Some stocks just have the right chemistry to be great long-term holds. FMC is one of them.
FMC Corp. (NYSE:FMC) is a $7 billion diversified chemical-manufacturing company serving the agricultural, specialty chemical and industrial markets.
It was founded over a century ago in California by John Bean to specialize in spraying insecticide on fruit orchards that were being ravaged in the area. Bean invented a spray pump to deliver the chemicals, the first of many innovative solutions he created for his customers.
In its early days FMC was primarily focused on machinery and devices, but in 1943 it entered the chemical business with the acquisition of Niagara Sprayer & Chemical. Five years later the company changed its name to Food Machinery & Chemical (FMC), after its largest acquisition to date, Westvaco Chemical Company. FMC quickly became a major insecticide and pesticide manufacturer, both through organic growth and the acquisition of several regional peers.
If the name rings a bell, you may be one of the well-informed investors who has read one of the greatest finance books of all time, Common Stocks and Uncommon Profits, published in 1958, which featured a long analysis of the stock. (The author of this classic was Philip A. Fisher, who was one of Warren Buffett’s inspirations. Known as the father of growth investing, Fisher was also the father of Kenneth Fisher, the Forbes columnist and billionaire fund manager.)
FMC expanded rapidly, not just in agricultural chemicals but also in the consumer and industrial sectors. By the 1960s, it was involved in lawn-and-garden equipment, cranes, excavators, and marine and rail equipment.
Now headquartered in Philadelphia, FMC employs 5,000 people around the world and generates $3 billion a year in sales. Its ag-products division, generating 40% of revenue, provides crop protection and pest control with a wide portfolio of products. Latin America is its fastest-growing market, but FMC was able to generate sales growth in all geographic regions last year.
Meanwhile, FMC’s specialty-chemicals group is the leading producer of a number of chemical compounds, specializing in lithium. The industrial-chemicals group is the world’s leading supplier of persulfate products and produces more hydrogen peroxide than anyone else in the country.
These three segments reach across many sectors, including food and agriculture, pharmaceutical, health care, paper, textile, glass and ceramics, rubber and plastics and lubricants. To borrow the old slogan of one of FMC’s peers, BASF (PINK:BASFY), the company doesn’t make a lot of the products you buy — it makes a lot of the products you buy better.
What really differentiates FMC is its focus on what it calls rapidly developing economies, or RDEs. The company is focused on faster-growing agriculture, food, pharmaceutical and energy-storage segments in Asia and Latin America, where 46% of its revenues are generated. Execs expects those markets to be 50% of sales by 2015.
To help focus its efforts on chemicals, FMC spun off its energy, airport and food-equipment businesses as FMC Technologies (NYSE:FTI) in 2001.
The company is headed by Chief Executive Pierre Brondeau, who arrived in 2010 after serving in the same role at Dow Chemical (NYSE:DOW). Prior to that, he was at Rohm and Haas for 20 years before Dow acquired it. He has led major manufacturing-cost reductions and product-line innovations, which has helped the the company expand its operating margins.
Despite the shaky global economic environment over the past five years, FMC has delivered 23% earnings growth annually, including a 44% jump just in the last quarter. Shares are trading at 14x next year’s earnings, nearly in line with the S&P 500 but with much higher growth expectations. Shares are up 25% already this year but are still valued slightly below the company’s historical average of the past few years.
FMC looks like a great long-term hold now, which was the same judgment Phil Fisher made in the mid-1950s. Presumably it will still be a good idea 60 years from now.