Sunday, August 16, 2015

Seeking Alpha: In A Fierce Food Retail Market, Natural Grocers Has To Perform Better

Back in February, I had concerns that Natural Grocers by Vitamin Cottage (NYSE:NGVC) (or "Natural Grocers") shares were running a little ahead of themselves on hopes that the company was past the competitive pressures of new store entries into key markets. The shares have fallen 18% since then, as the company's respectable same-store sales growth has continued to come in a little lower than sell-side expectations and concerns about the economy and competition won't go away.

I believe there is a credible argument to be made that Natural Grocers shares are undervalued, but there is a lot of risk attached to the calculation. The company will very likely continue to generate negative free cash flow for three to four years, and the big improvements in free cash flow are well down the line. Add to that the intense competition in the natural/organic food space (arguably getting worse), and this is not exactly a can't-miss prospect.

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In A Fierce Food Retail Market, Natural Grocers Has To Perform Better

Seeking Alpha: Plum Creek Timber Biding Its Time

Maybe the nicest thing I can say about Plum Creek Timber (NYSE:PCL) since my last update is that investors in this timberland REIT fared better than those invested in Weyerhaeuser (NYSE:WY), Potlatch (NASDAQ:PCH) or lumber/wood product producers like West Fraser (WFT.T) or Canfor (CFP.T). The basic underlying problem will be familiar to many investors - housing starts aren't recovering to the extent expected around the beginning of the year, Asian demand has been weaker than expected, and prices for Northwestern and Southern logs haven't improved as much as hoped.

If you've been interested in Plum Creek for some time, nothing has really changed. The bull thesis on Plum Creek centers around the idea that management can drive more value by intensive management of the timberland resources (better planting and harvesting decisions), sell higher-value properties, and leverage an eventual housing recovery. Bears can argue that Plum Creek doesn't have enough leverage to value-added manufacturing, that higher-value sales will disappoint, and that the slower/shallower housing recovery will limit price recovery.

I continue to believe that Plum Creek is likely undervalued on a long-term net asset value basis (which assumes "fair" prices well below prior peaks), but not so much so that this is a must-buy. I think this remains a credible stock for investors interested in income, but this is not the sort of situation where management excellence can neutralize an underwhelming operating environment.

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Plum Creek Timber Biding Its Time

Seeking Alpha: A Long-Awaited Success For Lexicon Pharmaceuticals

Back in April of this year, I thought that the Street was focusing too much on the failure of Lexicon Pharmaceuticals (NASDAQ:LXRX) to find a partner for its diabetes drug sotaglifozin and the risks of its go-it-alone strategy focusing on development of the drug for Type 1 diabetes. In contrast, I thought there was an unappreciated opportunity in the company's Phase III asset for carcinoid patients refractory to somatostatin analogs (or SSAs) like octreotide, as Phase II results were encouraging and a global market opportunity of $1 billion could be in play.

On Monday morning Lexicon investors got the news they were hoping to see. Although the company didn't offer all that many specifics, management did announce that the Phase III TELESTAR study did see the drug (telotristat etiprate) achieve a statistically significant benefit for the primary endpoint. The data that the company did release suggest solid efficacy relative to placebo, with the magnitude of benefit improving over time and a generally good safety/tolerability profile.

With this result, there is an outside chance that the company could have its first drug approval in hand before the end of the 2016. This clinical update adds about $4 to my fair value estimate, though risks remain in securing approval and commercializing the drug in the U.S.; partner Ipsen (OTCPK:IPSEY) will handle marketing outside of the U.S. and Japan.

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A Long-Awaited Success For Lexicon Pharmaceuticals

Seeking Alpha: Structurally Light On Growth, Baxter Has A Lot Of Work Ahead

In healthcare, as in most segments of the market, growth fixes or at least papers over a lot of problems. Nobody really cares if the latest hot tech company is producing lousy margins and has no clear path to meaningful free cash flow - as long as the revenue growth is eye-popping, that's good enough for a high multiple until the day of reckoning comes into view.

For Baxter (NYSE:BAX), the split/spin-off of Baxalta (NYSE:BXLT) leaves behind a company with solid market share in stable markets, but management is going to have to roll up their sleeves and put in some work to find growth opportunities and drive better margins. There is certainly room for Baxter to do better in infusion pumps and renal care, and biosurgery can be a decent business in the coming years, but the market is already expecting a lot of improvements here in the years to come.

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Structurally Light On Growth, Baxter Has A Lot Of Work Ahead

Seeking Alpha: BRF's Strong Exports Offset A Tough Brazilian Market

There are times when boring businesses have their advantages, and this is one of those times in Brazil. BRF SA (NYSE:BRFS) local shares have outperformed the Bovespa by about 35% over the past year as this core consumer business has held up better than many during Brazil's difficult economic times. The weakness of the Brazilian real has hurt the performance of the ADRs (down about 18% over the past year), but I continue to believe that BRF is on its way toward establishing itself as a global packaged food company with a focus on emerging market consumption growth.

