Kronos: Hidden value in titanium dioxide

by Charles Mizrahi, editor Hidden Values Alert

Kronos Worldwide (KRO) is one of the five largest marketers and producers worldwide of titanium dioxide (TiO2) and is the leading producer of the chemical in Europe.

TiO2 is a color enhancer that is used in a variety of different products, which include paint, ink, sunscreen and plastics. Nearly every item that is white uses this substance to enhance its whiteness.

As Europe’s economy continues to struggle, KRO has recently taken a beating as well— 53% of sales come directly from Europe.

Although the stock is off 33% since we added it to our portfolio in March, we still see a very bright light at the end of the tunnel.

Ti02 is not going away anytime soon: Demand for titanium dioxide has been increasing steadily over the past few years, as companies are feeling the need to evolve and design their products with more enhanced and brighter colors.

KRO revenue hit an all-time high in 01Q12. Even with European economies in tumult, revenue increased 5% from 04Q11.

Europe’s economy is down, but not out: Having the majority of its sales currently coming from Europe is definitely hurting KRO right now.

All the major titanium dioxide producers have experienced a recent decline, which is partially in response to world economic news but is also a result of customers not wanting to build up inventory.

We believe that when Europe begins to rebound, which one day it will, KRO will benefit greatly. TiO2 is becoming more of a necessity in a wide range of products, and there really isn’t a good substitute.

Asia-Pacific represents the fastest-growing market for pigment and dyes worldwide, and with Asia-Pacific making up just 10% of total sales in 2011, KRO plans on penetrating that market even further in 2012.

Company insiders are buying back stock: Insiders currently hold more than 80% of the company’s outstanding shares. During the past twelve  months, insiders have bought over 1.3 million shares and have not sold a single share during the same period.

We think insiders must know something that Mr. Market doesn’t. Insiders have been active each time the stock has dropped to a new low. We certainly wouldn’t want to be on the other side of a trade betting against management.

Selling at an even more attractive price: KRO is becoming even more of a bargain than when we originally recommended it, as the stock is selling for 50% lower than its 52-week high.

Learn more about this financial newsletter at Charles Mizrahi's Hidden Values Alert.

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