Sunday, June 25, 2017

Dialog Semiconductor - Too Good To Be True?

I don't want to like Dialog Semiconductor (OTC:DLGNF) (DLGS.XE). I don't like companies that get overwhelming amounts of revenue from a single customer, or companies with such erratic margins and no clear signs of ongoing improvement. Add in an unfocused/unclear M&A strategy and a U.S. ADR that has unusably low liquidity (the Xetra-listed shares are FAR more liquid and that's the way to invest, if you choose to do so...), and there are plenty of reasons to avoid Dialog.

And yet.

The valuation on Dialog looks a lot lower to me than it should be, even when I apply penalties to reflect the lack of diversification and so on. Even 4% to 5% long-term revenue and FCF growth would offer upside to today's price, and these shares could be meaningfully undervalued - particularly if you believe that the company can reinvest its sizable cash position into value-building M&A. Granted, if Apple (NASDAQ:AAPL) drops Dialog's PMICs then all bets are off with respect to valuation, but investors could do well from here if these renewed worries prove overdone.

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Dialog Semiconductor - Too Good To Be True?

Covestro Benefiting From A Cyclical Surge, But Trouble May Be Looming

Germany's Covestro (OTCPK:COVTY) (1COV.DE) is a pretty interesting story to me. Nobody disputes that this is one of the largest manufacturers of key chemicals like polyurethanes, polycarbonates, and specialty inputs like isocyanates. Nor does anybody dispute the ongoing long-term growth potential in markets like autos, construction, appliances, and furniture, as polyurethane and polycarbonate products offer meaningful performance advantages (insulating ability, weight, etc.).

What is very much in dispute is how much longer the good times can last. Covestro has benefited significantly from higher spreads fueled by good market growth, relatively sluggish recent capacity growth, and outages across the industry. Now, though, a fair bit of new capacity is soon to go online and is threatening to push industry operating rates down to a point where pricing will weaken.

That Covestro will see a cyclical decline seems all but assured, but the timing, depth, and length of the downturn are far less certain. Although the shares look potentially undervalued on the basis of EV/EBITDA, I've seen enough cyclical swings to know that the virtues of Covestro will be forgotten by the market if/when that cyclical decline materializes. With that, I'd rather wait for a pullback below my DCF-based fair value (which does attempt to model some cyclicality) to build a position.

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Covestro Benefiting From A Cyclical Surge, But Trouble May Be Looming

Friday, June 23, 2017

Arch Capital's Cycle-Management Capabilities Serving It Well

Arch Capital (NASDAQ:ACGL) continues to demonstrate why I regard it as among the best of the best insurance companies in the market. While the company's acquisition of AIG's (NYSE:AIG) mortgage insurance business (United Guaranty) was perhaps not universally lauded, I believe investors who understand the dynamics of the mortgage insurance and Arch Capital's strategy here will appreciate the value that it will add in the coming years - particularly as available returns in the primary insurance and reinsurance market are pretty lousy.

Arch Capital shares are up another 20% or so from when I last wrote about the company, beating broader insurance stock indices (like the Dow Jones U.S. Select Insurance Index) and other quality insurers like Chubb (NYSE:CB) and W.R. Berkley (NYSE:WRB) (XL Group (NYSE:XL) has done a fair bit better). The shares certainly aren't cheap on a conventional book value multiple basis, but I do believe and expect that Arch Capital's diversification into mortgage insurance and careful management of its insurance and reinsurance businesses can support high single-digit to low double-digit growth at a time when many other insurers are going to be hard-pressed. Granted, I don't think these shares are undervalued on a discounted earnings basis either, but they're not out of line if you believe in management's guidance and this management team has given investors few reasons for persistent pessimism.

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Arch Capital's Cycle-Management Capabilities Serving It Well

Rational AG Has Significant Growth Potential, But The Market Knows It

Companies with returns on invested capital consistently above 30%, strong market share, and the potential to continue generating double-digit growth are hardly a dime-a-dozen, and I believe Rational AG (OTC:RTLLF) (RAAG.DE) has had uncommonly good results in no small part by maintaining a narrow focus on the foodservice equipment industry. More specifically, Rational AG pioneered the combi-oven concept and continues to focus its energies around a very limited product line-up built around saving space, labor, and operating costs in the commercial kitchen.

There a lot of very important "buts" to consider. First, Rational's ADRs have virtually no liquidity, so investors will have to look overseas (and even there its low share count doesn't lead to a lot of turnover). Second, insiders control the company. Third, the valuation is quite high as investors have rewarded the shares with a generous multiple as revenue has notably accelerated. Still, there is a large market opportunity waiting for Rational outside of Europe, management has shown it can run this business very well, and Rational would be an attractive target if or when those insider owners decided to sell.

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Rational AG Has Significant Growth Potential, But The Market Knows It

PacBio Not Back To Square One, But Definitely Back To A "Show Me" Story

Good news has been hard to find at Pacific Biosciences (NASDAQ:PACB) for a while. Roche's (OTCQX:RHHBY) decision to terminate its agreement with PacBio to develop and market PacBio's technology for the clinical diagnostics market was a major setback in terms of both near-term cash flow prospects and public perception around the value of the technology platform. What's more, with the launch of the Sequel and subsequent reports on its real-world performance, PacBio has once again shown that it struggles to develop and launch systems that deliver the hoped-for performance from Day One.

PacBio shares have fallen close to 60% since my last update on the company, and it I believe the Street has soured too much on the company's prospects in core genomics research. The ongoing improvements in the performance of PacBio's systems should continue to drive adoption, but my fair value estimate of around $6 assumes mid-term revenue growth in the mid-to-high 20%'s and longer-term growth in the mid-20%'s, as well as the ability to earn strong free cash flow on revenue in the $500 million to $600 million range (similar to my expectations for diagnostics company GenMark (NASDAQ:GNMK)). There are absolutely no guarantees that PacBio can hit those targets, nor any guarantees that the markets will grow as hoped or that PacBio's technology won't be supplanted by its rivals. As a high-risk show-me story in an expensive market, though, it is at least worth a look again.

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PacBio Not Back To Square One, But Definitely Back To A "Show Me" Story

Aspen Insurance Not Operating At A Top-Notch Level

Aspen (NYSE:AHL) wasn't my favorite idea in P&C insurance back when I last wrote about the stock in early 2016 (I preferred Chubb (NYSE:CB)), as I thought the apparent undervaluation in the shares was overshadowed by some operational risks. While the shares have climbed about 10% since then, a lot of those operational risks have emerged as bigger issues, and Aspen has underperformed other insurance companies like Chubb and Travelers (NYSE:TRV), as well as the broader Dow Jones P&C Insurance Index (which is up about 25% since I last wrote about Aspen).