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BRF's Strong Exports Offset A Tough Brazilian Market

Wednesday, August 5, 2015

A New Round Of Bad News

Today's visit to the cancer center brought with it more bad news. She will soon transition to a new therapy regimen. Although this regimen is a legitimate breakthrough, it still only ultimately helps about 25-30% of people who get it.

She's not in pain, and her bloodwork is good. But the scans do show the cancer starting to grow and spread again.

I'm not sure what I'll be doing work-wise. I suspect that it will be "consistently inconsistent".

Monday, August 3, 2015

Seeking Alpha: Oshkosh Getting Squashed

I was nervous about Oshkosh (NYSE:OSK) back in January, as I thought there wasn't enough upside in my base-case assumptions to offset the significant risk and uncertainty. As it turns out, construction and energy demand have been even weaker than expected at the start of the year, and there are signs and warnings from companies like Eaton (NYSE:ETN) and Parker-Hannifin (NYSE:PH) that overall mobile equipment demand is not looking very good.

Down almost 20% from the time of that January piece, the investment case for Oshkosh is still broadly what it was before - buy Oshkosh if you expect a sharper recovery in oil/gas and solid growth in construction equipment demand, coupled with Oshkosh winning a major defense vehicle award. While my fair value hasn't gone down too much (I had generally more bearish than average expectations earlier this year), I still have elevated concerns about this business and I think there are safer risk/reward trade-offs out there. All of that said, there's definitely room for self-improvement here and a defense vehicle win could conceivably add as much as $10 per share.

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Oshkosh Getting Squashed

Saturday, August 1, 2015

Seeking Alpha: Eaton Seeing The Headwinds Blowing Harder

This hasn't been a quarter of good news for the industrial sector, and Eaton (NYSE:ETN) is no exception in that regard. In addition to a worsening short-cycle industrial environment and worries about the health of capital investment in China and auto/truck assembly in the Western hemisphere, there are real challenges in hydraulics and reason for concern in the company's Electrical Products margin structure.

The other thing that worries me about Eaton today is the announcement of another restructuring program that seems (to me, at least) to hint that this is not a lull in the company's end-markets, but potentially a longer downturn. Eaton does look undervalued today, but I have some concerns as to whether the company can meet my FCF margin improvement targets. General Electric (NYSE:GE) and Honeywell (NYSE:HON) seem like safer picks relatively speaking, but Eaton does still hold some appeal.

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Eaton Seeing The Headwinds Blowing Harder

Seeking Alpha: Storm Clouds In Front Of Parker-Hannifin

Parker-Hannifin (NYSE:PH) hasn't been a terrible performer since my article back in January, but I think investors should generally aim higher than "not terrible". I continue to believe that this diversified motion and fluid control company is well-run and a credible long-term hold, but the near-term outlook has gotten pretty scary lately and I think the odds favor that the company will underwhelm with its upcoming fourth quarter earnings release and guidance for the upcoming fiscal year.

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Storm Clouds In Front Of Parker-Hannifin

Seeking Alpha: Colfax's Benefit Of The Doubt Has Deservedly Gone Away

I have openly granted the growth potential of Colfax (NYSE:CFX), but I haven't ever really liked the valuation that the Street was willing to give the stock. While investors and analysts have expected a lot of magic from the company's welding, gas handling, and fluid management businesses, I think they have overlooked some of the structural challenges in the welding business and the end-market risks in the gas and fluid businesses.

The shares are down about 40% since my last article on the company, as multiple days of reckoning have hit its valuation hard. The evolution of the company's businesses over the last ten months has led me to slash my expectations and valuations, though I can now at least say that the valuation looks sane. I do have competitive concerns about the welding business, and I don't share the assumption that management has a magic touch that will turn every M&A transaction into a winner. That said, if you're shopping for ideas that have been pummeled into the ground, this is a name to consider.

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Colfax's Benefit Of The Doubt Has Deservedly Gone Away

Seeking Alpha: RPC Hoping That The Worst Is Soon To Be Past

I didn't see a reason to be in a rush to buy RPC (NYSE:RES) back in February and the slightly negative move in the shares since then doesn't really have me regretting that viewpoint. Investors certainly could have done worse in the oil services space (C & J Energy Services (NYSE:CJES), Basic Energy (NYSE:BAS), and Superior (NYSE:SPN) have all fared worse) and not too many names have done all that much better during this awful stretch, but this is still a tough market for bulls.

I continue to believe that RPC is an uncommonly well-run company in the space and a prime beneficiary of a recovery in rig counts and increased well completions … whenever that takes place. To that end, I like RPC for its strong leverage to a U.S. onshore recovery and the limited downside created by its strong balance sheet and very strong service reputations. Names like Basic Energy, Key Energy (NYSE:KEG), Superior, and even Weatherford (NYSE:WFT) offer more upside punch to a sharper turnaround, but with RPC it really doesn't seem that investors need to worry about survivability, accountability, or operational performance.

