Sunday, July 27, 2014

Seeking Alpha: Is This A 'Buy The Dip' Opportunity At Maxim Integrated Products?

With a very disappointing outlook for the next quarter and renewed worries about Maxim Integrated Products' (NASDAQ:MXIM) ability, or lack thereof, Maxim shares are off significantly amidst some broader renewed worries about the chip sector. This may be one of those "buy the dip" opportunities that investors are always supposed to be looking or waiting for, but the outlook is admittedly a reason to pause. That's the problem with "buy the dip" opportunities - stocks rarely sell off because they're forgotten or a sloppy block sale pushes down the price; usually something pretty scary is going on in the underlying business.

The sell-off here does look too steep, but I'm not in a rush to add this to the top of my buy list. When I last wrote about Maxim, I cited some concerns that the company may not diversify away from Samsung as quickly or successfully as hoped, and that may be coming home to roost. Still, value is value, and unless the outlook at Maxim really crumbles over the next six to 12 months, these shares look 10% or more undervalued.

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Is This A 'Buy The Dip' Opportunity At Maxim Integrated Products?

Seeking Alpha: Decent Earnings Not The Real Story At Turkcell

It looks like the long and ridiculous dispute between Turkcell's (NYSE:TKC) owners, a dispute that has held up a dividend for literally years, may finally be at an end. Not only that, while Turkcell is still seeing significant competitive pressures in its core Turkish voice market, the underlying earnings performance has been pretty decent.

There are still plenty of unknowns here - will Turkcell pay a dividend in 2014? Will Altimo exit its position (and if so, how?)? Will Turkcell's competitors get more rational and allow for market repair? Although there could be some upside in the resolution of these questions, the move in the shares has me thinking that it may be time to call it a day.

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Decent Earnings Not The Real Story At Turkcell

Seeking Alpha: Operating In Obscurity, Microsemi Continues To Execute

Perhaps I shouldn't complain about Microsemi (NASDAQ:MSCC) not getting much attention from the Street or investors; sooner or later value always wins out and I can live quite happily without the volatility that comes with "darling" stocks. In any case, Microsemi continues to look like one of the cheapest chip stocks out there, but also a company with significant potential from operating leverage and product platforms like timing and FPGAs.

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Operating In Obscurity, Microsemi Continues To Execute

Seeking Alpha: Carpenter Technology Ready For Demand And Free Cash Flow Growth

Carpenter Technology (NYSE:CRS) has done alright since my December 13 write-up, climbing more than 22% but trailing Precision Castparts (NYSE:PCP) and Allegheny Technologies (NYSE:ATI) (while outperforming specialty alloy companies Universal Stainless (NASDAQ:USAP) and Haynes International (NASDAQ:HAYN)). There have been some challenges for the company as its major aerospace end market worked down inventories of engine parts and fasteners, but lead times are expanding, nickel prices are rising, and Carpenter is nearly finished with the addition (and customer qualification) of a new premium/super-premium facility in Athens, Alabama.

On the negative side, Carpenter already trades close to its historical average EBITDA multiple (around 8.5x). On a more positive note, the order books of the major commercial aircraft OEMs stretch out for years and should support double-digit growth for several years.

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Carpenter Technology Ready For Demand And Free Cash Flow Growth

Friday, July 25, 2014

The Motley Fool: Boston Scientific Stock Down Slightly on Earnings

All told, Boston Scientific (NYSE: BSX  )  did alright in the second quarter, but the inter-segment noise highlights one of the ongoing challenges for the company – keeping all the ducks in a row and delivering both top-line growth and margin improvement. I'm still skeptical that these shares really make sense from a long-term cash flow perspective, but I cannot argue that the company has not made progress and could generate significant earnings growth in the coming years.

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Boston Scientific Stock Down Slightly on Earnings

Seeking Alpha: iStar Financial Still Worth The Hassle

iStar Financial (NYSE:STAR) is not a stock for beginners or casual investors. Its combination of real estate lending, net leasing, operating properties, and land development makes it a complex hybrid that incorporates aspects of companies like Cheung Kong (OTCPK:CHEUY), Forest City (FCE-A), and Lexington Realty Trust (NYSE:LXP). What's more, it's also a credit recovery and residential housing recovery story as the company continues to clean up legacy non-performing loans and underperforming assets while deploying new capital into projects.

To value iStar, I believe you have to be able to estimate the value of the real estate finance portfolio (loans and mortgages to real estate companies), the value of the net lease portfolio, the value of the operated portfolio, and the development potential of the land portfolio. This is, at best, a big headache for most investors. I believe the underlying potential is still worthwhile, with a fair value of around $18.50 on the basis of my estimated of economic book value, and there is upside from improving real estate markets and downside from a reversal in those markets and/or higher financing costs.

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iStar Financial Still Worth The Hassle

Seeking Alpha: Cameron Showing Some Much-Anticipated Margin Progress

Owning Cameron (NYSE:CAM) shares hasn't always been the easiest investment play, as these shares have delivered plenty of volatility in response to order flow and margin progress (or lack thereof). Management dug itself into a hole on the margin side with inadequate production capacity, but that issue seems to be on its way to a strong resolution. Cameron has also regained a lot of momentum in the subsea market and the joint venture with Schlumberger (NYSE:SLB) should continue to pay off in opening doors to new business.

The issue with Cameron shares typically comes down to timing. Cameron should be looking at several years of good revenue and margin/FCF performance as it delivers on its large order book. At the same time, I believe we are looking at an extended cycle as more and more energy companies go offshore to find production growth. Discounted cash flow unsurprisingly isn't a lot of help, but the difference between a 9x and 10x EBITDA multiple on the shares swings the fair value by almost $9.

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Cameron Showing Some Much-Anticipated Margin Progress

Seeking Alpha: Can Linear Technology Match Quality With Growth?

High-performance analog specialist Linear Technology (NASDAQ:LLTC) runs itself differently than most semiconductor companies; Linear will turn down business that doesn't meet its margin targets and has maintained an almost unbelievable level of year-in year-out free cash flow generation. Linear hasn't registered all that much growth, though, and for all that the company's great margins matter, the company isn't as generous in sharing its prosperity with shareholders. Amidst various valuation methodologies Linear looks somewhere between 12% overvalued and 12% undervalued, and although the company has some interesting growth opportunities, it may take more generous payouts to move the shares significantly.

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Can Linear Technology Match Quality With Growth?

Thursday, July 24, 2014

The Motley Fool: Keep Calm and Carry On, Roche Stock

Swiss drug giant Roche (NASDAQOTH: RHHBY  ) has continued a reasonable run of performance in the stock market. The Swiss-listed shares have delivered middle-of-the-road performance this year relative to other Big Pharma names like Lilly, Merck (NYSE: MRK  ) , Bristol-Myers (NYSE: BMY  ) , and Pfizer and still offers a solid dividend. Roche continues to sport one of the strongest oncology pipelines in the space, but the company also has the opportunity to drive upside from its non-oncology pipeline, an area that hasn't generated as much value in recent years.

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Keep Calm and Carry On, Roche Stock

The Motley Fool: With Baseband Finished, Higher-Margin Broadcom Looks for New Drivers

Broadcom's (NASDAQ: BRCM  ) long, frustrating dalliance with baseband wireless is now at an end, with the company winding down the business after investing hundreds of millions of dollars (if not billions) over the years, but failing to find a buyer. Broadcom remains a strong player in network infrastructure and broadband, and perhaps an underrated player in the emerging "Internet of Things" market, but investors are right to question how mobile connectivity will fare in the coming years, as well as whether management may fritter away cash on further value-eroding deals.

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With Baseband Finished, Higher-Margin Broadcom Looks for New Drivers


Seeking Alpha: Iron's Free Fall Has Rusted Fortescue Metals

My bullish calls on copper producers Hudbay Minerals (NYSE:HBM), Taseko (NTGB), and First Quantum (FQFLV) have definitely worked out, but the same cannot be said of Fortescue Metals (OTCQX:FSUGY) as a roughly 30% decline in benchmark iron ore prices and wider discounts have sapped the company's earnings and cash flow leverage.

I believe Fortescue can stay free cash flow positive at or above realized prices of $70/mt, but there's a major valuation difference between "survive" and "thrive" and the behavior of Chinese steel mills is not encouraging for the near term. While there are smaller Australian iron ore companies with even more leverage to an iron ore price recovery, Fortescue is a good way to play that basic thesis. I believe the market is factoring in a pretty bearish long-term outlook for iron prices, but this is a risky stock given its reliance on stronger prices.

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Iron's Free Fall Has Rusted Fortescue Metals

Seeking Alpha: Orders A Bright Spot, But ABB Has A Lot Of Work To Do

Swiss automation and power technologies conglomerate ABB (NYSE:ABB) managed to avoid another major quarterly sell-off, but I think the reaction to this earnings report owes a lot to lower expectations and stronger orders. Looking through the line-items, ABB still has a lot of work to do in its Power Systems business and underwhelming margin performance across the board is a concern. ABB is a rare stock within the industry space in that it trades below my estimate of fair value, but that undervaluation comes with the intangible cost of significant execution risk and downside revision potential.

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Orders A Bright Spot, But ABB Has A Lot Of Work To Do

Wednesday, July 23, 2014

The Motley Fool: Why the Market Is Wrong About Intuitive Surgical Stock

Investors were hoping for a good quarter from Intuitive Surgical (NASDAQ: ISRG  ) , so much so that I'm a little surprised to see such a positive market reaction to what was largely an in-line quarter and ongoing murkiness in the market outlook. Strong shipments of the Xi system are encouraging, as was the better-than-expected procedure growth, but utilization is still challenging and Johnson & Johnson (NYSE: JNJ  ) and Covidien (NYSE: COV  ) continue to highlight their own efforts to drive non-robotic minimally invasive procedures with their tools and instruments.

