23.2 times its trailing earnings, Sigma-Aldrich carries a 37% premium to the industry average. Also, revenue growth during the last three years has fallen behind most peers. Nonetheless, operating margin remains high while debt level is acceptable.

Donald Yacktman (Trades, Portfolio) is the most important guru behind the stock. Besides his personal holding, the Yacktman Fund (Trades, Portfolio) and Yacktman Focused Fund (Trades, Portfolio) have acquired the stock during 2013, and converted themselves into the largest shareholders. But purchasing the stock at this time is not recommended given the changing market environment and small dividend.

Disclosure: Vanina Egea holds no position in any of the mentioned stocks.

About the author:

Vanina Egea
A fundamental analyst at Lone Tree Analytics

Visit Vanina Egea's Website


Rating: 5.0/5 (1 vote)

Voters:

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide