Four Ways to Play the “New Gold Rush” in Materials- Money Morning

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Who would have thought that the new gold rush would be in material sciences?

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We’re talking about everything from rare earths that drive precision lasers to the cobalt needed for rechargeable batteries

Not to mention the advanced materials that make computer chips run faster. Or the “smart” materials that are driving the nanotech revolution.

Of course the big news in what I call the Golden Age of Materials Science came less than nine years ago when two scientists discovered graphene.

It’s a revolutionary material that will yield flat-screen TVs as thin as Saran Wrap, nanotech supercomputers, and neural implants that combat brain disease. No wonder the two scientists who discovered it won the Nobel Prize.

Now hundreds of scientists have hit the lab to look for new ways to tweak existing molecules — or create whole new synthetic substances. They’ve already produced a steady stream of breakthroughs.

Today, I want to show you four ways you can profit from all of this radical change.

For most investors, that will mean focusing on the specialty chemicals sector, which is up about 22% in the past six months. That’s more than double the market’s overall move over the same the period.

Here are four material sciences stocks that have caught my eye thanks to their strong fundamentals and solid charts:

New Materials Play No. 1: PolyOne Corp. (NYSE:POL)

Not only is this mid-cap leader on the cutting edge of high-tech materials, it has a rich history as well. The firm cut its teeth on plastics during the industry’s dawn in the 1920s.

After lagging the market for much of the past decade, PolyOne is in the midst of a major turnaround. It has installed new management, sold off non-strategic assets and charted a new growth strategy.

Today, PolyOne boasts some 10,000 global customers who can chose from among 35,000 products. PolyOne covers such sectors as electronics, health care, heavy industry, automotive, and aerospace.

And the story of the “New PolyOne” certainly has excited investors. With a market cap of $1.9 billion, the stock is up some 50% in the past six months, roughly double the return of the sector as a whole.

Even better: the specialty chemicals company says it expects to expand sales by nearly 75% in the next four years to about $5 billion.

New Materials Play No. 2: OM Group Inc. (NYSE:OMG)

As much as any firm in the space, OM Group has worked hard to meet our changing material needs.

Indeed, back in 2007, the firm dumped a big play in basic resources when it sold off its nickel business. Since then, OMG has acquired firms that have given the company new entries in batteries, magnetics, and electronics.

As a result, OMG is profiting from the electronics revolution sweeping the world in the form of music players, smart phones and game consoles. That same wave also is lifting sales of materials for the rechargeable batteries needed to drive the devices.

OMG has a diverse list of clients. It serves 4,000 customers in 50 industries. It still ranks as the global leader in cobalt specialty materials, which the auto industry increasingly needs to make electric cars.

In all, its advanced materials units serve 15 markets. These include everything from printed circuit boards to diamond tools to synthetic fibers and thermal sprays.

Recently trading at around $27, OMG has a market cap of about $875 million. It sells at just 0.48 times sales and just 0.66 times book value. Over the past six months, the stock has gained nearly 75%.

Materials Play No. 3: Eastman Chemical Co. (NYSE:EMN)

If the name sounds familiar, it should. This global leader is a former unit of the bankrupt film firm Eastman Kodak. But the big-cap chemical company’s future is much brighter–it is a cash machine.

And despite what may be a weak fourth quarter, the firm expects to go on a future earnings tear. On a per-share basis, the firm expects earnings to rise to about $8 by 2015, a roughly 50% increase in three years.

Meantime, the chemical goods company took a much higher profile about a year ago when it agreed to buy the specialty firm Solutia Inc. Among other things, Solutia makes materials that protect thin-film solar panels against damage, and that reduces glare and improves the performance of computer touch screens.

With a market cap of roughly $11 billion, the stock trades at about $71 a share with a return on equity of 22.5%. The stock is up nearly 42% over the past six months and has an annual dividend of $1.20, which has increased three times in the last two years.

New Materials Play No. 4: Hexcel Corp. (NYSE:HXL)

Of the all the stocks screened for this report, Hexcel is the only one not in the specialty chemicals sector.

Instead, this mid-cap firm specializes in composite materials. In particular, Hexcel is known for carbon-fiber products as well as its unique “honeycomb” design that provides high strength with little added weight.

Hexcel is a favored supplier to the aerospace industry. Its honeycomb products provide acoustic damping for engines so that jetliners can take off and land with reduced noise, but no added weight. The firm’s products also are used in helicopters, satellites and military aircraft.

The company is picking up business from the emerging wind power industry, where it ranks as a world leader in materials for the crucial turbine blades. And you’ll find Hexcel products used by car makers, ship builders and oil exploration firms.

With a market cap of $2.7 billion, the stock trades at around $27.50 with a PEG ratio of just 1.2. The company expects only modest growth this year. That may explain why its stock lags those of the specialty chemical sector over the past six months, racking up returns of about 10%.

Let me close by noting the pace of innovation will only get faster in what I call the Era of Radical Change.

Just two weeks ago, I learned of three materials breakthroughs involving nantotech, solar power and spill-proof clothing. There’s plenty more where those came from.

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