Aspen's "build it and they will come" strategy for insurance hasn't worked out yet, and the company has seen both higher adjusted loss ratios and higher expense ratios. The company's underwriting profitability has declined significantly and weak pricing is not going to help matters.

Aspen is shrinking its programs business and taking a harder look at expenses, but shrinking reserve releases and the prospect of claims inflation are worries. While I still believe that Aspen can get to low double-digit ROEs over the long term, and the shares are priced for high single-digit to low double-digit returns, there is still risk to those projections and it's hard for me to get excited about Aspen outside of potential M&A interest.

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Aspen Insurance Not Operating At A Top-Notch Level

Wednesday, June 21, 2017

Geely Still Hard On The Throttle

I've been bullish on Geely (OTCPK:GELYY)(0175.HK) for a while, but China's third-largest domestic car company has surpassed even what I regarded as bullish expectations on my part. The company's new SUV line-up has gone over well with customers, as have new sedans, and Geely's upcoming Lynk brand could take the company to yet another new level. Volume growth continues to blow away underlying market growth in China, sending the local shares up over 100% from my last write-up.

How much further can Geely go? The company's overall share in China is still only around 3%, and its share of domestic brands is still below 10%. Additional sedan launches are slated for this year, as well as significant launches for Lynk in 2017 and 2018.

The health of China's market and the sequential weakness in monthly results are both concerns, as are higher baked-in expectations and the ongoing murkiness in the company's operations vis a vis its parent company. Even so, the company seems to have made meaningful strides in addressing past engineering and marketing challenges and success outside of China could provide an unexpected new driver for growth.


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Geely Still Hard On The Throttle

Innovation And Execution A Powerful Combination For NuVasive

NuVasive (NASDAQ:NUVA) is a case in point as to why I'm a little cautious sometimes stepping away from strong growth stories driven by innovation and strong operational execution, particularly in markets/sectors that don't always have as much of those as they should. While NuVasive had a great run going into my last write-up in October, and did offer investors a brief pull-back, the shares have since climbed another 20% or so on the back of respectable financial performance and strong "in the field" innovation.

Valuation remains problematic. NuVasive is a relatively rare combination of good growth, strong margin leverage, and expanding market share, and I'm not surprised that it has become a popular go-to name in the space. That said, the shares are now pricing in a high teens FCF growth rate that may be hard to surpass. Given the history here of the market swinging too far during both the bad times and the good times, I'd be careful buying near the highs, but I'd certainly reconsider if the sector sells off on another bout of health insurance reform uncertainty and/or a company-specific shortfall in earnings/guidance.

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Innovation And Execution A Powerful Combination For NuVasive

A Refocused FARO Is Looking To Drive Better Results From Its Strong Metrology Capabilities

FARO Technologies (NASDAQ:FARO) gets included in discussions of those companies that could benefit as industrial end-markets become more automated, but the path hasn't been smooth so far. Although FARO has stronger share in industrial metrology products like arms and trackers, and has done well with its market entry into 3D scanners, the share price performance over the last five years has been poor (down more than 20%) while Perceptron (NASDAQ:PRCP), Hexagon (OTCPK:HXGBY)(HEXAb.ST), and Cognex (NASDAQ:CGNX) have done considerably better. This isn't entirely unfair either, as the company's revenue growth has been lackluster (less than 4%) and operating margins have weakened.

The company's interim CEO (and co-founder) has been shaking up FARO's operating plan, with a new focus on six primary verticals and improved expense leverage. I am concerned about the growth that management can expect from the auto and aerospace end-markets, but I believe there are worthwhile opportunities in other industrial metrology markets, as well as 3D scanning. I believe the market is currently pricing in around 10% long-term FCF growth, which seems reasonable, but this is a name worth keeping an eye on, as the shares can be volatile around earnings reports.

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A Refocused FARO Is Looking To Drive Better Results From Its Strong Metrology Capabilities

National Instruments Already Getting Ample Credit For What It Does Well

Although Wall Street often values companies on the basis of their perceived potential in the short term, it's typically a company's ability to execute that determines the long-term rewards for shareholders. That makes National Instruments (NASDAQ:NATI) a tough stock for GARP investors today; while the company's long-term revenue growth hasn't been bad, margin leverage has been elusive and returns on capital haven't been impressive. Making matters more complicated, the company's strong presence in software and its uncommon modular approach ought to be valuable points of distinction.

There are a lot of potential drivers that could lead to meaningful changes in National Instrument's future performance. The company is more aggressively targeting opportunities in semiconductor and wireless test, and the company's capabilities in embedded monitoring and control could leverage meaning growth in industrial IoT, autonomous vehicles, and other "smart machine" applications. Could is a tricky word, though, and a lot of improvement (and/or M&A potential) seems to be in today's share price.

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National Instruments Already Getting Ample Credit For What It Does Well

Can Luxfer Translate Its Skillset Into Real Results?

Leadership is a funny word - you can be the best at something, but if that "something" isn't all that valuable, then it's hard to make real money from that leadership. That's my initial impression of Luxfer (NYSE:LXFR) as I do believe this company has a strong position in specialty metal and metal products (including magnesium alloys/powders, zirconium, and aluminum/aluminum composite cylinders), but that leadership hasn't meant abundant (or reliable) cash flow, nor much in the way of strong market returns over the last five years.

I do expect management to continue to deliver innovation-driven products to the market, and I do think that there are growth opportunities in autos, aerospace, and chemical catalysts; but I'm hesitant to believe that revenue growth will come in much above the mid-single digits for any sustained period of time. The good news is that the Street really isn't expecting much - revenue growth in the 3% to 4% range and FCF margins in the high single digits can support a fair value of close to $14, as can an 8x multiple to my estimate of 2017 EBITDA. Coupled with a dividend yield close to 4% and a balance sheet that is in decent health, these underperforming shares could be worth a look for value and turnaround-oriented investors.

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Can Luxfer Translate Its Skillset Into Real Results?