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Why the Market Is Wrong About Intuitive Surgical Stock

Seeking Alpha: Peabody Energy Still Waiting For Better Days

Discussions of relative performance always need to anchored with the question of "relative to what?". Peabody Energy (NYSE:BTU) has been one of the best-performing U.S. coal companies year-to-date and over the last year (edged out in both cases by Cloud Peak (NYSE:CLD), and handily beaten by quasi-coal company CONSOL Energy (NYSE:CNX)), but the coal sector has continued to get thumped on weak met coal pricing, long-term concerns about EPA regulations for thermal coal, and rail shipments from the Powder River Basin.

I continue to believe that Peabody Energy is the best-positioned U.S. coal company for the long term. This year may see the company go FCF-negative, but Peabody can generate positive free cash flow at coal prices well below the breakeven levels for Alpha Natural (NYSE:ANR) or Arch Coal (NYSE:ACI). I also like the company's asset base (Illinois and Powder River Basin in the U.S., Australian met coal). While Alpha Natural has more upside if met coal prices suddenly shoot up again, I think Peabody is the better risk-adjusted pick overall.

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Peabody Energy Still Waiting For Better Days

Seeking Alpha: With Aerospace Squared Away, Will United Technologies Go Back To Big Deals?

Like the roads around most major cities, the construction of a large industrial conglomerate is never finished. United Technologies (NYSE:UTX) is now strongly leveraged to the expected growth in commercial aerospace over the next decade, but the Building and Industrial Systems segment has suffered in comparison. Like most industrial conglomerates, United Technologies doesn't look like a tremendous bargain at today's levels, but I wouldn't underestimate the potential of a value-bidding deal in the next 12 to 18 months.

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With Aerospace Squared Away, Will United Technologies Go Back To Big Deals?

Seeking Alpha: The Green Dot Roller Coaster Rolls On

Roller coasters are something of a Marmite proposition - you either love them or you hate them - and so too with roller coaster stocks like Green Dot (NYSE:GDOT). The basic concept of prepaid reloadable debit cards is a sound one and one that offers good access to the sizable unbanked/under-banked market, but I'm not sure that the company has the marketing and product power to withstand significant competition from the likes of American Express (NYSE:AXP) and Western Union (NYSE:WU).

The prospects of a contract renewal with Walmart (NYSE:WMT) could loom over this stock for most of the next year, and the unpredictability of the impact of the company's business development spending adds another variable to the mix. I believe the stock appears undervalued on even modest free cash flow growth assumptions, but investors have to ask themselves if they want to take on the elevated risks.

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The Green Dot Roller Coaster Rolls On

Seeking Alpha: Improving Results, Markets, And Operations For Steel Dynamics

This has been a disappointing year so far for most steel producers, as Nucor (NYSE:NUE) has fallen about 5% year-to-date, while Commercial Metals has fallen more than 10%, ArcelorMittal (NYSE:MT) almost 16%, and Gerdau more than 23%. Steel Dynamics (NASDAQ:STLD) had been doing comparatively okay, tracking close to Nucor before the announcement of a potentially transformative acquisition and solid second quarter earnings. Although Steel Dynamics shares don't leap out as cheap right now, an improving steel market could support positive estimate revisions and a higher stock price.

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Improving Results, Markets, And Operations For Steel Dynamics

Seeking Alpha: Amidst Ongoing Doubts, Exact Sciences Still Offers Opportunity

For a modestly-sized diagnostics stock, Exact Sciences (NASDAQ:EXAS) seems to generate an above-average level of animated response (I'd say "discussion", but a quick look at the comments section of EXAS articles shows less discussion and more squabbling). I have often found that controversy can mean opportunity, as it often reflects wildly divergent viewpoints, and I continue to believe that is the case with Exact Sciences.

My thesis in brief - the Cologuard works, is a meaningful step forward in the detection, prevention, and treatment of colorectal cancer, and will be reimbursed at a rate that allows Exact Sciences to earn solid profits, though likely not as quickly as some on the Street expect. I believe these shares can trade into the high teens with an FDA approval and favorable coverage decision, and I expect the second half of this year to be a pretty active period for the company and stock.

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Amidst Ongoing Doubts, Exact Sciences Still Offers Opportunity

Tuesday, July 22, 2014

The Motley Fool: Is Alkermes plc Stock Undervalued?

In simple terms, what Alkermes plc (NASDAQ: ALKS  ) is attempting to do is not easy. Few companies manage to successfully transition from being a licensor of drug formulation technologies to a proprietary drug developer and likewise few independent biotechs successfully take on the challenges of developing drugs for difficult-to-treat conditions like schizophrenia and depression. Alkermes has strong technology and intellectual property in its favor, though, and I for one would not underestimate the long-term potential.

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Is Alkermes plc Stock Undervalued?

Seeking Alpha: Weak Core Results At BB&T Driven By Expenses

For a bank often lauded for its conservative, margin/profit-focused management, a meaningful expense miss was not how most investors expected BB&T (NYSE:BBT) might miss the quarter. But miss BB&T did, and although loan growth was okay and credit quality remains good, BB&T may have to work a little harder to rebuild the positive sentiment that had built around the stock. The shares remain undervalued on the basis of 12%-plus ROEs in 2018 and look like one of the better bargains in the larger bank group, but that bargain valuation comes at the cost of added uncertainty.

