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Hospitals, pharmaceutical companies and clinicians who seek and develop treatments for serious illnesses all need top-notch research tools and diagnostic equipment. That's where companies like



come into the picture.

This St. Louis-based company makes specialty chemicals and reagents used in drug development and disease diagnosis. Based on strong demand for its products, I think the stock is worth a look.

Actually, several things about the company intrigue me.

For starters, the long-term demand for research tools and products is strong and only should strengthen as our nation ages.

Plus, the company is expected to generate roughly $80 million in Web sales in 2001. That's about double what it did last year. Although management hasn't quantified its Web expectations in 2002, several analysts are expecting this high-margin business to double once again.

According to Sigma-Aldrich's proxy, which was filed March 28, 2001, the company's officers and directors own roughly 1.4 million shares combined. That's only about 2% of the outstanding shares. But it's worth mentioning because management's equity ownership is significant in proportion to its average base salaries, which range from roughly $245,000 to $625,000. The average officer maintains between roughly one and three times his or her average income in common stock. My point? Management's significant involvement in the stock gives the bosses a personal incentive to enhance shareholder value.

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The company has prepaid for its growth. In 2001, Sigma-Aldrich made roughly $100 million in capital expenditures to build out its production, research and distribution facilities. But for both 2002 and 2003, total capex is expected to drop to $60 million a year. With even modest revenue growth, the company should be able to post at least a double-digit improvement in earnings each year.

According to consensus estimates, Sigma-Aldrich is expected to earn $2.13 a share in 2002. That implies a 13.9% rate of growth over its expected 2001 earnings of $1.87 a share. Its fourth-quarter earnings are slated to be released Feb. 12 after the market's close. The average consensus estimate for the December quarter is 44 cents a share.

Under a December 1999 share-repurchase program, Sigma-Aldrich has bought back more than 29 million shares at an average cost of $31.97 a share. In addition, its board of directors authorized an additional buyback on Nov. 13 of up to 5 million shares. That's a terrific sign that even better times lie ahead.

Over the next five years, both the company and Wall Street think Sigma-Aldrich can grow its earnings at a 12% clip or better. Over the same time frame, the industry is expected to grow at roughly a 9.7% clip. Sigma-Aldrich's ability to rein in expenses and drive revenue growth is the reason it's expected to outpace the industry.

Bottom line: Sigma-Aldrich is engaged in a growing industry. As demand for its research tools continues to perk up, I expect that the stock will react in kind. Realistically, given the above earnings projections, I think the shares could easily trade north of $50 within the next 12 to 24 months. That equates to about a 20% rate of return. The stock closed Monday at $42.22.

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In keeping with TSC's editorial policy, Glenn Curtis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Curtis welcomes your feedback and invites you to send it to

Glenn Curtis.