Recovering Markets And Self-Help Pushing Commercial Vehicle Higher

As a shareholder, I can't complain too much about the performance of Commercial Vehicle (NASDAQ:CVGI) since my last update. With the shares up another 50% or so since late December, Commercial Vehicle has not only outpaced truck manufacturers like PACCAR (NASDAQ:PCAR) and Navistar (NYSE:NAV) but also other truck component stocks like Cummins (NYSE:CMI), Dana (NYSE:DAN), and Meritor (NYSE:MTOR). To be fair, though, longer-term performance track records still do not favor Commercial Vehicle, as the company has lagged many comparable commercial vehicle suppliers due to issues with both growth (in terms of underlying markets, market share, and volume) and margins.

Class 8 orders are growing at double-digit rates again, and many companies in the construction and ag space have pointed to signs of recovery in their respective markets. That all bodes well for Commercial Vehicle, as do ongoing efforts to diversify its customer base, gain share, and penetrate growth markets like India. It is my opinion, though, that a lot of this is reflected in the share price now. I can see some scenarios where a double-digit fair value could come to pass, but I consider that a bull-case outlook at this point. Although I do think the shares are still slightly undervalued, I would view them more as a "strong hold" as opposed to a clear buying opportunity.

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Recovering Markets And Self-Help Pushing Commercial Vehicle Higher

Wednesday, June 14, 2017

Materialise Addresses A Key Step In A Fast-Growing Manufacturing Opportunity

Automated manufacturing is taking on increasing significance across a range of industries, and 3D manufacturing is playing a growing role in that process. Companies like GE (NYSE:GE) have made significant investments into automated 3D manufacturing, and machine tool companies are increasingly integrating additive manufacturing capabilities into more traditional tool workstations. As more companies look to adopt 3D manufacturing for themselves, there will be more demand for software to operate those systems. That is where Materialise (NASDAQ:MTLS) comes in - while the majority of the company's revenue today comes from 3D manufacturing services, the company has a strong position in an important software segment that should drive meaningful growth.

Materialise is a small company operating in an industry that is still early in its development cycle. That's positive with respect to growth potential, but it makes modeling and valuation quite a bit more challenging.

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Materialise Addresses A Key Step In A Fast-Growing Manufacturing Opportunity

IMI Group Working On Self-Improvement Through Still-Challenging Markets

Seemingly every company is looking to streamline its supply chain, improve manufacturing efficiency, and reduce its operating overhead, but the self-improvements at IMI Plc (OTCPK:IMIAY) (IMI.L) are a little more urgent. While declines in the oil/gas, power, petrochemical, industrial automation, and commercial vehicle markets have certainly hurt, IMI also saw some self-inflicted damage from under-investment in capex and R&D, too many non-strategic assets/businesses, and a lack of integration and operational efficiency. Credit, then, to CEO Mark Selway who has been tackling these issues in recent years while also dealing with serious market headwinds.

The opportunities for self-improvement and market recoveries haven't gone unnoticed, as IMI's shares are up about 25% over the past year - less than the likes of Weir Group (OTCPK:WEGRY) and Parker-Hannifin (NYSE:PH), but on par with Rotork (OTCPK:RTOXY) and SMC (OTCPK:SMCAY). My expectations for recoveries in downstream oil/gas and power may be too conservative, but I'm looking for mid-single-digit growth in revenue and FCF from IMI. That supports a mid-to-high single-digit return at today's level, which is not bad on a relative basis but arguably not enough for a company that still has some work to do on the self-improvement front.

Readers should note that IMI's ADRs are not very attractive from a liquidity standpoint, but the London-listed shares offer ample liquidity and most quality brokerages now offer such market access.

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IMI Group Working On Self-Improvement Through Still-Challenging Markets

Sika AG's Specialty Chemical Businesses Continue To Outperform

Swiss specialty chemical company Sika (OTC:SXYAY) (OTC:SKFOF) is an interesting company in many respects. A leader in construction chemicals and a meaningful player in adhesives and sealants, with a strong position in autos, Sika has not only established a strong portfolio built on highly-focused R&D, but also established a strong business with a strong run of improving margins and returns since 2011.

"Interesting" is not an unreservedly positive word, though, and so too in this case. Sika's ADR volume is minuscule, and the company's low share count means the per-share price is quite high and likely out of reach for many individual investors. What's more, there's a dispute between the independent members of the board and an insider group that is wending its way through the Swiss court system.

Sika's shares have been relatively strong over the past few years, but the shares still appear to have a little bit of upside from here. With opportunities to meaningfully grow its business in North America and benefit from emerging market infrastructure growth, there are still opportunities for outperformance from here, but a lot is riding on shareholder-friendly resolution of the ongoing legal issues.

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Sika AG's Specialty Chemical Businesses Continue To Outperform

Sunday, May 28, 2017

Weir Group Poised To Benefit As Natural Resource Companies Get Back To Work

Weir Group (OTCPK:WEGRY) (WEIR.LN) hasn't been badly treated over the past year. As investors have shown renewed enthusiasm for companies leveraged to both oil/gas and mining equipment, Weir Group shares have risen more than 50% - keeping good company with the likes of Metso (OTCQX:MXCYY), FLSmidth (OTCPK:FLIDY), Atlas Copco (OTCPK:ATLKY), and Sandvik (OTCPK:SDVKY). Margins are only just starting to recover, though, and it remains to be seen just how strong the recovery in natural resources capex will be. What's more, Weir Group has issues to address in its seemingly perennially disappointing Flow Control business.

Valuation seems quite healthy, if not generous. Even if I assume that Weir regains its prior peak revenue in 2019, grows in line with historical norms for natural resource capex growth (that is, before the "super-cycle"), and reaches/holds double-digit FCF margins (something it's never done before), I can't get to a compelling DCF-based fair value. On the flip side, if the company can generate three to five years of mid-teens EBITDA growth on the back of this recovery, a fair value 5% to 10% above today's price is arguably in play. Investors considering these shares should consider the London-listed shares if possible, as they offer considerably better liquidity than the ADRs.

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Weir Group Poised To Benefit As Natural Resource Companies Get Back To Work

Cemex Is Better Than The Market Seems To Think

I feel a little bad for Cemex (NYSE:CX). While this cement company, one of the largest in the world, has made good progress with its plans to reduce debt and prioritize margins over market share, the stock has been left out of the post-election rally that has seen 10% to 30% gains for stocks like Martin Marietta Materials (NYSE:MLM), Vulcan Materials (NYSE:VMC), and Lafargeholcim (OTCPK:HCMLY) since I last wrote on Cemex.