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Weak Core Results At BB&T Driven By Expenses

Seeking Alpha: Itochu May Pause, But Has A Good Long-Term Model

Japan's third-largest trading company, Itochu (OTCPK:ITOCY), has not done that well since I last wrote about the company. A 1% gain in the Tokyo-listed shares and a 4% gain in the ADRs is better than the performance of the Nikkei 225 (down about 6%), but not at all impressive relative to the other trading companies (Mitsui (OTCPK:MITSY) has done much better, Sumitomo (OTCPK:SSUMY) and Mitsubishi (OTCPK:MSBHY) a little better, and Marubeni (OTCPK:MARUY) worse). Some of this could be driven by a slower move toward share repurchases or steeper-than-average expected decline in FY 2015 ROE, with Itochu's rivals closing a bit of the gap in terms of returns on equity and capital.

Capital may be chasing those self-improvement stories, but I think Itochu is still the better play for the long term. Management has deliberately moved away from more volatile resource businesses and is looking for its focus on consumer-related products to generate above-average returns for the long-term. These giant unwieldy conglomerates are not going to suit every investor, but Itochu still looks undervalued below $29 to $32 per ADR.

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Itochu May Pause, But Has A Good Long-Term Model

Seeking Alpha: Is Renaissance Re Still A Safe Haven Among Reinsurance Companies?

I believe there are many standards by which RenaissanceRe Holdings (NYSE:RNR) (or "RenRe") can be called an excellent, if not one of the best, reinsurance companies in the business. Since its founding in 1993, RenRe has generated some of the best returns on equity within the space (a 20%-plus ROE since inception) due to very sophisticated risk analytics and modeling. RenRe has also been one of the pioneers in managed cat vehicles, an alternative capital option that generates significant returns on capital for the company.

The problem is that the property catastrophe market has too much capital today and pricing is getting undisciplined, with underwriters like RenRe and Validus (NYSE:VR) looking for double-digit declines in premiums. Although RenRe has been growing its specialty reinsurance and Lloyds businesses, it's going to be difficult to withstand the pressures in a business that makes up close to 70% of premiums. Although RenRe's shares are still a little undervalued relative to my long-term ROE assumptions, I see better overall opportunities in life insurance.

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Is Renaissance Re Still A Safe Haven Among Reinsurance Companies?

Seeking Alpha: Alpha Natural Resources Can Most Likely Survive, But Can It Thrive?

In a brutal market for coal producers, Alpha Natural Resources (NYSE:ANR) management has done a commendable job of cutting costs and enhancing liquidity. Unfortunately, the $170 to $180 per tonne in met coal pricing that the company needs for positive free cash flow seems a long way off. Companies like Anglo American (OTCPK:AAUKY) have in the past struck lucky when key producing areas have been hit by significant disruptions and the significant short interest here is a bit like a coiled spring for any good news. That said, a 10x multiple to 2016 EBITDA discounted back doesn't offer huge upside and this is only a stock for those who can handle above-average risks and a long wait.

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Alpha Natural Resources Can Most Likely Survive, But Can It Thrive?

Monday, July 21, 2014

The Motley Fool: Allergan Stock Earnings: Good Enough to Fight off Valeant?

It's no longer enough to evaluate Allergan's (NYSE: AGN  ) earnings on a stand-alone basis; almost everything that happens with or to Allergan these days is going to be viewed through the lens of how it impacts Valeant's (NYSE: VRX  ) hostile bid for the company and Allergan's efforts to resist that bid. Although Allergan's recent R&D update was not uniformly positive, today's earnings and guidance do serve to raise the stakes a bit, and Valeant's recent complaints to regulators tell me that Allergan has scored a few hits with its own PR program.

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Allergan Stock Earnings: Good Enough to Fight off Valeant?

Sunday, July 20, 2014

The Motley Fool: Why Google Could Transform How We See

Google (NASDAQ: GOOGL  ) (NASDAQ: GOOG  ) has started making a significant push into wearables, with medical/health care-related applications among the prime targets. Some readers may already have heard of the company's efforts to develop a glucose-sensing smart contact lens that could continuously monitor glucose levels and interface with mobile devices, allowing diabetics more freedom and convenience.

Count eye care giant Novartis (NYSE: NVS  ) among those who have noticed. Novartis and Google announced on Tuesday that they would work together on smart contact lenses targeting both glucose monitoring and presbyopia. It's hard to say how close to reality (or clinical trials) a functional device might be, but this partnership just may change the landscape of the glucose monitoring market presently dominated by companies like Johnson & Johnson (NYSE: JNJ  ) , Abbott Labs, Roche and Medtronic.

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Why Google Could Transform How We See

The Motley Fool: Heavy Static At Danaher Corporation

"What we've got here is ... failure to communicate," Cool Hand Luke.

As one of the best-loved conglomerates out there (and seldom a cheap stock as a result), Danaher (NYSE: DHR  ) operates to a different set of Wall Street expectations than most companies. In the case of second quarter earnings and forward guidance, disappointing results in the volatile test & measurement business not only sent the stock down but will likely renew calls for management to consider breaking up the company. Perhaps adding a bit of irony to that, analysts also continue to express frustration that Danaher isn't making bigger splashes with its M&A efforts.

