Friday, November 21, 2014

Seeking Alpha: Lexicon Pharmaceuticals Fights On

Nothing has ever been easy for Lexicon Pharmaceuticals (NASDAQ:LXRX). When the original plan to operate as a generator of knockout-based drug targets for other companies fell through, the company retrenched around the idea of developing its own drugs. After drugs targeted at rheumatoid arthritis and IBD fell through, the company found two much more promising candidates - telotristat etiprate for carcinoid syndrome and sotagliflozin (formerly LX 4211) for diabetes.

Here again, though, the company has encountered unexpected difficulties. Despite a strong profile in Type 2 diabetics with impaired renal function (a large piece of the market) and the possibility of strong efficacy in Type 1 diabetes, Lexicon has not been able to attract a partner to develop the Type 2 indication. This has left the company in a tough spot, forcing it to conserve resources and scramble for the cash it will need to develop the Type 1 diabetes indication on its own.

With the company's recent efforts to raise cash, it does look as though the company can make it through to pivotal data for both of its lead drugs. Whether the company can in fact market them on their own remains to be seen, but for now Lexicon remains what it has long been - a scrappy biotech with ugly financing and seemingly undervalued clinical assets.

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Lexicon Pharmaceuticals Fights On

Seeking Alpha: Microsemi Chugging Along

Microsemi (NASDAQ:MSCC) has always been a different sort of semiconductor company. In an industry where investors pay a lot of attention to leading-edge technologies, Microsemi has historically been better known for less advanced high-reliability products that are often sole-sourced. Where many semiconductor companies are tied heavily to end markets like communications, industrials and consumer products, Microsemi has long been more leveraged to defense and aerospace.

The end result of all of this is that Microsemi shares often seem to zig when others zag. But with the defense, aerospace, and space markets looking stronger into 2015 and the company still building up its underrated FPGA business, Microsemi seems to me to be getting stronger at a time when many investors are worried about the semi space. As I continue to see fair value in the low-to-mid $30's, I continue to believe this is a stock well worth investors' due diligence efforts.

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Microsemi Chugging Along

Thursday, November 20, 2014

Seeking Alpha: Multi-Color's One-Two Growth And Margin Punch

Multi-Color (NASDAQ:LABL) has been on a tear over the last year, up about 50%, and as a shareholder I can't really complain. Over the last few quarters the company has seen not only improving organic growth trends, but better than expected contributions from acquisitions and faster improvements in margins. I do have some concerns that valuation is getting stretched, but margin leverage can unlock additional value and the company has a deep pool of acquisition candidates to augment internal growth efforts.

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Multi-Color's One-Two Growth And Margin Punch

Seeking Alpha: Short-Term Concerns Stacking Up At MSC Industrial

One of the endless debates between investors is whether it is better to move in and out of positions in response to short-term trends or to identify well-run companies with long-term drivers and hold them through thick and thin. I'm generally in the latter camp, but even I will acknowledge that it is harder to argue that industrial distributor MSC Industrial (NYSE:MSM) is a must-buy today.

The fundamental bull theses for MSC Industrial still seem to be in place. MSC Industrial is a well-run distributor with a strong core in metalworking that is looking to leverage its CCSG business to address new industry verticals (beyond manufacturing) and to enter new adjacent markets (like fasteners). On the other hand, the company is seeing margin pressure as it spends on initiatives to drive future growth and sales growth targets may be pressured by weak pricing and increased competition from the likes of Fastenal (NASDAQ:FAST) and other distributors.

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Short-Term Concerns Stacking Up At MSC Industrial

Friday, November 7, 2014

Seeking Alpha: Alnylam Pharmaceuticals Staying Ridiculously Busy

Investors who prefer biotechs with potential platform technologies that can support multiple drug candidates can still find a lot to like in Alnylam Pharmaceuticals (NASDAQ:ALNY). With the shares up about 60% over the past year, a $6.6 billion-plus market cap, and multiple analysts following the stock, this is no longer an under-the-radar play on RNA interference, but the company's preclinical research efforts continue to produce interesting new candidates while those already in the clinic are showing meaningful potential.

For a company with one late-stage program, it may seem hard to argue that Alnylam shares are seriously undervalued today. At the same time, I would note that trial read-outs later this year and in 2015 could add significant value as investors revise their projected odds of approval and revenue expectations. I continue to hold these shares myself and I certainly think they make sense in a portfolio for investors who are comfortable with the risks that attend biotech stocks.

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Alnylam Pharmaceuticals Staying Ridiculously Busy

Thursday, November 6, 2014

Seeking Alpha: Neurocrine Biosciences Looking Forward To A Big Year

"Hurry up and wait" remains the order of the day for Neurocrine Biosciences (NASDAQ:NBIX). This research-stage biotech has a big year on the way in 2015, with key data expected on both Elagolix and the VMAT2 inhibitor NBI-98854 (or '854). Strong efficacy and safety data could add $7 to $10 per share in value, while disappointing results would certainly have a negative impact on the shares. These shares still look undervalued today, though, and the possibility of new clinical candidates and/or buyout rumors could add a little excitement before year-end.