While I can appreciate that fears about what the new U.S. administration could mean for Mexico are a factor, I'm nevertheless surprised that the company has not gotten more credit for its self-improvement over the past couple of years.

Modeling (and valuing) a stock like Cemex isn't easy. And while I don't think this is a slam-dunk bargain, I do think there is upside here assuming that the steps management has taken to improve margins and cash flow generation prove long-lasting. Although there is a lot of uncertainty around potential major drivers like U.S. infrastructure spending and Mexico's economic cycle, I like the improvements that management has made and I think the shares are undervalued today.

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Cemex Is Better Than The Market Seems To Think

Early-Stage Recoveries And Rebuilt Optimism Supporting Komatsu

It looks as though the worst has passed in both the mining and heavy construction equipment markets. With that, both Komatsu (OTCPK:KMTUY) and Caterpillar (NYSE:CAT) have been stronger, with the former up about 25% from my last article on the company and not really having given investors that buy-on-the-pullback opportunity I was hoping for. Komatsu has seen consistently better demand for its mining machinery in recent quarters, and although operating hours have been choppy around the world, the situation is quite a bit healthier than it has been over the last two to three years.

Komatsu shares seem to be pricing in a pretty healthy recovery. I don't really have a problem with that, but it does lead me to wonder how much upside remains. Construction equipment demand seems a little muted, though progress on a huge infrastructure stimulus bill in the U.S. could significantly improve the outlook in the United States. With mining, companies are getting back to capex spending again, but thus far, they have been proceeding cautiously. My base-case assumptions for Komatsu haven't changed all that much, and I think the company could deliver high single-digit revenue growth over the next five years with meaningful improvements in cash flow. Priced to deliver a high single-digit return, Komatsu is still arguably a worthwhile idea to consider for a GARP portfolio.

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Early-Stage Recoveries And Rebuilt Optimism Supporting Komatsu

Neurocrine Stumbles With Ingrezza In Pediatric Tourette's

Biotech stocks will drive an investor crazy, as there's a seemingly never-ending supply of worries and negative developments to offset the occasional major steps forward. Such is the case (again) with Neurocrine Biosciences (NASDAQ:NBIX). Fresh off some momentum from the FDA approval of Ingrezza in tardive dyskinesia and a surprisingly robust pricing decision, as well as encouraging Phase IIb data from AbbVie (NYSE:ABBV) on the company's drug Elagolix in uterine fibroids, Neurocrine announced disappointing results from its Phase II T-Force GREEN study of Ingrezza in pediatric Tourette's.

Neurocrine shares are, not surprisingly, down on the news, though the decline seems to be a little excessive relative to the likely real-world contribution of the drug to the company's profits. What's more, Neurocrine is not giving up on this drug/indication, and a better-designed Phase II study could restore much of the optimism that has packed its bags today. With the shares still below my fair value and two valuable commercial/late-stage compounds (and a third that is more of a wild card), I believe these shares are worth considering on this disappointment sell-off.

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Neurocrine Stumbles With Ingrezza In Pediatric Tourette's

Valeo Still Hard On The Throttle

Many, if not all, auto component suppliers talk about content growth as a driver, but France's Valeo (OTCPK:VLEEY) (VLOF.PA) has been delivering in a big way. Revenue growth has continued to outpace underlying industry production growth by a very healthy pace, with no real weak spots in the business. Investors have certainly taken notice, with Valeo shares up another 30% or so from the time of my last writing, and easily outpacing rival suppliers like Continental (OTCPK:CTTAY), BorgWarner (NYSE:BWA), and Denso (OTCPK:DNZOY) over that time.

Just how long these good times can continue is a key debate between the bulls and bears. Auto production volumes are slowing, and I'm skeptical that Valeo can escape that underlying reality. What's more, there are valid questions as to just how much content can be added to cars before consumers rebel and whether OEMs will start pushing suppliers for more concessions. On the other hand, electrification looks increasingly inevitable, and Valeo has been doing well with order wins for 48V systems. I continue to believe that high single-digit revenue growth and double-digit FCF growth remain plausible for Valeo and that the shares still have some upside, but I think the growth story here is a little long in the tooth.

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Valeo Still Hard On The Throttle

Cavium Networks Back On Its Growth Path

I really can't complain about how Cavium (NASDAQ:CAVM) has done since my last article on the company, as the shares have risen almost 60% and outperformed a comp group that includes Broadcom (NASDAQ:AVGO), Intel (NASDAQ:INTC), Mellanox (NASDAQ:MLNX), and Qualcomm (NASDAQ:QCOM) - the best of which (Broadcom) is up about 45% since that positive early August write-up.

Cavium has done a lot to reassure the Street that it can drive meaningful organic growth with Octeon, Fusion-M, LiquidIO, LiquidSecurity, and Xpliant. While it still looks as though Cavium is hitting "singles and doubles" outside of Octeon, that's for the time being and there are credible growth acceleration opportunities in these smaller contributions. It's harder to make a positive valuation call today, but it's also hard to recommend stepping aside so long as beat-and-raise quarters are in play.

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Cavium Networks Back On Its Growth Path

Rotork's High-Quality Business Now At A (Somewhat) Lower Orbit

There are a lot of strong arguments to be made for focusing on high-quality industrial companies like Atlas Copco (OTCPK:ATLKY), 3M (NYSE:MMM), Rockwell (NYSE:ROK), and Rotork (OTCPK:RTOXY), but valuation is often a challenge. I had issues with Rotork's valuation in the past, and its heavy skew to the oil/gas markets has more than outweighed its overall strength in valve actuators and related products in recent years, sending the shares down about 30% since my last update on the company. Even now, the shares are not what I would call conventionally cheap, though the possibility of regaining a premium valuation as its end-markets recover and it expands its business should not be ruled out or ignored by investors willing to embrace a wider perspective on valuation.

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Rotork's High-Quality Business Now At A (Somewhat) Lower Orbit

Saturday, May 20, 2017

Strong Execution On IoT Is Taking Silicon Labs To A New Level

Chip company Silicon Labs (NASDAQ:SLAB) was already doing pretty well with its Internet of Things (or IoT) business back in the summer of 2016, but I underestimated the company's ability to continue to leverage that driver. As IoT is becoming an increasingly real driver, it is having a solidly positive influence on Silicon Labs' performance, and the shares are now about 40% higher than when I last wrote on the company.