Danaher is Danaher, and the company will be fine. The diagnostics business is getting stronger and operations like water quality/treatment have strong growth potential in markets like China and India. Though I can't say that the shares have reached a bargain price yet, this may be a name to add to the watchlist in case the disappointment coming out of this quarter leads to a more pronounced skid.

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Heavy Static At Danaher Corporation

The Motley Fool: AbbVie Inc. Wins the Shire

Pfizer couldn't bag AstraZeneca and Valeant is still trying win over Allergan's (NYSE: AGN  ) shareholders, but AbbVie (NYSE: ABBV  ) has managed to close its major deal. AbbVie and Shire (SHPG) announced on Friday that the companies had agreed to a merger that will see AbbVie acquire the Irish-based drugmaker on the previously announced terms of GBP 24.44 cash and 0.896 shares of AbbVie for each Shire share.

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AbbVie Inc. Wins the Shire

The Motley Fool: Stryker Corporation Stock Coming Through With Growth

Stryker (NYSE: SYK  ) has been a fairly strong stock this year, and why not? The company addresses several attractive markets within med-tech and shown a willingness (and capability) to effectively deploy capital toward business-building M&A transactions. Although price weakness, particularly in ortho, is a concern and the stock's valuation isn't a screaming bargain, Stryker likely won't be a bad place to be relative to the sector.

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Stryker Corporation Stock Coming Through With Growth

The Motley Fool: Why the Market is Wrong About Baxter Stock

Diversified health care player Baxter (NYSE: BAX  ) has done alright so far this year, up almost 10% and ahead of the S&P 500, but there is still a fair bit of skepticism on the name. Analysts continue to fret that Biogen Idec (NASDAQ: BIIB  ) will grab considerable market share in hemophilia and that generic competition for other products will add to the revenue erosion. Although this is a challenging period for the company ahead of data on is own long-acting hemophilia product, approval of HyQ, and real leverage in the renal business, Baxter shares continue to look a little undervalued for patient long-term investors.

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Why the Market is Wrong About Baxter Stock

Seeking Alpha: After A Transformative Deal, Can AerCap Holdings Climb Higher?

Take a very skilled management team and give them more than four times the assets to work with and very good things might happen. That's a quick summary of what I believe will happen now that AerCap Holdings (NYSE:AER) has closed its acquisition of AIG's (NYSE:AIG) huge ILFC aircraft leasing business. AerCap is now hugely leveraged to the global commercial airline sector, with a large in-the-money order book and the potential to generate substantial cash not only from core leasing activities, but also more effective receivables collection and significant aircraft sales.

But how much do you want to pay for this? I'm comfortable with the general idea that the substantially larger asset base at AerCap and the fundamental changes in the global airline business (particularly growth in emerging markets) renders historical multiples moot. At a 1.25x premium to estimated 2015 book value I believe these shares are undervalued, but I wouldn't completely ignore the risk that commercial aerospace companies are building toward oversupply.

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After A Transformative Deal, Can AerCap Holdings Climb Higher?

Seeking Alpha: Ultratech Sliding To The Right ... Again

Sheryl Crow may have been right that the first cut is the deepest, but by the time you get to the third or fourth cut, they all get pretty annoying. Ultratech (NASDAQ:UTEK) continues to do the best it can, given that it's tethered to a team of horses (its customers) that don't seem to know where they're going or when they'll get there. FinFET development has proved frustratingly slow, but there are still credibly reasons to believe that this represents a $600 million-plus market for Ultratech's leading LSA tools.

What to do with the stock? Honestly, if you've made it thus far, I'd suggest holding on. The development of FinFET timelines (and tool orders) has been slower and more opaque than I'd expected, but I haven't really seen much to suggest that flash anneal from Dainippon Screen (OTC:DINRY) or Mattson (NASDAQ:MTSN) is the best way forward. When (and if) the orders materialize, Ultratech could double its revenue over two years. Of course, there is the risk that Dainippon/Mattson win over fabs and that Ultratech's LSA tools aren't adopted, so this is really only suitable for those with above-average risk tolerance.

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Ultratech Sliding To The Right ... Again

Seeking Alpha: Heartland Payment Offers Increasingly Diversified Growth

Not a lot has changed about Heartland Payments (NYSE:HPY) over the last eight months. When I last wrote about Heartland, I thought the company was a quality growth play on the increasingly cash-less transaction market and was pursuing some quality growth opportunities outside of merchant acquiring and payment processing. The problem then and now is valuation; I thought Heartland was well-valued in November and the market-lagging 1% appreciation since then doesn't change my view. While I like Heartland as a low-teens grower over the next decade, the valuation already seems to anticipate that.

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Heartland Payment Offers Increasingly Diversified Growth 

Seeking Alpha: U.S. Bancorp Seeing Stable Credit And Early Signs Of Loan Growth

Maybe, just maybe, major banks are starting to see that long-awaited growth in loan demand. U.S. Bancorp (NYSE:USB) is an uncommonly well-run bank and Wall Street knows it, meaning that these shares are seldom all that cheap. JPMorgan Chase (NYSE:JPM), PNC (NYSE:PNC), and Fifth Third (NASDAQ:FITB) look like better values in the big bank sector, but U.S. Bancorp could offer some upside if loan growth and a steeper rate curve materialize.