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Neurocrine Biosciences Looking Forward To A Big Year

Seeking Alpha: BRF's Operational Improvements Shining Through

Brazil's largest food company, BRF SA (NYSE:BRFS), continues to show progress with its self-improvement efforts. Although economic stress on Brazilian consumers has been leading to some trading-down in buying patterns, BRF has offset this with a more profitable SKU mix and an increased focus on operating efficiency. Despite an unexpected change in the company's leadership, the company looks on track with previously announced plans to shift more emphasis to higher-margin processed/packaged products and to prioritize margin and cash flow efficiency.

The biggest problem with BRF shares, apart from the volatility of the Brazilian economic and political environment, is valuation. I do believe that BRF has a plan that can lead the company into the ranks of the multinational packaged food giants, but the shares reflect a lot of optimism. I'm in no rush to sell just because of valuation, but new investors may find it wiser to wait for one of the seemingly inevitable corrections in the Brazilian stock market before stepping to the plate.

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BRF's Operational Improvements Shining Through

Wednesday, November 5, 2014

Seeking Alpha: First Cash Continues To Invest For The Long Term

These still aren't the best of times for the pawn/payday lending segment of the specialty lending industry. Gold is setting multiyear lows, limiting jewelry-based pawn lending growth, while Mexico's economic recovery remains slow. First Cash Financial Services (NASDAQ:FCFS) has done alright since my last update, rising more than 2% and beating both the S&P 500 and EZCORP (NASDAQ:EZPW), but lagging Cash America (NYSE:CSH) and not exactly setting the world on fire.

The potential undervaluation here is not necessarily remarkable (in the neighborhood of 10%), but First Cash does appear poised to grow free cash flow at a double-digit rate for many years to come. What's more, management is making use of its cash flow and healthy balance sheet to acquire stores in the U.S. and Mexico at attractive multiples and is likely still considering expansion into additional markets. Weak gold prices and muted retail demand are near-term threats, but I believe First Cash is taking advantage of the present trying times to build its base and position itself for stronger growth down the road.

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First Cash Continues To Invest For The Long Term

Thursday, October 30, 2014

Seeking Alpha: Did Wright Medical Make The Right Move?

Four months ago, I fretted that Stryker's (NYSE:SYK) acquisition of SBi reduced the pool of eligible buyers to acquire Wright Medical Group (NASDAQ:WMGI) and/or Tornier (NASDAQ:TRNX). A lot of bullishness on these companies was based on their attractiveness as M&A targets for larger ortho companies, but the two companies have instead decided to come together to create a leading enterprise in the fast-growing extremities segment.

I have mixed feelings on this move as a Wright Medical Group shareholder. Wright Medical's somewhat disappointing third quarter sales result suggests that there's still more self-improvement to be done and Tornier has been working through sales restructuring efforts of its own. That said, Wright Medical CEO Bob Palmisano is a proven leader in the med-tech space and the prospects of a company with leading technology in both upper and lower extremities is appealing, not to mention the fact that the impending approval of Augment brings hundreds of millions of potential revenue into play.

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Did Wright Medical Make The Right Move?

Thursday, October 16, 2014

Seeking Alpha: Neenah Paper Continues To Execute

I've had my issues with the valuation at Neenah Paper (NYSE:NP), but this specialty paper company continues to execute at a high level and the market has continued to reward that performance. While the shares have been basically flat since my last update, that performance is still quite a bit better than those of comps like Glatfelter (NYSE:GLT), Wausau Paper (NYSE:WPP), and Ahlstrom.

Sluggish European markets should be a challenge for the company's Technical Products segment, but filtration and specialty products continue to drive market-beating volume growth, while the fine paper business remains a very profitable business. With the balance sheet flexibility to add more revenue through M&A, I'm not worried about the company's ability to continue generating value-added growth. I'm still not overly excited about the valuation, with a DCF-based and EV/EBITDA-based approach bracketing about (5%)-15% potential, but I'd keep an eye on this name in the event that the market pullback takes these shares back to a more interesting price.

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Neenah Paper Continues To Execute

Update On The Fight

I've received a couple of notes asking how things were going with me and Christina (my partner), so I thought I'd write a quick update.

Christina had surgery nine days ago and the surgeon thought it went well (pretty much went as he expected). She is now healing/recovering and will be progressing on to radiation and chemo in due course.

She's still looking at a long, tough battle, but we have a great team of doctors and a network of friends who have been fantastic through this process.

Wednesday, October 15, 2014

Seeking Alpha: OM Group Hasn't Transformed Fast Enough

It wasn't supposed to be this way for OM Group (NYSE:OMG). Selling its cobalt and ultra-pure chemicals businesses and acquiring an advanced magnets business was supposed to transform this company from a cyclical commodity business to a growth-oriented specialty materials business. As it happens, though, the company has seen a much weaker recovery in Europe than hoped, not to mention lower demand in renewable energy, medical batteries, and electronics.