Silicon Labs isn't going to have the IoT opportunity all to itself; Qualcomm (NASDAQ:QCOM) (through NXP Semiconductors (NASDAQ:NXPI)), Microchip (NASDAQ:MCHP), Texas Instruments (NYSE:TXN), and STMicroelectronics (NYSE:STM) among others are going to be competing fiercely in this growing market. Silicon Labs' strong positioning across the range of connectivity options and in mesh networking are important drivers, but other rivals have their own areas of strength in MCUs, security, sensing, and so on. What's more, the valuation is now considerably more demanding, and with it come much higher expectations for the lead IoT and Infrastructure businesses.

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Strong Execution On IoT Is Taking Silicon Labs To A New Level

Turbulence Creates Another Opportunity At Mellanox

If you like to trade, Mellanox (NASDAQ:MLNX) may be the stock for you, as there is more than average uncertainty and volatility around these shares as the company looks to benefit from growing adoption of high-speed connectivity products but also faces competitive threats from well-run rivals like Intel (NASDAQ:INTC) and Broadcom (NASDAQ:AVGO).

Although the company has been on an unfortunate run of weaker-than-expected quarters (and weaker guidance), the shares are still up about 15% from the time of my last article (ahead of Intel, weaker than Avago, and in line with the Nasdaq), and expectations have come down significantly. While the competitive threat of Intel still looks manageable, the last few quarters have highlighted that for all of the growth potential in Mellanox's core markets, that growth isn't going to come in predictable clockwork fashion. While I have gotten a little more cautious with my modeling, I still believe these shares are undervalued even with a double-digit discount rate.

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Turbulence Creates Another Opportunity At Mellanox

F5's Headwinds Aren't Letting Up

When I last wrote about F5 Networks (NASDAQ:FFIV) in the summer of 2016, I was skeptical that the company's new product launch/refresh cycle was going to deliver as much growth as the bulls hoped. So far, that call looks to be working out. Although the shares are up around 5% since that last article, that performance lags that of the NASDAQ and a broad peer group of companies like Cisco (NASDAQ:CSCO), Juniper (NYSE:JNPR), and A10 (NYSE:ATEN). What's more, numbers have been heading lower as the expected product growth has been slow to arrive.

I continue to believe that F5 is dealing with some troubling secular headwinds. Cloud service providers like Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) are improving their ADC/load balancing services, and companies like Cisco are tough competitors in security. While I do still think there are opportunities out there for F5, I worry about how the shares will perform without stronger revenue growth. The implied return at this price isn't bad, but I think there could be further revisions to estimates before this cycle is over, and low-growth/high-margin tech stocks can be frustrating to own.

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F5's Headwinds Aren't Letting Up

Ciena Continuing To Execute Well In A Growing, And Perhaps Changing, Optical Market

Ciena (NASDAQ:CIEN) has done alright since I last wrote about the stock, with the shares up around 8% versus a 10% gain in the S&P 500, a 9% gain in Nokia (NYSE:NOK), and a slight decline in Infinera (NASDAQ:INFN), but this optical player remains a controversial and volatile name. Nobody seems to dispute that Ciena today is a stronger company both financially and competitively than it has been in a long, long time (if not ever), but some analysts and investors are still reluctant to trust that the optical equipment market has really changed and that these good times can last.

I hate "it's different this time" stories because in the vast majority of cases, it really isn't different, and investors go away with singed eyebrows. That said, telco metro deployments seem less lumpy than in past cycles, and the industry has benefited from consolidation. What's more, data center interconnect is a meaningful growth opportunity, and traffic growth seems well-supported by growing use of streaming services and increased fiber-to-the-home deployments.

Given the trends in both telco and non-telco spending, I don't think my long-term revenue forecast of 5% for Ciena is ridiculous or even all that ambitious, though I do have some concerns that the actual "flight path" along that trend line will be choppy. I'm a little more nervous about modeling double-digit FCF margins on a sustained basis, but Ciena management does seem to have the company in better shape. All told, if Cisco can, in fact, deliver 10% long-term FCF growth, a fair value in the mid-$20s is reasonable, and the shares hold some appeal here.

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Ciena Continuing To Execute Well In A Growing, And Perhaps Changing, Optical Market

AGT Food's Recent Stumble Has Created Some Indigestion, But Also An Opportunity As Expectations Reset

I had my concerns with AGT Food and Ingredients (OTCPK:AGXXF) (AGT.TO) back in October due to issues with the valuation and popularity of the stock and management's questionable strategic decisions, but I wasn't really expecting the 30% fall in the shares that has taken place. A lot of issues were pressuring the shares, including concerns about global harvest levels and harvest quality, Indian import actions, and growing impatience with the slow ramp of the Minot business, but the surprisingly weak first quarter results took 20% out of the stock relatively quickly.

Here, with AGT Food, we have a good example of the challenges that come with "buy the dip" advice. Stocks don't pull back 20%-plus relative to their benchmark index because everything is going awesome with the company. The trick, then, is to separate investor panic from real issues that mean investors should avoid a stock.

I am worried that AGT will have a rough year, as although I expect the second half of 2017 to be stronger, there will likely be some follow-on turbulence in the second quarter and maybe into the third. I also still don't really like the expansion of the bulk handling business, and I think there are some valid concerns as to whether the potential of the Minot-based ingredient business hasn't been overestimated by investors and sell-side analysts. All of that said, today's price assumes only mid-single-digit revenue growth and low single-digit FCF margins, and if AGT can ultimately lift margins closer to 5%, a fair value above C$36 is still in play.

Investors should be aware that the Canadian shares of AGT Food offer far greater liquidity and should be relatively easy to buy through most brokerages.

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AGT Food's Recent Stumble Has Created Some Indigestion, But Also An Opportunity As Expectations Reset

Painfully Complex, Cosan Remains An Undervalued Play On Brazil

As I have written before, U.S. investors are not exactly spoiled for choice when it comes to Brazilian investments. Cosan Ltd. (NYSE:CZZ) has a lot to offer, including exposure to multiple major long-term opportunities within Brazil's economy, but the holding company structure is complicated and this is a difficult company to track and model. Still, with a holding company discount rate in excess of 30%, relatively healthy underlying fundamentals for the sugar, ethanol, and retail fuel businesses, and good long-term prospects in the rail business, this is worth a look.

