This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

September 18, 2008 - Stepan Co. (SCL-NYSE) engages in the production and sale of specialty and intermediate chemicals. The company operates in three segments: Surfactants, Polymers, and Specialty Products. The Surfactants segment offers products that are principal ingredients in consumer and industrial cleaning products, such as detergents for washing clothes, dishes, carpets, floors, and walls, as well as shampoos, lotions, fabric softeners, toothpastes, and cosmetics. Its other applications include biodiesel, germicidal quaternary compounds, lubricating ingredients, emulsifiers for spreading agricultural products, and plastics and composites.

The Specialty Products segment offers flavors, emulsifiers,and solubilizers used in the food and pharmaceutical industries. Stepan Company has operations primarily in the United States, France, and the United Kingdom. The company was founded in 1932 and is headquartered inNorthfield, Illinois.

Earnings were up 138% last year, from 63 cents a share in 2006 to $1.50 in 2007. But they were $1.39 in 2005. So erratic earnings come with this stock. An analyst sees another positive jump to $2.70 for the full year of 2008 (up 80%) and then hitting $3.01 next year. Only one analyst follows the stock.

The advantage this chemical company has is that it produces what's known as consumer non-durables. In other words, consumers buy its products, use them, then buy some more. In this recession economy, earnings should continue to do well. That belief seems to be reflected in the price already.

Many investors have climbed aboard this top-performer, taking it from a low of $27.75 at the beginning of the year to an all-time high of $60.82 recently. When a stock runs that fast, most of the time valuations get stretched.

The P/E (price to earnings) ratio is 21, not bad for a stock expected to show an 80% increase in earnings this year. Next year, however, that progress will slow (if the anlayst is right) to 11.5%. That would seem to be a more "normal" earnings growth. That makes the P/E almost twice the earnings growth rate for next year. But this company has delivered some big earnings suprises (good and bad). However, it might be finally on track to give consistent annual increases.

Some numbers: There's a dividend of $ .84 for a yield of 1.5%. Price to Sales for the previous 12 months was .37 and Price to Book is 2.52. Profit margin was 1.57% while Operating margin was 3.3%. Return on Equity was 10.87%. Revenues were $1.48 billion for the last year. Total debt to equity is .72. Current ratio (current assets divided by current liabilities) is 1.733. Book Value per share is $22.95. There are 9.48 million shares outstanding. Insiders own 26% of the stock. Institutions own 55%.

Stepan Co. was "discovered" at the beginning of this year. For the previous 8 years, it traded within a tight range, with an average price level between $20 and $30 a share. Then it took off, thanks to solid earnings growth. It seems as if the earnings dip in 2006 was an aberration. Aggressive investors may find this stock of interest if it were to get back closer to the high end of its trading range. But it may not make it because of better and better earnings.

- Company Web site: www.stepan.com

- Ted Allrich