Market Commentary: 1 Stock Soaring No Matter What

You know that feeling when you finally get that red wine stain out of your white shirt? Well, there’s a good chance Stepan Company had a hand in that minor miracle.

Certainly, they might not be a household name, but their chemicals are in a ton of stuff we use every day. And when the market struggled to stay afloat in October, this stock rose against the trend, far outperforming the major market averages.

Key Points

• With factories in 23 countries, Stepan generates 45% of its revenue outside the U.S., providing top line diversification.
• Stepan invests 3% of its revenue in R&D, signifying a commitment to long-term innovation in the specialty chemicals sector.
• Stepan maintains a robust average gross margin of 15%, highlighting its market efficiency.

Family Run Means Skin In the Game

First things first, Stepan isn’t your run-of-the-mill, faceless corporation but rather is a family affair since 1932.

That’s important because family businesses have skin in the game and a tendency to think long-term. They’re not just looking to make a quick buck from a quarterly earnings report but instead are building a legacy.

Stepan’s decades-long track record of steady growth and reliable dividends, currently at 1.98%, speaks volumes about the kind of stability they offer.

Over the last five years, SCL dividends have grown at an average rate of about 7% per year highlighting how serious they are about rewarding loyal shareholders.

Stepan Is A Global Firm

Don’t let Stepan’s American roots mislead you that they are a domestic-only firm. With factories in 23 countries, Stepan is the epitome of an international play. That kind of global reach gives them a safety net during regional economic slumps and opens up a world of growth opportunities.

Almost half—yes, 45%—of their revenue comes from markets outside the U.S. That’s a lot of eggs in a lot of different baskets, making them less vulnerable to any single market’s ups and downs.

Sometimes when firms go global they lack the DNA to innovate but that’s not the case for Stepan. They haven’t rested on their laurels but instead continue to push the envelope by pouring a chunk of their revenue back into R&D every year. It has allocated around 3% of its revenue to R&D. It might not sound like a blockbuster figure, but in the specialty chemicals game, innovation is the name of the game for long-term growth.

Specialization as a Strategy

You might think specialty chemicals sound like a niche market, and you’d be right. But that’s precisely where Stepan shines. By targeting these specific markets, they can demand higher prices and fatter profit margins. It’s like being a big fish in a small pond, and it works.

Over the past half-decade, Stepan has maintained an average gross margin of around 15%. That’s not just stable but rather it’s a sign of a company that knows how to squeeze the most out of its specialty areas.

Final Thoughts

Stepan Company offers the kind of balanced investment profile that’s a rare find these days, featuring rock-solid family governance, global diversification, and an eye for innovation. It’s also vastly outperformed the market recently, suggesting investors are eyeing it as a safe haven in a time of peril.

With a half century track record of raising its dividend, Stepan might be just the right opportunity for investors looking to park capital with confidence it will hold its value and likely rise in the medium to long-term.