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Painfully Complex, Cosan Remains An Undervalued Play On Brazil

Closer To "Go Time", GenMark Diagnostics's Ability To Execute Is Still A Key Question

Hard as it can be to develop a new diagnostic system and get it though the FDA approval process, that's only part of the battle in achieving success in the diagnostics market. GenMark (NASDAQ:GNMK) has weathered some ups, downs, and delays on its path to market for its new ePlex system, but the company should receive FDA 510(k) approval for the system within weeks and begin launching a system that could deliver over (and perhaps well over) $1 billion in revenue to this small-cap med-tech company.

Of course, it's never quite that simple. GenMark has had its issues reaching the milestones laid out by management on time, and that still remains the case. With U.S. approval looming, significant questions remain regarding management's ability to execute on manufacturing and sales, to say nothing of how the ePlex will fare in the real world against competing systems from bioMerieux (OTC:BMXXY), Luminex (NASDAQ:LMNX), Danaher's (NYSE:DHR) Cepheid, and other existing or would-be players in the market.

I'd still describe myself as cautiously bullish on GenMark, as I believe ePlex is a good platform that answers many of the challenges and needs of hospital and lab customers. The shares have continued to head higher since my last update (though it has been a bumpy ride), though, and the risk/reward isn't quite as favorable as it has been.

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Closer To "Go Time", GenMark Diagnostics's Ability To Execute Is Still A Key Question

Wednesday, May 17, 2017

Rexnord Should Be Seeing A Turn Now

I liked Rexnord (NYSE:RXN) back in mid-December, and I can't really complain with how the shares have performed since. Not only is the return about 10 points above that of the S&P 500, but Rexnord has done alright next to most of its process/motion control peers like ABB (NYSE:ABB), Altra (NASDAQ:AIMC), Regal Beloit (NYSE:RBC), and SKF (OTCPK:SKFRY), as well as peers in the water products sector. Better still, short-cycle industrial activity is picking up (including in the industrial MRO space) and process industries like mining seem to be past the worst, while core food/beverage continues to perform well. Add in a slowly improving institutional water market and some longer-term strategic growth opportunities and it's a relatively solid backdrop.

Valuation is no longer so compelling, but "meh" seems to be the new "bargain-priced" in the industry sector and shaving just half a point off of my 10% discount rate would give me a fair value slightly above today's price. Provided that Rexnord can show some healthy signs in its core revenue and margins later this week when it reports fiscal fourth quarter earnings, not to mention constructive guidance in line with what other industrial-leveraged companies have said, this could still be a name with some room left to advance.

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Rexnord Should Be Seeing A Turn Now

Martin Marietta Materials Already Pricing In A Lot Of Things Going Right

Infrastructure stocks have had a good run, and especially since the November U.S. elections. For its part, Martin Marietta Materials (NYSE:MLM) is up close to 30%, which puts it ahead of Vulcan Materials (NYSE:VMC), close to Cemex (NYSE:CX) and behind Steel Dynamics (NASDAQ:STLD) over the past year. Although volume growth has been muted thus far in the aggregates business (up 1% in 2015, up 2% in 2016, and up 3% in the first quarter of 2017), pricing has been picking up and the volume outlook is pointing to higher volumes on increased road building and infrastructure activity.

My issue, not surprisingly, is with how much improvement is already baked into MLM's valuation. MLM is well-placed in states with attractive drivers for road construction (as well as overall population, housing, and non-residential construction), but quite a lot has to go right from here in terms of government-supported infrastructure spending, overall economic health, and so on just for MLM to "grow into" its valuation. With the shares already at a mid-teens multiple to 12-month EBITDA and a low-teens multiple to my mid-cycle estimate, this looks more like a momentum story to me than a value-driven story. Momentum stories in recovering markets can work, but any disappointments in federal stimulus, state spending, volume growth, and/or margin leverage could have a sharper impact on the share price.

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Martin Marietta Materials Already Pricing In A Lot Of Things Going Right

Aspen Pharmacare Has Continued To Grow And Branch Out

It has been many years since I've updated my coverage on South Africa's Aspen Pharmacare (OTCPK:APNHY)(APNJ.J), but the intervening years have seen a lot of familiar themes. Management has continued to use M&A to expand its market reach and has continued to expand beyond South Africa, while organic growth has continued to be underwhelming relatively to perpetually rosy expectations from investors and most sell-side analysts.

Assessing the shares remains a difficult exercise. On one hand, the likely underlying discounted cash flow doesn't seem to support the share price, but that has long been the case and the shares have risen despite that (up more than 20% since my last article for the ADRs and up over 100% at the interim peak price). Aspen continues to offer rare access and potential to high-potential markets like China, Brazil, Indonesia, and Sub-Saharan Africa, but price controls and consumers' ability to pay remains a real concern. I expect that investors will continue to be willing to pay a premium for this emerging market pharma story, and the price isn't so unreasonable relative to EBITDA growth, but I would remain alert to the various macro challenges, as well as the sub-standard liquidity of the ADRs.

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Aspen Pharmacare Has Continued To Grow And Branch Out

Sunday, May 14, 2017

Patheon's Execution Needs To Match Its Potential

Contract drug manufacturing is a large, growing, and attractive business. Smaller companies are making up an increasingly large percentage of new drug approvals, and many of those companies are choosing to outsource manufacturing rather than investing the capital in what could be regarded as a non-core function. Even larger companies find value in outsourcing, as providers like Patheon (NYSE:PTHN) and Catalent (NYSE:CTLT) can offer valuable, and difficult-to-replicate expertise, as well as efficient scale and "swing capacity."

However attractive a market may be, execution still matters and Patheon has had its challenges so far as a public company. Though the sources of the revenue shortfalls have been understandable and don't point to long-term strategic or competitive issues, you'd like to see a company make a better debut after its IPO. In any event, while Patheon is one of the largest players in the CDMO space and offers a rare breadth of services, the company also has a lot of debt, aggressive and well-run rivals, and a robust valuation.

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Patheon's Execution Needs To Match Its Potential

At Cognex, The Electric Eye Is Green

If you love growth, you may well like Cognex (NASDAQ:CGNX). If you like growth at a reasonable valuation, this will be a more frustrating story for you. Cognex has established itself as a high-quality leader in the machine vision and product ID space, and high-quality companies deserve premiums, but the Street seems to be baking in an exceptional amount of growth into today's valuation.