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U.S. Bancorp Seeing Stable Credit And Early Signs Of Loan Growth

Seeking Alpha: First Cash Financial Does Enough To Get By

It remains a good news/bad news situation over at First Cash Financial (NASDAQ:FCFS). The bad news is that the operating environment in both Mexico and the U.S. remains challenging and the company took on significantly higher interest expense to raise cash for expansion. The good news is that the company has aggressively managed its scrapping issues, the U.S. pawn industry remains ripe for consolidation (and maybe growth, too), and Mexico seems to be turning around. I still maintain that First Cash is a better-run pawn operator than EZCORP (NASDAQ:EZPW), which I recently profiled, but I cannot fairly argue that the upside potential today is so commanding as to ignore other players in the space (like EZCORP).

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First Cash Financial Does Enough To Get By

Seeking Alpha: Aspen Insurance Making Its Case To Stand Alone

If nothing else, Aspen Insurance (NYSE:AHL) doesn't lack for confidence. While Endurance Specialty Holdings (NYSE:ENH) has made an offer for the company that values it more highly than any of its peer group companies except Arch Capital and RenRe, management has remained steadfast in its rejection of Endurance's overtures. Likewise, management continues to project an ROE evolution that is meaningfully more bullish than the sell-side's projections.

While I'm still not willing to go 100% with Aspen's projections, the recent improvement in operating results is pushing me more in that direction. Although I do think management may be too bullish with its expectations for interest rates, cat losses, and reserve developments, the underwriting has been looking better and the company may be on the cusp of some significant margin leverage after years of investments to build out the insurance business. My new base-case of 11% ROE in 2018 suggests the shares should trade around $46, but even a half-point improvement offers some noteworthy upside.

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Aspen Insurance Making Its Case To Stand Alone

Thursday, July 17, 2014

The Motley Fool: Forget Earnings - Catalysts Incoming for Novartis Stock

With Novartis (NYSE: NVS  ) in the midst of a business transformation process and management projecting significant improvements, investors are a little less interested in quarterly results for the time being. Results for the second quarter were OK, but sluggish growth in Pharma highlights the importance of good clinical data on LCZ696 in heart failure and progress over the next 12 months in the immuno-oncology portfolio. 

The Street is pretty bullish on these shares, though the performance on a year-to-date basis has been more middle of the road between the likes of Merck (NYSE: MRK  ) , Bristol-Myers (NYSE: BMY  ) , Pfizer, and Roche. It would seem that a lot of optimism on LCZ696 and margin improvements is getting worked into the shares and while stronger-than-expected data on LCZ696 and/or the immuno-oncology portfolio would be well-received, I think investors already expect more from Novartis than virtually any other Big Pharma company.

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Forget Earnings: Catalysts Incoming for Novartis Stock

The Motley Fool: JPMorgan Chase & Co's Broad-Based Beat Restores Some Confidence

Bulls will talk at some length about JPMorgan Chase's (NYSE: JPM  ) leadership across the banking landscape, including leading deposit share across most of its 23-state footprint, #1 share in trading, and leading share in corporate lending, but the fact remained that the bank had logged four straight sequential declines in core pre-provision profits. With a higher-quality, broad-based beat in the first quarter, JPMorgan has shored up some of the nagging concerns and remains well-placed to take advantage of any meaningful steepening in the yield curve.

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JPMorgan Chase & Co's Broad-Based Beat Restores Some Confidence

Seeking Alpha: Hartford Financial Services Offers Self-Improvement And Takeover Potential

Although The Hartford Financial Services Group (NYSE:HIG) (or "The Hartford") has taken several significant steps to reposition itself as a quality P&C operator, the Street hasn't fully bought into the story. While the shares have appreciated about 50% over the last three years, ACE Limited (NYSE:ACE) and Travelers (NYSE:TRV) have done even better (up more than 60% each) and there's little differentiation among them over the past year despite ongoing self-improvement efforts at The Hartford.

To be sure, there are some reasons for The Hartford to lag. The company's expense ratio is a little higher than its peer group (or at least the better-run members) and investors worry that the variable annuity run-off process will tie-up capital with poor returns and that the group benefits business won't improve as much as management hopes. Although the shares are near a 52-week high, that skepticism still creates a window of opportunity for investors; The Hartford is perhaps not the cheapest stock in the space today, but it is cheap enough to merit interest and it could be an acquisition target.

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Hartford Financial Services Offers Self-Improvement And Takeover Potential

Seeking Alpha: Gladstone Capital Is Seeing Better Credit, But Growth Is A Concern

Business Development Companies like Gladstone Capital (NASDAQ:GLAD), Full Circle (NASDAQ:FULL), Ares (NASDAQ:ARCC), and Kohlberg Capital (NASDAQ:KCAP) have to strike a balance between growing their portfolio (which drives future dividend growth) and compromising value and credit quality in doing so. Gladstone has made some good progress since my December writeup in terms of credit quality, with non-accruals and unrealized losses both shrinking. While portfolio growth is still a concern (as is management's need to waive fees to protect the dividend), there's an interesting mix of value and income here for more risk-tolerant investors.