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RPC Hoping That The Worst Is Soon To Be Past

Seeking Alpha: Softer Markets And Weak Execution Are An Ugly Mix For Atmel

I wasn't overly fond of Atmel's (NASDAQ:ATML) valuation back in March, but I did think there was a chance that this chip company would see itself swept up in the M&A boomlet across the chip industry. The market thought so too, taking the shares up almost 20% at the peak after my last article. Then harsh reality started to set in, as markets like computing, handsets, and general industrial started looking weaker and weaker. All told, the shares sit about 6% lower than where they were at the time of that last writing, but now sentiment is definitely more sour - on chips in general and Atmel's execution/guidance issues in particular.

I still think that a sale of the company is a distinct possibility. The company's microcontroller business represents a relatively scarce asset that could appeal to companies ranging from Analog Devices (NASDAQ:ADI) to Microchip (NASDAQ:MCHP) to Texas Instruments (NASDAQ:TXN), with Avago (NASDAQ:AVGO) and Qualcomm (NASDAQ:QCOM) as potential long-shot bidders as well. If the company doesn't sell, better execution is an absolute must and likely to be the first priority for the new (and as of yet unannounced) CEO. Atmel does have a legitimate opportunity in front of it with increasing chip content in autos and the growth of Internet of Things (or IoT) applications, but past foibles make it an entirely legitimate question as to if the company can actually deliver on the potential.

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Softer Markets And Weak Execution Are An Ugly Mix For Atmel

Thursday, July 30, 2015

Seeking Alpha: Check Point Doesn't Need To Feel Insecure

The way things have been going lately, you'd think that Check Point Software Technologies (NASDAQ:CHKP) showed up to a Formula 1 race on a tandem bike. Check Point is certainly being outgrown by up-and-comers in security like Palo Alto (NYSE:PANW), Fortinet (NASDAQ:FTNT), and FireEye (NASDAQ:FEYE), and the shares have largely missed out on the hockey stick rise in security stock prices, but I wouldn't exactly call this leading firewall company chopped liver either.

I do believe that Check Point will hold more share in firewalls than many seem to think, and I think the company's fast-follower approach into areas like endpoint security do offer growth in the coming years. But to recycle that prior metaphor, talking about fair value in the context of software stocks can often feel like bringing a bike to a car race, and Check Point shares don't exactly jump out as shockingly undervalued on an absolute basis.

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Check Point Doesn't Need To Feel Insecure

Seeking Alpha: Advanced Energy Industries Looking For A New Start

The angst over the health/trajectory of semiconductor capital equipment orders hasn't hurt Advanced Energy Industries (NASDAQ:AEIS) any more (or any less) than most of its peers. Applied Materials (NASDAQ:AMAT) has been noticeably weak since my February piece on AEIS, due to the fallout of its aborted merger with TEL, but AEIS, MKS Instruments (NASDAQ:MKSI), Entegris (NASDAQ:ENTG), Lam Research (NASDAQ:LRCX) and ASML (NASDAQ:ASML) have all clustered around low-to-mid single-digit loses over that span.

Given how tied Advanced Energy Industries is, and will be, to the semiconductor industry, that's not an unreasonable performance. The company has a good track record and reputation in supplying the semi equipment market with power conversion systems, remote plasma sources, thermal instrumentation, and so on, but the fact remains that major equipment buyers like TSMC (NYSE:TSM) and Intel (NASDAQ:INTC) have generally been buying less than expected and guiding down with respect to their plans as development timelines stretch out and the fabs reuse older equipment to save money.

Looking ahead, I believe AEIS is making the right decision in cutting its losses in the inverter business. Likewise, I think management is on the right track in looking to expand its precision power business beyond the semiconductor industry and into areas like medical devices and aerospace/defense. The "new" AEIS will likely emerge as a better, more profitable company, but the current valuation seems to largely reflect that.

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Advanced Energy Industries Looking For A New Start

Seeking Alpha: Ingersoll-Rand: Good Exposures, But Not So Much Value

It has been a while since I've written on Ingersoll-Rand (NYSE:IR), in no small part because I haven't had a lot to say beyond reiterating that the company is following a more or less cogent restructuring plan and that its end-market exposures (non-residential construction and commercial vehicles) are broadly attractive. Now, though, the prospect of a sharper downturn in the industrial sector is threatening to undermine some of the progress.

Two years ago, I thought Ingersoll-Rand didn't look like a particular bargain, and the shares have risen about 16% since then - less than half the rise in the S&P 500 and well below the likes of Honeywell (NYSE:HON), Lennox (NYSE:LII), and Johnson Controls (NYSE:JCI). Dover (NYSE:DOV), too, had been an outperformer over much of that time until it was laid low by energy while Atlas Copco (OTCPK:ATLKY) shares have lagged in no small part because of its large mining exposure. Looking at Ingersoll-Rand today, I still don't see enough undervaluation to be truly interested in the shares.

