This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

September 17, 2010 - Quaker Chemical (KWR-NYSE) develops, produces, and markets formulated chemical specialty products for various heavy industrial and manufacturing applications. It also offers and markets chemical management services (CMS).

It also offers forming compounds used to facilitate the drawing and extrusion of metal products; hydraulic fluids, used by steel, metalworking, and other customers to operate hydraulically activated equipment; and technology for the removal of hydrogen sulfide in various industrial applications. In addition, the company makes chemical milling maskants for the aerospace industry, and temporary and permanent coatings for metal and concrete products; construction products, such as flexible sealants and protective coatings for various applications; and programs to provide CMS.

It sells to the steel, automotive, mining, aerospace, tube and pipe, coatings, and construction materials industries, directly and through its CMS programs, as well as through value-added resellers and agents. The company was founded in 1918 and is headquartered in Conshohocken, Pennsylvania.

KWR's stock price took a tumble in early 2009, as did most stocks. It bottomed at $4.60 a share. The world seemed like it would end. But it didn't. Neither did KWR. It rallied back rather quickly by the end of the year, stabilized for a while, then moved higher again. Recently it reached an all-time high of $38.16 (on August 3, 2010). Over the last 52 weeks, the price is up 46.53%, much better than the 5.27% recorded by th S&P 500 index in the same time. Can it keep going?

Since earnings are the fuel for any stock rocket, this one seems to have a good chance. This year, expect $2.95, more than double the $1.47 made in 2009 (which was up from $1.05 in 2008). Next year, look for $3.10. Third quarter results should be out next month with expectations for 66 cents a share compared to 45 cents in last year's third period. For the past 4 quarters the company has beaten analysts' forecasts by a large margin. The positive surprises were: 48.60%; 91.90%; 128.10%; and $48.10% respectively. If it can keep that up, there's no reason the stock price won't see higher numbers.

Second quarter was strong with better demand from emerging markets as the global economy begins to recover. The second half's earnings, however, will be negatively affected by manufacturing plant start-up costs and higher raw materials prices. Margins will be narrower until prices can be hiked to reflect increased costs.

Quaker is tied to the global economy, affected by each country's economic developments. For example, in Brazil and several European countries, tax incentives to buy new cars have ceased. That impacts the company's Metalworking Processing Chemicals division. That event, plus lower steel production in other markets, will decrease demand for many of KWR's products. This is a company that will thrive once real economic advances are evident.

More numbers: Trailing P/E is 24. Price to Sales ratio is .72. Price to book is 2.32. Book value is $14.25. Operating margin for the last 12 months was 9.50%. Profit margin was 6.13%. Return on equity was strong at 21.54%. Return on assets was 7.87%. Revenues were $515 million. Total cash is $27.61 million for $2.45 a share. Total debt is $66.23 million. Debt to equity is .41. Current ratio is 2.07. Beta is a very high 2.90. 52-week low was $16.14 on February 5, 2010. There are only 11.26 million shares outstanding with a Float of 10.44 million. Insiders own 6.34% of the stock. Institutions have 63.80% of the Float. There is an annual dividend of 94 cents, up from 92 cents last year and 91 cents the year before that. It takes 33% of earnings to pay the divdend. The yield is 2.90%.

Aggressive investors will find a lot to like in KWR. But there are some caveats: some valuations are high (price to book) while others are reasonable (Forward P/E). The loss of tax incentives in some European countries and Brazil may have longer lasting negative consequences. Steel production is slowing. On the bright side are the earnings, the high Return on Equity, and solid prospects once the global economy fully recovers. Just remember: with a Beta of 2.90, you'll want to fasten your seat belts if you put this stock in your portfolio.

- Company Web site: www.quakerchem.com

- Ted Allrich