I love the prospects for Cognex to introduce new products to expand its expecting opportunities, as well as its opportunities to leverage growth in areas like factory and warehouse automation, and I have little to complain about with respect to how management runs the business. If and when we get another of those market corrections that sweeps many babies out with the bathwater, this would definitely be a name to revisit.

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At Cognex, The Electric Eye Is Green

The Tide Is Turning For Ingersoll-Rand

A year and a half ago, I thought that Ingersoll-Rand (NYSE:IR) looked undervalued, and the shares are up more than 70% since then. Now, to be fair, I thought Atlas Copco (OTCPK:ATLKY) was the better pick at that time, and Atlas's almost 80% rise since then isn't that much ahead of Ingersoll-Rand, so I think this had more to do with being generally right that the market was too worried about the long-term future of these industrial businesses.

In any case, Ingersoll-Rand's management has made progress in both improving the business and shifting the sentiment. I frankly think there's been more progress on the former than the latter, and so there could still be some upside as investors take a more "normalized" view of the company and its prospects (rather than always seemingly expecting something to go wrong). The May 10 Investor Day likely isn't going to be revolutionary for sentiment, but a clear discussion of the company's innovation and productivity initiatives as well as its plans for capital deployment could further strengthen that improving trend in sentiment.


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The Tide Is Turning For Ingersoll-Rand

Perceptron Still Searching For Stability

As an industrial tech geek, Perceptron's (NASDAQ:PRCP) industrial metrology technology holds more than a little interest for me, as well as the revenue and earnings potential that would come from successfully unlocking the opportunities outside of the auto OEM sector. Add in the fact that industrial automation giants like Rockwell (NYSE:ROK), ABB (NYSE:ABB), and Schneider (OTCPK:SBGSY) have openly talked of the importance of sensors in the evolving automation landscape, and it's at least worth taking a look at this company.

Unfortunately, the performance at Perceptron has been disappointing for quite a long time. As other Seeking Alpha writers, including Terrier Investing, have noted, this is a company that has been struggling for traction for some time. Perceptron had $65 million in revenue in 1997, $62 million in revenue in 2007, and is on pace for around $75 million in 2017. The company has never really generated meaningful free cash flow, and despite periodic runs in the stock, the last 10 years have been lackluster at best with other similar types of plays like FARO (NASDAQ:FARO) and MTS Systems (NASDAQ:MTSC) at least offering some share price growth over the last decade.

Perceptron has some interesting technology and technological capabilities, but I question whether the company has the resources to develop them to a point where it can be any meaningful threat to companies like FARO, Hexagon (OTCPK:HXGBY), and Zeiss (OTCPK:CZMWY) outside of its core auto market. I can't and won't rule out the idea that a larger automation company (or one of its main competitors) could move to buy Perceptron, but I would caution investors to listen to industry leaders like Rockwell when they talk about the challenges of transferring automation technologies across industry silos.

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Perceptron Still Searching For Stability

Halma Playing Defense With Some Aggression

Human beings are pretty much driven to categorize, so I don't really blame analysts for trying to categorize companies and their business mixes as "late-cycle" or "defensive", but those designations can sometimes hinder as much as they help. Halma (OTCPK:HLMAF) (HLMA.L) is indeed "defensive" by some metrics, but this is a company that is more than happy to go on the offensive - witness the company's roughly 10% trailing compound revenue growth rate, its double-digit FCF growth rate, its double-digit returns on invested capital, and its preference for redirecting cash flow toward continuous M&A as opposed to sending it back to shareholders.

What's also not so defensive about Halma is the valuation. Trading at around 18x my fiscal 2018 EBITDA estimate, Halma's virtues are not ignored by the Street, though I won't tell you that the low-teens FCF growth baked into the valuation is unreasonable or unattainable.

Investors will note that Halma's ADRs have that dreaded "F" at the end. Although the shares are reasonably liquid in terms of average daily trading volume, the liquidity can be very lumpy, and I would suggest that investors interested in Halma consider buying the London-listed shares.

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Halma Playing Defense With Some Aggression

Atlas Copco's Excellence Reflected In The Performance


Sweden's Atlas Copco (OTCPK:ATLKY) is a case in point as to some of the limitations of modeling and model-based valuation. This is an excellent industrial conglomerate by almost any standard and one that is well-respected and generally well-liked. When I last wrote about the company in September of 2016, I liked the company quite a bit but thought that the valuation was already very healthy. Since then, not only have the company's underlying markets come back faster and stronger than expected but so too has investor enthusiasm - pushing these shares up by a third, in line with other strong Swedish plays like SKF (OTCPK:SKFRY) and Sandvik (OTCPK:SDVKY) but well ahead of strong U.S. industrial conglomerates like Fortive (NYSE:FTV) and Illinois Tool Works (NYSE:ITW).

It's hard to connect the dots on the valuation today, unless you think long-term revenue growth will reach the high single-digits, FCF margins will move into the 20%s, and/or you're willing to accept a total return closer to the mid-single digits. I've learned over the years not to bet against Atlas Copco (or at least to do so very carefully), but even the company's announced split and ongoing recoveries in multiple markets can only do so much for a stock that already enjoys quite a bit of esteem.

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Atlas Copco's Excellence Reflected In The Performance

Wednesday, May 10, 2017

Milacron Waiting For Its Recovery To Take Hold

Although Milacron (NYSE:MCRN) shares have outperformed the S&P 500 since my last piece on the company, the reality is that a great many industrial stocks have been strong since late October and Milacron's relative performance isn't so impressive. While this is admittedly a hodgepodge, if you consider a group of peers that "sell stuff that companies use to make stuff," Milacron doesn't stack so well against the likes of Kennametal (NYSE:KMT), Nordson (NASDAQ:NDSN) and Illinois Tool Works (NYSE:ITW).

Then again, compared to a more limited sampling of companies in the machine tool space - companies like Hardinge (NASDAQ:HDNG), Hurco (NASDAQ:HURC), and DMG Mori - then the performance looks a little better again. Simply put, it's still not easy out there for machine tool companies, as order growth has remained in the low single digits in developed markets.

I'm still fairly bullish on Milacron, as I believe underinvestment in capex will start to reverse and that the company will benefit from increasing adoption of automated solutions. Add in some expense-side self-help to my underlying low-to-mid single-digit revenue growth expectation and Milacron should be able to produce free cash flow growth in the high single digits to low double-digits. That, in turn, would seem to support an expected annual return around 10%, making Milacron a name that is still worth considering.