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Gladstone Capital Is Seeing Better Credit, But Growth Is A Concern

Seeking Alpha: First Quantum Minerals Shooting For The Top

I can't complain about First Quantum's (OTCPK:FQVLF) (FM.TO) (FQM.L) performance since my Top Idea write-up in December of 2013, as the shares have risen almost 50%. First Quantum is far from the only base metal miner to do well over that stretch, as others like Hudbay Minerals (NYSE:HBM), Lundin (OTCPK:LUNMF), and Kazakhmys (OTCPK:KZMYY) have also done quite well. Even so, I love the company's ambitious plans to grow its way into the top ranks of global copper and nickel producers, as well as its demonstrated excellence in bringing mines into production on-schedule and close to budget.

I do believe that First Quantum is in a stronger position than it was eight months ago, but not nearly so strong enough to offer the same sort of bargain. I've moved my fair value estimate up a bit, but First Quantum looks more like a growth-oriented "hold" than a strong buy at this point.


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First Quantum Minerals Shooting For The Top

Wednesday, July 16, 2014

The Motley Fool: St. Jude Medical, Inc. Still Feeling the Love

I thought St. Jude Medical (NYSE: STJ  ) was already getting a fair bit of the benefit of the doubt back in April, but Wall Street has continued to bid these shares up on growing hopes that new products from the pipeline will drive revenue growth back into the mid-single digits or higher. Up almost 10% over the last three months, St. Jude has modestly outperformed Medtronic (NYSE: MDT  ) , significantly outperformed Boston Scientific (NYSE: BSX  ) , and done rather well against Johnson & Johnson and the market as a whole. 

My basic outlook on St. Jude really hasn't changed much. I think many in the market overestimate the likelihood that the company will lose significant share in quadripolar systems and underestimate the potential for products like Portico (a transcatheter heart valve) and CardioMEMS (an implantable monitoring device for heart failure) to contribute meaningfully to results. All of that said, the market appears to be baking in low-to-mid teens annual cash flow growth over the next decade and that seems like a sufficiently bullish outlook.

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St. Jude Medical, Inc. Still Feeling the Love

The Motley Fool: Abbott Labs Stock Earnings: Why Steady Isn't Enough

The "hurry up and wait" goes on at Abbott Labs (NYSE: ABT  ) , as it does at many other large med-tech companies, but Abbott is at least showing some growth momentum and the comps for the second half of the year should lead to better reported results. Abbott has also been busying on the M&A front, recently announcing a deal with Mylan (NASDAQ: MYL  ) that shifts the company's Established Pharmaceuticals business firmly toward faster-growing emerging markets. What the company will do about its device business is still an open question and how management addresses it will be something to watch for the remainder of the year.

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Abbott Labs Stock Earnings: Why Steady Isn't Enough

The Motley Fool: Should Roche Buy Exelixis?

Investors in Roche (NASDAQOTH: RHHBY  ) and Exelixis (NASDAQ: EXEL  ) saw a bit of positive news Monday, when Roche announced that its phase 3 combo study of MEK inhibitor cobimetinib (licensed from Exelixis) and BRAF inhibitor Zelboraf met it primary endpoint. No details were supplied, other than that the company is moving forward with regulatory filings in the U.S. and EU.

Although this combo therapy is not likely to move the needle too far for Roche, it could be significant for Exelixis and talk is now circulating that Roche may buy the company to capture full economics on the drug.

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Should Roche Buy Exelixis?

Seeking Alpha: Albemarle Pays A Stiff Price For A Premium Asset

I wrote about Rockwood Holdings (NYSE:ROC) in December of 2013 and thought at the time that it was a very high-quality specialty chemical company, with an attractive cost-advantaged lithium business, but an expensive stock. That opinion worked reasonably well until today, as other chemical companies like BASF (OTCQX:BASFY) and Taminco (NYSE:TAM) had been outperforming the shares. That's all moot now, though, as Albemarle (NYSE:ALB) has stepped up with a premium buyout offer for this specialty chemical company.

For Albemarle's part, they're paying up to add a well-run surface treatments business and grab the growth potential of Rockwood's top-notch lithium operations. Paying 14x 2014 pro-forma EBITDA (and more than 11x assuming synergies) is steep, but Rockwood is a unique asset with both strong internal returns and good growth potential leveraged to the developing electric vehicle market.

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Albemarle Pays A Stiff Price For A Premium Asset

Seeking Alpha: Whiting's Buy Shows How The Bakken Is Changing

Whiting Petroleum's (NYSE:WLL) announcement that it had reached an agreement to acquire Kodiak Oil & Gas (NYSE:KOG) was surprising on several levels. First, Whiting isn't offering much of a premium to Kodiak's standalone net asset value. Second, a lot of investors have been assuming (or perhaps hoping) that consolidation in the Bakken would take the form of large energy companies coming in to buy large operators like Continental Resources (NYSE:CLR), Whiting, and Oasis (NYSE:OAS), not peer-to-peer consolidation. Third, this is a deal that is more about execution and efficiency than exploration growth, perhaps marking a recognition of real change.