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Ingersoll-Rand: Good Exposures, But Not So Much Value

Wednesday, July 29, 2015

Seeking Alpha: Stryker Seems Next In Line For A Big Deal

It's hard to find much to complain about with Stryker (NYSE:SYK). The shares aren't cheap, but then they weren't back in January and they've managed to tack on another 10%, making them one of the better performers in the group this year. I suppose I could complain that the company's solid revenue growth isn't unlocking a lot of margin leverage, but then this is a pretty efficiently run company from the off.

Looking ahead, I'm still not wild about the valuation, but I do acknowledge that Stryker has dry powder that it can deploy toward accretive M&A. I would be in no rush to sell Stryker if I owned it, but I generally like to see some discount to DCF-based or EV/rev-based fair value to make a new purchase, and I just don't see that here in Stryker's valuation.

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Stryker Seems Next In Line For A Big Deal

Seeking Alpha: Weatherford Slowly Changing The Tone

To be clear from the outset, Weatherford (NYSE:WFT) has given investors ample reason over the years to hate the management and have nothing to do with the stock. It's likewise entirely fair to say that a leader who presided over the making of an epic mess is rarely the person to lead the company out of it.

That said, I believe there is more than a little stubbornness out there regarding Weatherford and I believe that ignoring the cost and management improvements made by the company is a mistake. The current state of the North American onshore market is lousy, but I had already expected that, and I still believe that Weatherford shares ought to trade closer to the mid-teens. There is most definitely a real risk that the onshore market(s) stay weaker for longer, but I likewise believe there is an opportunity for a new and improved Weatherford to emerge as a viable new Top Three player in a market that wants one.

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Weatherford Slowly Changing The Tone

Seeking Alpha: Lincoln Electric Trying To Manage The Nearly Unmanageable

Between the well-telegraphed declines in oil/gas and shipbuilding and the emerging weakness in heavy manufacturing seen through the reports of companies like Kennametal (NYSE:KMT) and MSC Industrial (NYSE:MSM), the writing was on the wall for Lincoln Electric (NASDAQ:LECO). This well-run welding company is managing the downturn as best it can, but there's only so much the company can do when there is weakness on multiple fronts and little-to-no visibility regarding a turnaround.

Conditions can certainly get worse, but I would like to think that the shares already reflect a pretty unpleasant scenario. My base case fair value on the shares is around $67, but another 10% cut to 2015 and 2016 expectations would still suggest today's price is about 5% too low. That's not quite "heads I win; tails I don't lose", but it's close enough to have my bumping this name up my watch/buy list as short-term problems muddy the waters for a proven performer.

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Lincoln Electric Trying To Manage The Nearly Unmanageable

Seeking Alpha: Microsemi Executing Its Model To Good Effect

Going its own way seems to still be doing some good for Microsemi (NASDAQ:MSCC), as this consistently off-beat semiconductor company appears to be better-positioned than many of its rivals for the near term. With good leverage to relatively healthy commercial aerospace and defense end markets and modest exposure to weaker areas in industrial, PCs, or handsets, Microsemi should have a decent backdrop against which to continue driving long-promised margin improvements.

Although I don't personally value share buyback announcements all that highly, Microsemi has been improving its cash flow generation and continues to trade below what I believe to be its fair value. Given the stock's strong run of relative outperformance, though, the contrarian call may no longer be to prefer Microsemi, but rather to take another look at names like Qorvo (NASDAQ:QRVO), Atmel (NASDAQ:ATML), and Linear (NASDAQ:LLTC) that haven't done as well.

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Microsemi Executing Its Model To Good Effect

Seeking Alpha: FEMSA Continues To Play The Long Game

As a family-controlled operation, FEMSA (NYSE:FMX) management has the option to run the business with an exceptionally long-term focus and make trade-offs between short-term growing pains and long-term opportunities. To that end, recent ventures into fast food, pharmacies, and gas retail aren't going to do much to boost near-term valuation, but they support a long-term vision of FEMSA as a comprehensive play on the Mexican consumer across multiple facets of their lives.

The near-term performance of FEMSA's ADRs is certainly tied to the performance of the Mexican peso, and that's not a good thing at the moment. Nevertheless, I believe these shares now trade at a double-digit discount to fair value and offer a good option for investors looking to gain exposure to the Mexican consumer.

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FEMSA Continues To Play The Long Game

Tuesday, July 28, 2015

Seeking Alpha: Cameron Coming Through In The Pinch

During this steep downturn in the energy space, Cameron (NYSE:CAM) has stepped up in terms of operating performance, market share, and order flow. That has not gone unnoticed, as the shares have sold off less sharply than those of National Oilwell Varco (NYSE:NOV), FMC Technologies (NYSE:FTI), Dril-Quip (NYSE:DRQ), and Forum Energy Technologies (NYSE:FET). Not only is the company's OneSubsea venture with Schlumberger (NYSE:SLB) really coming into its own, but also Cameron seems to be gaining share in markets like surface equipment.