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Milacron Waiting For Its Recovery To Take Hold

Nordson And The High Cost Of Excellence

In terms of smaller industrial companies, I'm not sure that there are many that deserve the Street's esteem (and the high multiples that tend to go with it) more than Nordson (NASDAQ:NDSN). Management has taken the company's strong technology in precision dispensing and fluid management and used it to establish strong share in its core adhesives market, as well as solid long-term revenue growth, impressive margin improvement, and good returns on capital and free cash flow. I'd also note that management has shown itself adept at M&A but is willing to return capital to shareholders (with a 50-year-plus record of raising the dividend).

The problem with good companies, particularly when their end markets are turning up, is the valuation, and that's the case here. Using a DCF model, Nordson needs to generate very high single-digit to low double-digit revenue growth (with some FCF margin improvement) to generate a high-single-digit total return. That's a high, albeit not impossible, bar to reach, and some investors may be willing to accept a lower return (and lower implied/required growth) given the company's solid prospects and above-average quality.

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Nordson And The High Cost Of Excellence

Sunday, May 7, 2017

Air Liquide Adds Value As Lincoln Electric Moves Into Recovery Mode

Lincoln Electric (NASDAQ:LECO) has continued to appreciate since my August 2016 piece, as investors have piled into a wide assortment of companies leveraged to an industrial recovery and potential infrastructure stimulus. Volume has actually turned up for Lincoln in recent quarters, with only a handful of major end-markets still weighing on results, and the prospects for sales growth over the next few years are good.

Management continues to do a good job of expanding into alloy welding and automation, but the announced acquisition of Air Liquide's (OTCPK:AIQUY) welding business is a significant opportunity to improve its European business, expand its alloy and automation opportunities, and drive real improvements in margins while making life even more challenging for Colfax (NYSE:CFX) in its core market.

At a mid-teens multiple to forward EBITDA, I cannot call these shares "cheap." But then, the implied total return in the high single-digits from my discounted cash flow model for a company that has steadily gained share, generated double-digit ROICs, and organically created new growth opportunities isn't exactly out of line either. A slowdown in the industrial recovery (whether real or imagined by the Street) is certainly a threat to the share price, but this is the sort of name you want to add to on pullbacks.

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Air Liquide Adds Value As Lincoln Electric Moves Into Recovery Mode

IPG Photonics Already Seeing A Strong Recovery

Buying good companies when they are beaten up a bit by disappointed growth-oriented investors continues to be a sound strategy, provided that the underlying market drivers are only going through a temporary patch of trouble. So it has been with IPG Photonics (NASDAQ:IPGP). I thought the slowdown in the metalworking markets, and the pressure it was creating on IPG's valuation, were an opportunity back in the summer of 2016, and the shares have moved up about 60% since then. To be fair, investors would have done even better in rival laser company Coherent (NASDAQ:COHR), or turnaround metalworking play Kennametal (NYSE:KMT), but IPG's performance stacks up pretty well with other metalworking stories like Lincoln Electric (NASDAQ:LECO) and Colfax (NYSE:CFX).

IPG Photonics continues to do a commendable job of moving the goal posts out in terms of what can be accomplished with its high-power lasers. That is creating new opportunities to take share away from non-laser systems as well as to replace old non-fiber laser installations. Looking ahead, there are still attractive opportunities in areas like cutting and welding, as well as drilling, not to mention newer applications like theater projection, OLED production, and 3D manufacturing. IPG also continues to move forward with new(er) technologies like UV and ultrafast lasers that can still add more hundreds of millions of dollars to the long-term addressable market.

With a strong recovery in revenue and strong recent growth in machine tool orders in China, I'm not surprised that investors have come back to this name. I still believe in the prospects for high-single-digit revenue growth and mid-teens FCF growth, but the high-single-digit implied total return isn't as compelling relative to the prospects a year ago.

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IPG Photonics Already Seeing A Strong Recovery

Well Rewarded For Past Performance, What Is Left For Illinois Tool Works?

I've liked Illinois Tool Works (NYSE:ITW) for a while now, and the shares have continued to reward a positive stance (up about 7% since my last update, a little below 3M (NYSE:MMM), but in line with Parker-Hannifin (NYSE:PH) and better than Dover (NYSE:DOV)). Now, though, I'm starting to wonder whether this relatively conservatively-run company can keep finding enough ways to meet ever-higher expectations in this early recovery cycle. Illinois Tool Works has already achieved a lot with its self-help initiatives, and I have to believe that the low-hanging fruit has been plucked. I'd also note that while ITW management has indicated that it will continue to pursue incremental M&A, there's nothing to suggest a major move.

Right now it looks as though the Street is factoring in some combination of high single-digit free cash flow growth or a mid-single-digit total return. Neither is really appealing at this point; not when names like Honeywell (NYSE:HON), Danaher (NYSE:DHR), Fortive (NYSE:FTV), Parker-Hannifin, and ABB (NYSE:ABB) appear to have more to offer in terms of relative valuation, near-term growth leverage, and/or self-help potential.

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Well Rewarded For Past Performance, What Is Left For Illinois Tool Works?

Roper Technologies Delivering Good Core Growth As Markets Turn

When I last wrote about Roper (NYSE:ROP), I wasn't totally sold on the valuation given some concerns I had about the business outside of energy and I thought it was a name to reconsider on a pullback into/around earnings. The shares cooperated, pulling back about 5% before a trifecta of good news (the U.S. Presidential election, the Deltek acquisition, and stronger results/orders in the fourth quarter) really stoked up the enthusiasm for these shares.

I've compared Roper to Danaher (NYSE:DHR) before, and I'll do it again - like Danaher, Roper can be a difficult stock for more value-oriented investors, as Wall Street loves the company's growth model and margins and will pay a premium for that growth. That seems particularly true now in a recovery environment where Roper not only seems poised to produce solid growth in absolute terms, but also on a relative basis.

Although Roper doesn't look like a bargain in discounted cash flow model, dropping the discount rate by just 1% gives me a fair value in line with the price today and a high single-digit expected return isn't bad, particularly for a company with good leverage to an emerging oil/gas recovery. Therein lies one of the issues with modeling and price target calculation - a modest change to an assumption or two can swing the result significantly. So while I still can't call Roper a bargain, the growth potential and strong cash flow generation capabilities leave it as a name still worth considering for more aggressive portfolios.

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Roper Technologies Delivering Good Core Growth As Markets Turn