Boring Is Beautiful

 | Dec 13, 2011 | 9:11 AM EST
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No one can say the market has lacked excitement this year. Unfortunately, that excitement resulted in a hair-pulling, see-saw market thanks to crisis in Europe.

I've always felt that excitement was the enemy of the value-seeking investor, but the current European financial crisis illustrates my point in a different way.

Even for the active trader, the eurozone has thrown a wrench in any reliable trend pattern. Merely knowing how the market will behave over the next couple of weeks would be worth a goldmine given today's volatility. Amidst that uncertainty, the next best thing is to look at the boring stuff. With all eyes on Europe and how those decisions affect the day-to-day market gyrations, no one is looking at areas that are likely to provide some of the best returns into 2012 and beyond.

You won't hear college graduates or entrepreneurs taking about recycling grease and animal waste and that's perfectly fine with Darling International (DAR), the country's leading provider of recycling and rendering solutions to the food industry. Darling sends trucks over to clients ranging from McDonald's (MCD) to animal processing plants to pick up the used grease and animal byproducts. Darling recycles that waste. Not surprisingly, this dull and dirty business really has no meaningful competitors. The result are numbers that are anything but boring: a ROE of 25% on modest leverage and operating margins near 20%. And Darling is also taking its boring business and turning it into something exciting in the form of a green diesel JV with refining giant Valero (VLO). Shares currently trade for less than 10x forward earnings.

Hauling trash is not really a topic discussed in business school either, which is why the industry is essentially controlled by two key players. The smaller of the two, Republic Services (RSG), is an attractive business trading at $28 a share. Rich or poor, boom or bust, financial crisis or financial stability, trash is produced. Republic currently pays a very attractive 3.2% yield and investors can expect more dividends in the future from such a stable business. 

Balchem (BCPC) is a $1 billion specialty chemical company that nearly everyone relies on without even knowing it. Balchem's products make up a small but vital ingredient in things like pharmaceuticals, medical supplies, and food. Balchem's product helps sterilize medical equipment, prevent food from spoiling and eliminate bacterial contamination. It's a stock that no one talks about, but has outperformed the S&P 500 over a 1-, 3-, 5- and 10-year period. Sales and revenues continue to grow by double digits and the company produces a 25% unlevered return on equity.

In investing, a boring company usually means it has little competition, attractive margins, and consistent growth. That often gives you a stock price that will climb higher for prolonged periods of time amid various economic conditions.

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