One Stock Loved by Value Gurus

I try to keep an eye on what the great value investors of the world are up to. I rarely act on it, and by the time the public knows, the edge is greatly diminished. But every once in a while, I come across something that piques my interest. This company -- one well-known to many Fools -- is a hot commodity between two extremely successful value investors. And, luckily for us, it seems there is still plenty of room to grow for this play on agriculture.

Reduce, reuse, etc.
Whatever your politics are regarding global food production and its sustainability, there are opportunities aplenty in the agriculture industry. One could invest in meat processing, corn production, agri-feed -- the list goes on. But this company is crossing the boundaries in the food world. It's a company that takes cooking waste and turns it into animal feed for livestock. The end product is a cheaper alternative to soybeans or corn for the livestock industry.

The company, if you haven't already guessed, is Darling International (NYSE: DAR  ) . Darling is a fast-growing company trading at an attractive valuation. Growth thus far has been a mix of organic sales growth and acquisitions, though its biggest jump was in December of 2011, when the company bought Griffin Industries for $840 million in cash and stock. Today, Darling is roughly a $2 billion company.

The company carries a decent amount of debt on its books -- around $250 million in total debt to just $27 million in cash -- but I believe this is a negligible amount, given that the company earned about $390 million in EBITDA from its core operations for the full year of 2011. 2012 analyst estimates have EBITDA pegged around $350 million for the year. Considering that Darling is a highly cash-generative business in a growing sector, I am not concerned about the company's debt load.

Chewing the fat
What the aforementioned analyst estimates did not seem to take into consideration was the company's new joint venture with Valero Energy (NYSE: VLO  ) . The much larger petroleum refiner and retailer recently entered into a 50-50 arrangement with Darling to take Darling's fat and turn it into a biodiesel.

Using the leverage of Valero's size and scale, Darling has a great opportunity to expand its product offerings with built-in business from its partner. If you're getting into a developing business and want to mitigate risk, it's nice to have an order book waiting for you before you even start.

It's no secret
As I mentioned in the beginning of this article, two big-name investors are already loading up on Darling's stock. Value legend Joel Greenblatt, who has already owned Darling at various periods over the years and made a triple-digit gain, joins John Keeley, a lesser-known but still impressive fund manager. Keeley's fund now owns more than 1,200,000 shares of the company.

At 11 times forward earnings and with great margins that are protected by the agriculture business as a whole, Darling is cheap. The market, in my opinion, has undervalued the core business to begin with. With increasing protein consumption and a greater need for cheap animal feed in developing nations, Darling's book of business will only grow. But what is even more valuable is the joint venture. The market has not factored this partnership into the price of the stock. When the $400 million fuel-processing facility comes online at the end of this year, watch as Darling and Valero rake in the cash on a product that is equivalent to today's truck diesels and costs much less.

But I like good ol'-fashioned ground oil!
If that's not you, that's OK. Despite what the hippies say, oil is going to be around for a while, and we will split the planet open trying to get more. The Motley Fool has identified some interesting picks that will benefit if oil goes to $100 per barrel. Each of our three Rising Stars has identified one company that will be very interesting to an energy investor. Read the free report here.

Fool contributor Michael Lewis owns no shares of the stocks mentioned above. The Motley Fool owns shares of Darling International. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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