Raring to Shake Off the Trading Range

 | Jul 03, 2013 | 9:00 AM EDT
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I'll be heading a little bit off the beaten path today in my search for longer-term investments. There are a couple of names that I just can't shake off my long-term watch list, and I figured it was about time that I started to look at them more seriously.

One of those names is Calgon Carbon (CCC), which deals in activated carbon and ultraviolet technology for purifying water, air, food, beverages and industrial process streams. The company recently bought out Hyde Marine, as well, thus also entering the ballast water treatment market.  

Calgon shares were hot back in 2007 and 2008, but since then the stock has been stuck, with a trading range averaging between $12 and $18 over the past five years. Earlier this year, Calgon enjoyed a strong recovery back to the upper end of that channel, and it did so at a rather rapid pace. This tells me something is afoot.

Calgon Carbon (CCC) -- Monthly

Calgon again entered corrective mode in March, and I don't think it's quite done yet. The stock could easily pull back to $15, or even a bit further, before it manages get to get back up on its feet again. That is why I've held off writing about it for so long. Yes, the rally into 2013 was beautiful, but the stock needs a chance to catch its breath. How it manages to do so will determine whether I end up purchasing it for my portfolio.

There are also some concerns from a fundamental perspective. First-quarter revenue shrank 1.1%, but Calgon also saw 8.7% growth in accounts receivable, or money owed to the company -- as well as an extended days sales outstanding figure, or days' worth of sales due to it. A number of things can shift this balance as a company tries to make sure it looks good ahead of earnings. However, such a shift raises the risk that the firm will be unable to sustain posted numbers, and that it will face revenue shortfalls in the near term. At the same time, Calgon has been growing its raw-materials inventory. Does this mean it anticipates heightened demand?

This aside, Calgon Carbon has stepped up its role to become a leader in the removal of mercury from water supplies. As environmental standards tighten, Calgon is in the right industry as the world's largest activated carbon company focused on municipal water purification.

However, here are a few things to keep in mind when you're considering this stock. First, it is highly susceptible to currency fluctuations, and it relies on economic health to fuel investments in its technology. Environmental concerns typically take a back seat to budgetary concerns. Another question is whether Calgon can really step up to the plate in its sector, or if the competition will prove to be too great. There are many regional players in the activated carbon market, and competition is also tight for ballast water treatment systems, where at least 20 other options are available.

Nevertheless, Calgon's acquisition of Hyde gives it one of the strongest track records in the industry. Furthermore, on the air pollution side of the business, Calgon's methods are currently the most effective and it stands out as a true leader.

Calgon Carbon also remains intriguing from a technical standpoint, and I will be paying close attention to the stock over the next several quarters. When we see a premature breakout attempt like what took place earlier this year on the monthly time frame, it is very common to see the stock try for a "real" break after it retraces back into the congestion -- and this is where Calgon currently stands. I'm not yet fully convinced, but I am interested.

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