All told, assuming the deal gets done on the announced terms, it's a good deal for Whiting and not a bad deal for Kodiak. Whereas Whiting has generally gotten good marks for its execution and operating performance (albeit with some concerns about capital efficiency), execution has been a recurrent issue and concern for Kodiak. In buying Kodiak, Whiting has an opportunity to address concerns about its drilling inventory, an opportunity to improve Kodiak's costs, and an opportunity to leverage its newly enlarged position to drive further efficiencies and optimization across a large acreage position.

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Whiting's Buy Shows How The Bakken Is Changing

Seeking Alpha: Materion Is Getting Better And Taking The Valuation With It


On the whole, you haven't missed much if you sat out the specialty metals space since December. Carpenter Technology (NYSE:CRS), Haynes International (NASDAQ:HAYN), and OM Group (NYSE:OMG) are all pretty close to flat over the last eight months, while Universal Stainless (NASDAQ:USAP) has fallen about 15%. Allegheny Technologies (NYSE:ATI) and Materion (NYSE:MTRN) have done much better, up more than 30% over that stretch, though Materion's performance puts it closer to the pack on a trailing one-year basis.

Valuation keeps me from being unreservedly bullish on Materion, but I really like this business. The business isn't wholly (or even mostly) dependent upon beryllium, nor any particular end market, but still has enough exposure that if beryllium supplies tighten further, it can benefit the company. I like the return to 10% order growth and management's goals for ongoing margin and capital efficiency improvement. Again, valuation is a little iffy but it's not ridiculous, and the underlying quality of the business keeps me positive on its prospects.

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Materion Is Getting Better And Taking The Valuation With It

Tuesday, July 15, 2014

The Motley Fool: Can Roche Find Rare Success In Alzheimer's?

Tomorrow will be an interesting day for Roche (NASDAQOTH: RHHBY  ) , its shareholders, and those interested in the treatment of Alzheimer's disease (or AD). Roche is scheduled to report phase 2 data on its antibody therapy crenezumab in patients with mild and moderate Alzheimer's. It is wise to expect little from any experimental AD, as this disease has frustrated almost every company that has attempted to develop a therapy, but the potential of a successful drug is so high that any credible attempt is at least worth watching.

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Can Roche Find Rare Success In Alzheimer's?

The Motley Fool: Johnson & Johnson Ups The Dosage

Healthcare giant Johnson & Johnson (NYSE: JNJ  ) continues to prosper by virtue of its strong pharmaceutical business as the consumer and device business continue to languish. Not only does Johnson & Johnson offer a strong internal pipeline that can help maintain that momentum, the company has more than enough liquidity to acquire/license drugs if it should want to go that route. A real turnaround in devices appears to be a ways off, though, and these shares don't scream "bargain" in the meantime.

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Johnson & Johnson Ups The Dosage

Seeking Alpha: EZCORP Has Been Treading Water While Improving

Eight months ago, I wrote that while EZCORP (NASDAQ:EZPW) had some interesting turnaround potential, I really didn't like the company's operating/ownership structure, nor its operating model. Prior to an announcement in May that I believe is transformative for the company, the shares were tracking down around 5% and the quarterly results were still showing some pressure. While the company is likely to see ongoing pressure in scrapping, comps should start getting easier later in calendar 2014 and the company's valuation is undemanding.

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EZCORP Has Been Treading Water While Improving

Seeking Alpha: More Addition By Subtraction At Weatherford

I've long been fond of the expression "if it doesn't make dollars, it doesn't make sense," and I'm glad to see that Weatherford (NYSE:WFT) has gotten serious about adopting a similar philosophy. Back in March, the company sold its pipeline and specialty service business to Baker Hughes (NYSE:BHI) and before that the company sold its Russian ESP business for about $400 million. Now Weatherford has sold its Russian and Venezuelan drilling rigs and in doing so not only got a decent price but also improved the prospects for its drilling rig IPO. Weatherford has done quite well on the back of increasing optimism around energy services and for its specific restructuring opportunities and there is still more upside from here.

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More Addition By Subtraction At Weatherford

Seeking Alpha: Compass Won't Be Changing Direction Soon

Back in November I had some concerns about the valuation on Compass Diversified Holdings (NYSE:CODI), and the shares have fallen about 2% since then, though that's not the full measure of returns to shareholders given the sizable yield. While Compass isn't exactly a Business Development Company, it is similar in many respects and the performance has been similar to that group since November.

Looking ahead, I like this business/investment, but readers need to have realistic expectations here. Management runs this operation more like Buffett runs Berkshire Hathaway (NYSE:BRK.A) or they way Danaher (NYSE:DHR) and Dover (NYSE:DOV) management run those operations and less like many private equity funds their operations (where the exit strategy is often a driving factor). I don't think the company's current portfolio is geared towards major growth and I do believe most of the trust's future growth is tied to investments/acquisitions still to come.

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Compass Won't Be Changing Direction Soon