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under the radar stocks

Some specialty-chemicals stocks are beyond obscure, especially when the company is small. But one of Ratings' top picks, according to a proprietary mode, is a pint-sized "performance-ingredients producer." The company is often overlooked by investors' interest in Sigma-Aldrich , Ecolab and International Flavors and Fragrances .

New Hampton, N.Y.-based Balchem Corp. makes ingredients and products for the food, feed and medical-sterilization industries. The company closely guards a handful of proprietary technologies relating to micro-encapsulation.

Micro-encapsulation is the layering of nutrients in lipids to achieve maximum absorption. As you can imagine, Balchem operates in little-known -- and little understood -- markets. But the company's focus has yielded stability and pricing power. Although first-quarter revenue declined 7%, net income surged 31% to $6.1 million.

Balchem's balance sheet holds $19 million of cash and just $9.2 million in debt. A quick ratio of 1.82 reflects strong liquidity and a debt-to-equity ratio of 0.08 indicates a sound capital structure. The quarter's profitability metrics were mixed: Return on assets climbed 195 basis points to 13%, and return on equity fell 72 basis points to 17%.

Shares of Balchem have declined 3% in 2009, slightly outperforming the Dow Jones Industrial Average and underperforming the S&P 500 Index. The stock's downside is its cost. At a price-to-earnings ratio of 22, Balchem is 12% more expensive than its average specialty-chemicals peer and 37% more dear than the S&P 500.

The company faces challenges from the global movement toward organic and additive-free foods. However, Balchem is active in research and development, and is poised to capitalize on the growing popularity of probiotics, which are live microorganisms thought to have tremendous health benefits when ingested regularly.

Balchem has recorded earnings growth for nine consecutive quarters. Management expects flat full-year sales and a double-digit increase in profit.