Management meaningfully lowered full-year EBITDA expectations after the second-quarter report, and more recently, laid out a medium-term growth outlook that calls for just 2%-3% annual revenue growth through 2017. The combination of relatively low expected growth and investors allocating away from specialty materials stocks has led to a one-third drop in OM Group's share price from the time of my last update in April.

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OM Group Hasn't Transformed Fast Enough

Seeking Alpha: Sluggish European Demand May Be Opening A Window Into Innospec

I've liked specialty chemical company Innospec (NASDAQ:IOSP) as an operating entity for some time, but I've been less excited about the stock given its valuation. The shares are now down more than 20% from my initial write up and down a similar amount since my last write up, though, and that makes the risk-reward balance more interesting. While I do have some concerns that demand in Europe for the company's fuel additives will weaken further, I like the long-term outlook for the company's oilfield chemical and personal care performance chemical operations.

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Sluggish European Demand May Be Opening A Window Into Innospec

Tuesday, October 14, 2014

Seeking Alpha: The Frustrating Wait For Value Realization At PCTEL

It is not too hard to see how PCTEL (NASDAQ:PCTI) could parlay billions of dollars of end-market potential in markets like smart grids, process automation, enterprise WLAN, precision agriculture, train control, and fleet management into potentially hundreds of millions of dollars of revenue. "Potential" is always a tricky word when it comes to small cap companies, though, and PCTEL doesn't have the best track record when it comes to delivering on its potential at any given point in its past.

PCTEL doesn't trade at particularly ambitious multiples, but then why would it? The company has been free cash flow positive for some time, but doesn't have any real record of attractive margins or returns on capital. I do believe that investors need to focus on where a company is going more than where it has been ("skate to where the puck is going to be"), but I have questions about PCTEL's ability to truly differentiate itself as a component supplier. I ultimately come down favorably inclined toward PCTEL, but near-term headwinds in wireless infrastructure spending could stretch out what has already been an extended wait for market-beating performance.

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The Frustrating Wait For Value Realization At PCTEL

Seeking Alpha: WESCO Still Waiting

WESCO (NYSE:WCC) hasn't exactly distinguished itself in the six months since I last wrote about the company. Admittedly, not many distributors have done well over that time, as HD Supply (NASDAQ:HDS), Grainger (NYSE:GWW), Fastenal (NASDAQ:FAST) and several others are in the red, but it is nevertheless frustrating that WESCO has paired a frustratingly slow recovery in key markets with shortfalls in its reported margins.

Pushing out some of the expected improvements in financial performance does take some upside out of my price target, but with a fair value in the mid-$80s, I still believe WESCO is a worthwhile name to consider as a play on a non-residential construction recovery. Management needs to show that it can deliver real results from its "One WESCO" strategy, but I do see a path for the company to generate better margins and asset turnover as it continues to integrate acquisitions and leverage end-market recoveries.

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WESCO Still Waiting

Friday, October 3, 2014

Seeking Alpha: Maxwell Down On Power, But Still Promising

Six months ago, I thought that the hoopla over Maxwell Technologies' (NASDAQ:MXWL) prospects of securing an ultracapacitor order from Tesla (NASDAQ:TSLA) (in addition to or along with other auto OEM orders) had taken the shares a little too far for my comfort, and that it was better to wait for a pullback. The shares proceeded to climb another 25% from that point, but have been cut down by more than half on a guidance reset following second-quarter numbers and the perception that management has backed away from its guidance for multiple automotive design wins in 2014.

All in all, while the this sharp decline from the late May highs has to be painful for Maxwell shareholders, the story has really changed all that much. The company's ultracapacitors continue to look like an interesting solution for a variety of applications in transport and energy, while the company's manufacturing approach should support attractive margins. Order timing is a major unknown, and these shares are vulnerable to the vagaries of the market's appetite for risky stories, but this seems like a good time for risk-tolerant investors to take a closer look.

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Maxwell Down On Power, But Still Promising

Seeking Alpha: Cemig's Wild Ride Continues

Brazilian utility Cemig (NYSE:CIG) is a good case in point that emerging market utilities don't always offer that higher growth/lower volatility mix that investors often seem to expect. There are certainly a lot of company-specific challenges for Cemig, including an ongoing fight over retaining concessions to three sizable hydropower generating assets, aggressive cost reduction guidance, and worries that management is pursuing low-return investments. On top of those, Cemig faces hydrology risks, political uncertainty, and economic risks in Brazil.

Since my last piece on March 20, these shares have been pretty volatile - jumping almost 50% (for the local shares) before a nearly 25% sell-off. There would be further upside from here if Cemig's legal efforts to retain its hydropower concessions prevail and the company does have additional spot exposure to the Brazilian electricity market, but with the valuation close to a weighted average base case scenario I'm not thrilled about the risk-reward balance.

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Cemig's Wild Ride Continues