On April 17, Barron's, the major U.S. financial magazine, published a headline that was sure to grab any investor's attention: "OMG: This Stock Has 40 percent Upside." However, in this case, OMG wasn't being used colloquially, rather it is the ticker symbol for OM Group, a provider of specialty chemicals and advanced materials.
What's causing the uproar around OM Group? Barron's indicated that the company recently sold its cobalt metal business, a division that the source says accounted for 27 percent of its sales last year, but had a relatively low margin due to the volatile pricing of the element.
"With the division gone, management is free to focus on its more attractive, higher-margin businesses," Barron's wrote. "As it does, earnings and the shares could rise significantly."
The publication went on to suggest that investors could see this equity rise 40 percent or more in value over the next 12 months. Further supporting this conclusion, Barron's says, is the company's aggressive acquisitions of higher-margin businesses and expertise in growing markets like magnets, batteries and specialty chemicals.
However, it is always a risky proposition to invest in businesses that are undergoing ventures into new markets. While these endeavors could be successful, the difficulty involved in transferring an organization's existing sales and product knowledge may yield bumps along the road, even in the best circumstances.
Still, as this article suggests, the potential for reward from this equity is high.
This doesn't mean investors need to shy away from the potential risk. Instead, they can invest in the portfolio protection services provided by SmartStops. The advanced algorithms that power our analytics engine provide investors with an easy-to-use indicator that helps them determine whether to be long or maintain a protective hedge on a position.
Categories: Stock News