Chances are, you have never heard of Harsco… an industrial company that does everything from on-site work outsourcing to roofing scaffolding, from railroad tracks to mineral air-abrasives. I recently made a “buy” pitch recommendation for Harsco as a manager of the Nittany Lion Fund. As a great company that is totally flying under the radar in my view, you need to take a look!

I can’t stress this enough. In this market environment, you don’t want to be making a speculative pick that carries a lot of risk. But you also want a growth company, and most of these are already valued too high. I found a solution in Harsco, an established 5 billion dollar company with an insane capacity for growth and not many investors “in the know.”

We’ll call Harsco our little secret

Harsco lacks any true competitors or peers in terms of industry expertise and geographic reach. So they are capitalizing on niche markets that no one else is competing in. They operate in three businesses: mill services, access services and rail & mineral technology. From Access Services, Harsco works with 5 of the top 6 contractors in the world, and are working on capitalizing in the Middle East and Eastern Europe. Harsco underperformed in Mill Services last year, but management is completely dedicated to improving this in 2008 by basically cutting the crap out and making things more efficient. Out of Rail & Mineral, Harsco has seen some great improvment. They are the #2 track company in the world (#1 in U.S.) and have made some great strategic acquisitions to improve their margins further.

So HSC has this profound niche exposure that nobody is touching. But what they have that others lack is a strong international exposure that is all too important in today’s markets. In fact, 70% of their business comes from outside the United States, and they expect to increase emerging market revenue from 19% to 30% by 2010. They are completely hedged against the U.S. dollar because of this internationally favorable currency exchange. So when the dollar falls, Harsco rolls… don’t worry, a good dollar isn’t too bad either.

This international exposure along with niche markets makes Harsco a clear-cut winner. They have had so many big contracts come in fast growing economies, and I think that recent wins in China, Dubai and Germany are just the tip of the iceberg. They are doing things like locking in contracts in Panama to complete the rebuilding of the Panama Canal, and their dealings in steel products have allowed them to capitalize on a consolidating global steel market.

The growth and value-added initiatives in tact have this company reeling. They currently use the EVA (economic value added) system in combination with what they call the “LeanSigma” system in order to pinpoint which areas of their business model are lagging, as well as how they can work to improve them. We’re talking renegotiated contracts, divestments, and the like.

Their last earnings call in January absolutely blew away expectations, and I anticipate similar success on their quarterly earnings scheduled on April 22nd. Typically, I have noticed a pattern of a pre-earnings run up, followed by a drop off after the announcement regardless of results. Maybe take this into account, but I see Harsco hitting $73 for twelve-months forward so look to purchase under $55.

This is a great mid-cap international growth play with plenty of room to run. They are focused on targeting expansion of their already dominate margins in 2008, so get in while the gettin’s good.

-The Net Fool

If you enjoyed this post, make sure you subscribe to my RSS feed!