This Small Stock a Winner in a Losing Economy

It’s difficult for anyone to get excited about a business when you’ve got signs of economic contraction happening all over the place. This is why I like a business that’s got its hands in a number of well-established, more stable industries.

There’s a very interesting company based in Lake Success, New York (now that’s a great name) that operates a number of businesses that seem to be fairly recession-resistant. The company’s revenue base is quite diverse and no customer or product accounts for more than 10% of total revenues.

Aceto Corporation (NASDAQ/ACET) is a small company that’s been around for a long time, sourcing and distributing pharmaceuticals, biopharmaceuticals, specialty chemicals and crop protection products.

With a presence in 10 countries, Aceto distributes over 1,000 pharmaceuticals and chemicals used principally as raw materials in the pharmaceutical, agricultural, color, surface coating/ink and general chemical consuming industries.

The company’s Health Sciences operations include selling active ingredients for generic pharmaceuticals, diagnostics, vitamins, nutritional supplements, and Aceto branded vaccines for companion animals. The company’s Chemicals & Colorants business sells a variety of specialty chemicals used in plastics, resins, adhesives, coatings, food, flavor additives, fragrances, cosmetics, metal finishing, electronics, air-conditioning systems and many other areas. Finally, Aceto’s Crop Protection business includes the selling of herbicides, fungicides and insecticides.

In its latest financial report, the company’s diversified businesses came through with solid growth.

In its fiscal first quarter ended September 30, 2008, Aceto’s total sales grew to almost ninety-four million dollars, representing an increase of 18% over sales of seventy-nine and a half million generated in the same quarter last year.

Net income grew a substantial 252% to $4.6 million, or $0.18 per diluted share, up from net income of $1.3 million, or $0.05 per diluted share, generated in the same quarter last year.

The company reported that its Health Sciences business grew 21% in the latest quarter, while sales of Chemicals & Colorants grew 19%. Sales of Crop Protection products dropped 23% due to decreased sales of sprout inhibitor products, which are used on potato crops.

Aceto finished its first fiscal quarter of 2009 with working capital of just over one hundred and thirty-one million dollars and no long-term bank debt.

In my mind, it’s great to see a business that’s growing in an economy that’s generally contracting. It’s also great to see a business selling “real” products that are in demand from customers. This company is still too small, but I think a Warren-Buffett-type of investor would just love to buy this business outright. You never know.