Whether or not Cameron is a good stock to consider today depends in large part on your outlook for the energy sector. If you believe the major service companies that activity levels have bottomed in the North American onshore market and that the offshore markets will come back in another two or three years, Cameron should do well. I do believe that the next couple of years will be difficult in markets like drilling equipment, but modeling this as a three to four year recovery story still suggests upside toward $60 per share.

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Cameron Coming Through In The Pinch

Seeking Alpha: Honeywell And Melrose Tango For Mutual Benefit

A week ago, I wrote that Honeywell (NYSE:HON) had been quieter than most people expected with respect to M&A, and that automation/controls could be an area where the company would want to look. A week before that I had written that Melrose (OTC:MLSPF) (MRO.L) was likely looking to sell its Elster business (in whole or in pieces), return some cash to shareholders, and then move on to its next turnaround opportunity.

In a peanut butter-meets-chocolate moment, the two companies got together and made both of those calls come true (more or less). Honeywell and Melrose announced Tuesday morning that the two companies had reached an agreement wherein Honeywell will acquire Melrose's Elster business in its entirety (and including pension obligations) for about $5.1 billion. This is a very good deal for Melrose and its shareholders, and management will likely move quickly to share the proceeds and identify the next target. For Honeywell, too, I believe this is a good deal and one that could open interesting doors down the road.

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Honeywell And Melrose Tango For Mutual Benefit

Seeking Alpha: With Minimal Guidance, Ultratech Left Groping In The Dark

The last year hasn't been particularly kind to most semiconductor equipment companies, but Ultratech (NASDAQ:UTEK) has fared among the worst as the company has come up far short of the expectations that the company's laser spike annealing tools would play a significant role in the migration to 14nm/16nm FinFET chips at major manufacturers like TSMC (NYSE:TSM), Intel (NASDAQ:INTC), and Samsung. While emerging opportunities in advanced packaging, inspection, and atomic layer deposition take away a little bit of the sting, it hasn't been nearly enough to maintain the prior outlook.

Management hasn't been much help, as the guidance on the last couple of calls really hasn't shed much light on the outlook for the company's tools. I do not believe that management is misleading or withholding information from investors, but the lack of visibility in the market is a definite risk factor. So too is the risk that the company has lost enough share to companies like Screen Holdings (OTC:DINRY) and Mattson (NASDAQ:MTSN) that it threatens the basic thesis that Ultratech's tools offer much-needed advantages in performance.

There is a chance that Ultratech can support a higher valuation largely on the basis of its opportunities in advanced packaging, and the company's cash-rich balance sheet largely takes survivability off the table as an issue. Unfortunately, the lack of traction and visibility in thermal processing makes this more and more of a gamble/speculation than a real investment.

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With Minimal Guidance, Ultratech Left Groping In The Dark

Seeking Alpha: ABB Muddling Through Amidst Ample Skepticism

Swiss automation and power product company ABB (NYSE:ABB) has plenty of doubters and skeptics out there, and I don't think second-quarter results are going to be enough to bring them over to the bull side. The company should get credit for delivering a better result than was expected, but that has to be tempered by the fact that expectations have been heading lower with worries about demand in energy-related process automation and a slow bottoming out of the power end markets.

I'm more bullish on ABB's opportunity to turn around the power businesses and continue to deliver growth in automation through new opportunities like human-safe robots, smart buildings, and so on. The company lacks Rockwell's (NYSE:ROK) leverage to higher-value software and controls, but then it comes at a lower valuation and it still has balance sheet flexibility to add to its capabilities in those areas. ABB is a more of a turnaround story than a growth story, and on that basis, I still see some value here.

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ABB Muddling Through Amidst Ample Skepticism

Monday, July 27, 2015

Seeking Alpha: 3M's High Multiple Likely Magnifying The Disappointment

For some time now, it has been very challenging to call 3M (NYSE:MMM) a bargain on the basis of its probable future cash flow streams. Investors were willing to pay up for 3M's stability and strong margins, but a somewhat lackluster second quarter seems to have market participants reconsidering whether the company deserves that premium.

As I have said in the past, I'm willing to pay up for quality stories like 3M, but I'm not going to argue that you have to own this stock when Honeywell (NYSE:HON) and General Electric (NYSE:GE) appear to offer better relative value. I still think there are arguments for owning 3M in portfolios oriented for long-term performance, but second-quarter results should serve as a reminder that even a great company like MMM isn't shielded from short-term performance and market exposure worries.

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3M's High Multiple Likely Magnifying The Disappointment

Seeking Alpha: Everything's Coming Up Roches

Given the hope and hype surrounding cancer immunotherapy/immuno-oncology (or IO), it almost seems anticlimactic when a Big Pharma company talks about earnings or drugs outside of the IO space. Roche (OTCQX:RHHBY) posted good results for the first half of 2015 and the company has recently reported some very encouraging data from drugs outside its core oncology franchise - a welcome respite from what had been a litany of failure that left the company's pipeline overly dependent upon oncology.

