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Omnova solutions (NYSE: OMN) Essential to Builders, ride it with the housing Recovery

Small to mid-cap growth stocks are the best investment in a precarious environment when the entry point is right. Smaller cap stocks generally provide a better return for investors as they tend to be much more sensitive to market fluctuations. When dealing with temporary macroeconomic situations that bring down the overall market such as the fiscal cliff and the debt ceiling, investors need to find those stocks that offer the most bang for their buck. Small cap companies with rock solid balance sheets and good products are by far the most attractive securities. Those companies will little debt and an intriguing service or product line are appealing as they offer long-term growth for investors willing to hold.

These companies tend to be referred to as hidden gems or treasure that has yet to be discovered. Lately any stock tied to the housing market has been lifted as a recovery has slowly begun, and those companies who provide the sector have been benefitting. One company that provides products that are essential to builders, business and residential housing is Omnova Solutions. Omnova Solutions (NYSE: OMN) provides emulsion polymers, specialty chemicals, and surfaces for commercial, industrial, and residential customers worldwide. The small specialty chemical company, which has around a $323 million market cap, has strong cash flow and solid operations, and owns plants that are difficult and expensive to replicate. The company operates in two segments, performance chemicals and decorative products.

There are some heavyweights behind the stock as fund manager Mario Gabelli recently increased their stake in the company from 4.5% to 6.6%. Also, Hotchikis and Wiley High Yield Bond fund cites bonds issued by Omnova Solutions(OMN) as an example of their “bread-and-butter” fixed-income holdings. In its last earnings report, trailing-12-month revenue increased 12.4%, and inventory decreased 11.4%. The company continues to impress with solid earnings and there is no reason to think this will not continue into 2013.

The company had 2011 sales of $1.2 billion and has a global workforce of approximately 2,300. The company competes against generally larger companies in the industry such as H.B. Fuller, Cabot Corp and Avery Dennison Corp. The stock trades just above $7.00 a share and has a 52-week range of $4.70 to $8.99. Europe remains a drag on earnings but Omnova along with its competitors have been helped by a tepid yet slow housing recovery. Residential improvement has been increasing ever since the real estate crisis and OMN has been benefitting.

In November the company was able to expand their distribution by announcing a new partnership, increasing their presence on the west and southern coast. Earlier this year, OMNOVA unveiled the newest addition to its portfolio of chemistries for running track applications – GenCal 7463 SB latex binder. Based on Omnova’s robust carpet adhesive chemistry, GenCal 7463 provides better adhesion to rubber particles than traditional binders and delivers a good balance of strength and resilience within a water-based latex emulsion. This product has attracted a lot of attention amongst commercial customers and is expected to positively affect earnings in the first half of 2013. OMN looks like a great buy around$7.00 a share.