At first glance, it probably seems fair that OM Group (NYSE:OMG) is trading at a low valuation. The company's cobalt business has seen significant price erosion in cobalt, the battery business is heavily weighted towards defense and aerospace, the electronics/chip business is terrible and the company doesn't seem to know what it wants to be.

Despite all of this, the company has good positions in growth markets, a well-respected new CFO and a relatively clean balance sheet. It is by no means the safest stock in the market today, but if OM Group can exercise on its apparent vision of becoming a leading player in multiple specialty chemical markets, the stock is too cheap today. (For more, see Earning Forecasts: A Primer.)

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Electronics and Cobalt Not Helping
OM Group has the misfortune of being positioned in multiple markets that, quite frankly, are not doing well at all right now. The company has been on a multi-year plan of diversifying away from cobalt, but cobalt is still a significant driver of performance. To that end, cobalt prices are down about 13% from the third quarter, as there is not so much demand today in alloy markets like stainless steel or batteries.

Electronics, too, are no help. The company bought into the electronics chemicals industry with the hopes of taking advantage of the long-term growth in technology, but OM Group has not really elbowed aside The Dow Chemical's (NYSE:DOW) Rohm and Haas, Solutia (NYSE:SOA), or Albemarle (NYSE:ALB). What's worse, semiconductor orders plunged in 2011, as did pricing and demand in wind power and solar power.

Can VAC Suck it Up?
It is still very early in the story, but OM Group's acquisition of VAC is looking like a good move. This sizable deal moves the company further into specialty materials and margins have been solid as new products hit the market. Unfortunately, this is a Europe-heavy business and nobody is feeling especially chipper about Europe-heavy businesses right now. Although Germany's auto industry is doing relatively well (and that's a sizable market for VAC), how long will that hold up if Europe slides closer to recession?

Batteries - Potential, but Much to Prove
One of OM Group's relatively longer-term growth strategies has been to expand its batteries business, both in components and actual batteries. Unfortunately, the company's battery business today is heavily weighted to the defense and aerospace industry. Although commercial aerospace concerns like The Boeing (NYSE:BA) and United Technologies (NYSE:UTX) are looking good, the defense exposure is a worry. OM Group has aspirations to grow and expand into markets like medical batteries, but companies like Medtronic (NYSE:MDT) and Baxter International (NYSE:BAX) are demanding clients with long development cycles and entrenched players like Greatbatch (NYSE:GB) will not be displaced easily.

The Bottom Line
Investors have ample choice when it comes to commodity product companies trading at low multiples. What OM Group has on a company like Alcoa (NYSE:AA) or Rio Tinto (NYSE:RIO), though, is the opportunity to reposition its business into specialty markets that are less commodity sensitive. That transition doesn't come without risks; witness the relative lack of success the company has had, thus far, from its expansion into electronics chemicals.

Commodity companies often trade at a multiple of 5x to 7x forward EBTIDA. At the low end of that range, OM Group stock should be worth something in the low $30s, a pretty compelling price if things go right. Certainly OM Group needs to see better markets in electronics, steel, autos and renewable energy, but if late 2011/early 2012 represents the bottoms for those sectors, OM Group could be an interesting stock before long. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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