"Hydrogen is a key component in reducing sulfur content during the refining process, making hydrogen plants adjacent to refineries indispensable to world gasoline supply.

"APD's experience and market penetration have given it a nearly 40% market share of global hydrogen capacity -- nearly twice that of its nearest competitor.

"APD has taken its competitive edge in on-site hydrogen delivery and leveraged it into a worldwide leadership position in various industries dependent on chemical inputs.

"The energy sector itself accounted for only 24% of the firm's 2008 revenue. Other diverse sectors, including industrials, medical, electronics, and food, all rely on APD industrial gases and chemicals.

"Despite end-user diversification, the current recession has cut product demand from almost every APD served market. This has effectively knocked the air out of APD (pun intended).

"However, it has also prompted management to intensify productivity efforts, cut costs, and realign for future growth. It is also providing investors an opportunity to invest in a quality company at prices 38% below the 2008 high.

"Although the current global economic climate is unquestionably volatile, APD retains a number of tailwinds to carry it forward. First and foremost, APD benefits from the world's declining supply of 'sweet' crude oil.

"Although it is arguable how much oil there is left to find in the world, it is almost universally agreed that the easy oil has been found.

"Most of what is left is likely heavier, less pure crude oil that requires roughly three times the amount of hydrogen to process per barrel.

"APD is also positioned to benefit from further exploration and growth in the Canadian oil sands, an oil field many estimate to be similar in size to all of Saudi Arabia's reserves. At the current time, APD has the only major hydrogen pipeline into the region -- a significant advantage over competitors.

"Standing behind APD's growth potential is significant financial strength. In addition to great liquidity and a manageable debt load, APD's return-on-equity has never dipped below 12% in the past 20 years -- an impressive feat for a cyclical materials company.

" Such earnings consistency has allowed APD to increase its dividend in every one of the past 27 years. Along with growth potential and financial strength, APD completes the investment trifecta with an attractive valuation.

"Although all of the major valuation metrics (Price/Earnings, Price/Sales, Price/Cash Flow, etc.) show APD as undervalued historically -- the most interesting analysis may come from the dividend yield.

"At a current 2.8% dividend yield, APD's market price would need to increase 35% to bring the yield back to the 20 year mean of 2.1%. And this is without further dividend increases -- which, as noted above, hasn't been management's style for nearly three decades!

"Bottom line ... APD is positioned as an industry leader with significant growth potential. With the macro-economic wind at its back, management can continue to position APD to capitalize on opportunities while investors can capitalize on depressed valuations as a great entry point."

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