Roche doesn't look remarkably cheap right now, but there's a lot of uncertainty in some important value drivers. Depending upon what happens with pivotal studies, the oncology markets that Roche is targeting with its anti-PD-L1 antibody atezolizumab could be worth twice as much as I currently expect, though there will most definitely be fierce competition from Bristol-Myers (NYSE:BMY), Merck (NYSE:MRK), AstraZeneca (NYSE:AZN), and others. A more bullish assessment of the size of these end-markets in 2025 could take my target above $40, but I'm content to own Roche on the expectation of high single-digit to low double-digit annual returns.

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Everything's Coming Up Roches

Seeking Alpha: Entellus Medical's Valuation Doesn't Leave A Lot Of Breathing Room

Entellus Medical (NASDAQ:ENTL) checks a few attractive boxes within the med-tech space - namely, a less invasive procedure that can be performed in a physician's office instead of a hospital. Entellus offers an appealing solution to the balloon sinus dilation (or balloon sinuplasty) market, with a system that is smaller, more flexible, and less complex than rival systems. That said, key questions remain as to the true market potential for office-based balloon sinuplasty and the willingness of ENT specialists to adopt this technique (and Entellus's tools).

I have some issues with this as an investment idea, though. First, there's still ample controversy regarding the proper role of balloon sinuplasty within the treatment of chronic sinusitis. Second, Entellus is a small player competing with some very large rivals. Third, even if Entellus dominates the office market, I don't see enough revenue or profit potential to make the valuation truly compelling at this price.

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Entellus Medical's Valuation Doesn't Leave A Lot Of Breathing Room

Thursday, July 23, 2015

Seeking Alpha: How Do You Solve A Problem Like Qualcomm?

Referencing a 56-year old song for the title of an article about a tech company is admittedly bizarre, but then so too is Qualcomm's (NASDAQ:QCOM) situation. The acknowledged leader in handset baseband and app processors, the stock is down about 25% over the past year, as weaker handset sales momentum and weaker margins have really started to bite hard.

Qualcomm is in the enviable situation of having a pretty darn good business in hand, as well as ample cash (and cash flow) to fund complementary or expansionary M&A. The question is whether the company has the courage (and/or vision) to risk the short-term wrath of investors in order to improve the long-term outlook. Although the company's valuation does stand out in an otherwise expensive crowd, I'm not so proud that I won't admit that I really don't know what to do about the shares.

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How Do You Solve A Problem Like Qualcomm?

Seeking Alpha: EMC Corp Sticking To Its Guns

Right or wrong, EMC (NYSE:EMC) is committed to its path of evolving into a leading provider of "IT-as-a-service". Likewise, the company remains committed to an operating structure that is going to continue to frustrate some investors, as it believes (correctly, in my view) that VMware (NYSE:VMW), Pivotal, and other components are vital to its future strategy.

The problem is that EMC is not delivering all that much right now. Reported margins are unimpressive and the company is on a downward slide in several productivity and inefficiency measurements. I believe that this is a product of the company investing substantial sums today to generate revenue and profits down the line, but I won't deny that there's a strong element of "You gotta just trust me on this..." that does not make for an airtight investment thesis. I continue to believe that EMC is undervalued on relatively modest expectations, but it increasingly looks to me that EMC is at least a year away from being able to deliver the sort of results that will quiet critics and encourage its long-term shareholders.

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EMC Corp Sticking To Its Guns

Seeking Alpha: Fifth Third Catches Up To The Pack

Like Wilshire Bancorp (NASDAQ:WIBC), I thought Fifth Third (NASDAQ:FITB) offered investors some interesting and attractive value back in January of this year. Like in the case of Wilshire, I thought that investors would have to have some patience to see the Street come around and recognize that value given a less-exciting outlook for loan growth and interest spread improvement. And like in the case of Wilshire, I was wrong about the timing - the shares rose almost 25% since that piece, very nearly making it the best performer in its weight class (just edged out by Key (NYSE:KEY), but Regions Financial (NYSE:RF) is very close behind).

I'd just as soon see my performance come sooner than later, so I'm not complaining that Fifth Third has gotten the recognition I thought it was due. Looking ahead, though, here again we have another story where the future returns are likely to be more traditionally "bank-like", with future rate hikes, expansion of fee-generating businesses, and expense reductions as the primary performance drivers. Given better valuation I'd lean more toward U.S. Bancorp (NYSE:USB) today with new money (or banks outside the U.S.), but Fifth Third isn't overvalued today and can still generate a decent return from here.

