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Specialty chemicals should be among the first industries to see a slowdown- if one is coming. OM Group, Inc. recently reported second quarter results and continues to see strong product demand across various end markets. This Zacks #1 Rank (strong buy) is a value stock, with a P/S ratio of 0.8.

OM Group manufactures specialty chemicals and advanced materials for industrial processes. Headquartered in Cleveland, with manufacturing facilities worldwide, its customers are in various industries including rechargeable batteries, electronic devices, cutting tools, industrial coatings, defense, aerospace and medical devices.

OM Group has 3 business units: Battery Technologies, Advanced Materials and Specialty Chemicals. It specializes in cobalt-based specialty chemicals and is a major supplier of nickel-based specialty chemicals.

Sales Rose 9% in the Second Quarter

On Aug 4, OM Group reported its second quarter results and saw sales rise 9% to $329.5 million. All 3 segments saw sales growth as volume offset unfavorable price and mix.

Advanced Materials jumped 10% to $165.2 million as volumes climbed 20% on strong, double-digit growth in all end markets.

Specialty Chemicals jumped 3% to $128.7 million as semiconductor volumes improved. However, the segment still saw the effects of the Japan supply interruptions as printed circuit board and memory disk softened.

Battery Technologies climbed 26% to $35.8 million on increased demand in all end markets.

The company actually missed on the Zacks Consensus Estimate for the first time in the last 4 quarters. Earnings per share were 74 cents compared to the consensus of 77 cents.

Outlook for 2011

The company recently closed on the VAC acquisition which is expected to add $250 million to $300 million in revenue in 2011.

It expects the secular macro trends of investment into affordable energy and the proliferation of portable power to continue to drive growth.

With the addition of VAC it sees its outlook as "even brighter".

2011 Zacks Consensus Estimate Moves Higher

Despite the earnings miss, analysts still liked what they heard. The 2011 Zacks Consensus rose to $3.19 from $3.16 in the last month.

That is earnings growth of 11% from 2010 when the company made just $2.88.

OM Group Is a Value Stock

Shares fell sharply in the recent stock market sell off which has made OM Group even cheaper.

In addition to a P/S ratio under 1.0, which indicates a company is undervalued, OM Group trades with a forward P/E of just 10x.

It also has a price-to-book of only 0.7, which is well below the 3.0 cut off I use for value stocks.

OM Group isn't yet signaling that a recession is coming yet investors sold off the shares in August on fears of a slowdown. That has just created an even more compelling value stock story.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.

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