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Fifth Third Catches Up To The Pack

Seeking Alpha: The Going's Tough, But Steel Dynamics Still Going

As Chinese steel mills continue to throw steel into the export market, producers like Steel Dynamics (NASDAQ:STLD), Nucor (NYSE:NUE), and ArcelorMittal (NYSE:MT) are finding it difficult to make much headway with their own operations. I liked Steel Dynamics on a relative and absolute basis back in February, and I'm happy to say that the shares have risen more than 10% since then - beating out other producers' stocks by a pretty healthy margin (Nucor down about 4%, ArcelorMittal down about 7%, and Gerdau (NYSE:GGB) down more than 40%).

I believe Steel Dynamics is faring better due to its better free cash flow generation profile, its stronger EBITDA/ton, its decision to curtail Mesabi Nugget, and its leverage to opportunities in fabrication and higher-value products like rail. I do still believe the shares are undervalued, but there's no shortage of cheap-looking steel stocks and it is hard to see how steel prices will improve when low coal and iron ore prices, not to mention government subsidies, continue to encourage Chinese mills to export more and more steel.

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The Going's Tough, But Steel Dynamics Still Going

Seeking Alpha: Dover On The Defensive

I closed my last article on Dover (NYSE:DOV) with the admonition that "how much worse can it get?" are maybe the most dangerous words in investing (although "it's different this time" is a top contender). Dover hasn't been a disaster since then; the shares are down about 8% and on par with Emerson (NYSE:EMR), but investors are right to wonder why management has apparently misestimated the scope of the energy decline. What's more, it would seem that opportunities like "close the case" in refrigeration aren't quite what they were cracked up to be.

I don't think that Dover is a bad or broken company, but I do think it is at least fair to ask whether this is a particularly well-run conglomerate. Valuation isn't demanding at this level, but energy could be weaker for longer, and there are some areas of concern in multiple industrial markets. Patient investors will probably do alright with Dover, but General Electric (NYSE:GE), Eaton (NYSE:ETN), and Honeywell (NYSE:HON) all seem undervalued to varying degrees and are at least worth a look before committing to Dover.

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Dover On The Defensive

Seeking Alpha: Mortgages And Rates Can Drive Growth, But Wilshire Bancorp Has Had A Good Run

I've been bullish on the value potential of Wilshire Bancorp (NASDAQ:WIBC) for some time, but thought that investors would have to be patient to see the real value come through. I suppose another six months is exceedingly patient for some investors, but I was surprised to see the strong 30%-plus move in the shares since my last article. That performance beats peers like Hanmi (NASDAQ:HAFC) and BBCN (NASDAQ:BBCN) by a healthy margin, as well as the KBW Regional Banking (NYSEARCA:KRE) index.

At this point, I'm less bullish on Wilshire Bancorp shares. I like the bank's move into residential mortgage originations, as I believe this will be a solid fee/gains-generating opportunity. I also like the company's leverage to higher rates and further expansion to Korean-American communities outside of its core Southern California market. All of that said, I think the risk and potential reward are in much closer balance now, and it's no longer as appealing for value hounds in the banking sector.

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Mortgages And Rates Can Drive Growth, But Wilshire Bancorp Has Had A Good Run

Seeking Alpha: SKF's Erosion Is Cause For Concern

Bearings are virtually ubiquitous in manufacturing and transportation, so I don't believe it is a stretch to say that Sweden's SKF (OTCPK:SKFRY) can be an invaluable barometer of early-cycle trends. That makes the company's ongoing erosion in organic growth worrisome, even allowing for the possibility of company-specific issues playing an increasing role.

SKF's new CEO seems to be taking the company in a disappointingly less-open direction, and the market really hasn't gotten much specificity regarding price/mix, the restructuring plans for the automotive segment, nor the ongoing cost reduction initiatives. That might not bother me as much if the shares were a bargain, but I don't see a lot of reason to lean toward giving a benefit of the doubt right now.

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SKF's Erosion Is Cause For Concern

Seeking Alpha: General Electric On A Better Path, But Not Yet Priced Accordingly

Investors certainly could have done worse than buy into General Electric's (NYSE:GE) turnaround prospects three years ago, as companies like Emerson (NYSE:EMR) and Siemens (OTCPK:SIEGY) ably demonstrate. Then again, a look at Honeywell (NYSE:HON), Rockwell (NYSE:ROK), or 3M (NYSE:MMM) likewise demonstrates that General Electric still hasn't regained all of its luster in the eyes of many investors.

It has been about three years since I last wrote about General Electric for Seeking Alpha, and quite a lot has changed. Management has moved from "right-sizing" GE Capital to significantly shrinking the operation, while significantly increasing its commitment to power and aviation as long-term core markets. The valuation on these shares doesn't seem to fully reflect the ongoing improvements in the business and while I can understand hesitancy to invest in a business with sizable leverage to power generation and oil/gas (and possibly some interest in mining) and little leverage to auto/truck or non-residential construction, GE still looks like one of the more undervalued industrial names today.

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General Electric On A Better Path, But Not Yet Priced Accordingly

Seeking Alpha: Komatsu Looking For A Foothold

Six months ago, I thought investors could afford to wait on buying into Komatsu (OTCPK:KMTUY) (6301.TO), as this Japanese manufacturer of construction and mining equipment was likely looking at a multiyear process of demand repair. I don't think investors have really missed out on much - the roughly 8% drop in the ADRs since then is not catastrophic (certainly not relative to Joy Global's (NYSE:JOY) 31% drop), but investors would have done better in Caterpillar (NYSE:CAT), Volvo (OTCPK:VOLVY), Terex (NYSE:TEX) or by avoiding the space altogether.

Looking ahead, there's arguably a little more value in the shares but the outlook still isn't promising. There's a real threat that U.S. equipment demand isn't going to get much better and that growth in Europe won't offset weakness in Asia and particularly China and Japan. Komatsu does have an opportunity to stand out on a relative basis with its automation initiatives and internal cost reductions, but I'm not sure there's enough upside to make the wait a comfortable one.

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Komatsu Looking For A Foothold

Seeking Alpha: Amicus Fairly Rewarded For Substantial Progress

Amicus Therapeutics (NASDAQ:FOLD) is shaping up as a positive example of what happens when patience is matched with good underlying science. There have definitely been some large potholes along the way, including accusations that the company was playing fast and loose with post-hoc analysis, but the underlying idea that Fabry disease is a heterogenous disease and that Galafold (migalastat) can help some, but not all, of those patients as a monotherapy seems to have ultimately won the day.

Although these shares don't look particularly cheap today, there are still value-creating opportunities in front of the company. Actual approval should de-risk the valuation and final pricing of the drug could be a value-driver as well. Amicus's pipeline behind Galafold monotherapy isn't particularly mature, but the opportunities to leverage Galafold into combination therapies and advance additional rare disease treatments into the clinic are potential value drivers down the road.

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Amicus Fairly Rewarded For Substantial Progress 

Tuesday, July 21, 2015

Seeking Alpha: Honeywell Checking Almost All Of The Right Boxes

There's an interesting dichotomy with a lot of industrial stocks these days - the stereotypically bullish sell-side is concerned that demand is going to start fading (and take margin leverage with it), while the valuations would seem to reflect more of a "what, me worry?" attitude on the part of owners.

For its part, Honeywell (NYSE:HON) has continued to execute well and there is still a credible forward-looking story for margins and M&A. What's more, Honeywell has pretty attractive leverage to the more attractive industrial markets today and relatively low leverage to the less attractive sub-sectors. Valuation could be a little better, but that Honeywell might be cheap at all is somewhat surprising to me and there still may be some room left to run with this name (not to mention an attractive long-term angle for more patient investors).

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Honeywell Checking Almost All Of The Right Boxes

Seeking Alpha: U.S. Bancorp Standing Out A Bit On Value

U.S. Bancorp (NYSE:USB) has done alright in the six months since I last reviewed this large U.S. bank. The shares are up about 11%, which puts it on par with Wells Fargo (NYSE:WFC), but a little behind BB&T (NYSE:BBT), Fifth Third (NASDAQ:FITB), and PNC Financial (NYSE:PNC). As is the case for most of the large U.S. banks, there's nothing particularly wrong with the company today but it is tougher to drive growth in a market where lending competition is heating up and rates are still pretty cool.

On a relative basis, U.S. Bancorp is starting to look a bit like a bargain, but I would note that solid lending growth is a little more important to the value here than it is for some of the peer group. Over the long term, I continue to believe that U.S. Bancorp has a proven model that can drive above-average returns and while I think the valuation of U.S. banks has gotten to a point where future returns are likely to be unexciting (not bad, just unexciting), this is still a credible long-term holding.

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U.S. Bancorp Standing Out A Bit On Value

Seeking Alpha: PNC Financial Doing Enough In A 'Good Enough Is Good Enough' Environment

Nobody expected this to be a banner quarter for large banks, and with the likes of Wells Fargo (NYSE:WFC), BB&T (NYSE:BBT), U.S. Bancorp (NYSE:USB), and PNC Financial (NYSE:PNC) now having reported, it seems safe to say that it hasn't been. Sluggish economic performance in the U.S., not to mention ample competition, is keeping a lid on loan demand and rates, and most banks just don't have enough dry powder in their fee businesses or expense reduction plans to build strong growth.

I like PNC well enough back in January, and the shares are up about 17% since then - more or less matching Fifth Third (NASDAQ:FITB) and outperforming BB&T, U.S. Bancorp, and Wells Fargo. I don't see many obvious bargains in larger U.S. banks, but with the recent run of performance of PNC, these shares look a little less of a bargain on a relative basis. From here on, this looks like a long-term value accretion story - if you're comfortable with that, hold what you have. If you're looking for more dramatic outperformance, I'm not sure this is the name for you.

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PNC Financial Doing Enough In A 'Good Enough Is Good Enough' Environment