Tuesday, April 30, 2013

Seeking Alpha: No News Becoming Bad News For Lexicon Pharmaceuticals

Normally you would think that having a differentiated and proprietary diabetes compound with solid supporting data would make a biotech relatively popular. That would often be particularly true in cases where the drug class has already proven to be pretty popular with drug companies and started to generate real interest among clinicians.

Unfortunately for Lexicon Pharmaceuticals' (LXRX) shareholders, things aren't going to plan yet. The company's LX4211 remains the only compound I'm aware of that inhibits both SGLT1 and SGLT2 (other drugs just address SGLT2) and the data have been good so far. Yet, another SGLT2 partnership deal has gone off in the space without including Lexicon - forcing investors to wonder whether a good partnership deal actually is out there to be had and/or whether the company will have to contemplate going it alone into Phase III studies.

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No News Becoming Bad News For Lexicon Pharmaceuticals

Seeking Alpha: Erickson Air-Crane Has Scarcity, But Value Is Difficult To Judge

Every so often, an investor will set out to research a company expecting to find a certain type of company and find something completely different. That happens to be the case with me and Erickson Air-Crane (EAC). I originally began my research here thinking I was going to be looking at a small specialty aircraft manufacturer, but instead found myself looking at an increasingly diversified heavy-lift and helicopter service specialist.

Erickson certainly has some interesting points going for it. It is one of the largest providers of helicopter-based heavy lift services in the country, and management is focused on diversifying and maximizing the company's revenue opportunity. While I think consolidation and diversification can deliver interesting growth in the years to come, the debt-heavy balance sheet throws a few kinks into the valuation analysis.

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Erickson Air-Crane Has Scarcity, But Value Is Difficult To Judge

Monday, April 29, 2013

Investopedia: Alcatel-Lucent Looking At Long Road, But Not Starting From Scratch

To get a sense of just how badly wrong the Alcatel-Lucent (NYSE:ALU) story has gone, consider that the combined company has never produced a full year of positive free cash flow since the 2006 merger. What's more, while the company still has very relevant share in areas like edge routing, rivals like Ciena (Nasdaq:CIEN), Huawei, and ZTE have been taking share, while companies like Nokia Siemens Networks get their acts together.

That's all pretty well known, though, and part of the reason the stock sits below $1.50 today. With a new CEO, new products, and new market opportunities, perhaps Alcatel-Lucent has new life to offer shareholders.

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Investopedia: It Gets A Little Harder From Here For Covidien

Covidien (NYSE:COV) has been one of the strongest large-cap med-tech stories over the past year or so. At a time when companies like Johnson & Johnson (NYSE:JNJ), Stryker (NYSE:SYK), Medtronic (NYSE:MDT), and Bard (NYSE:BCR) have been struggling to report much of any organic growth, Covidien has been solidly in the mid-single digits as the company reaps the benefit of past investments in R&D and product development.

Nothing lasts forever, though, and it looks like Covidien is lapping some challenging comparables. What's more, the overall healthcare market remains pretty sluggish and many of Covidien's rivals have stepped up their game with new product introductions. The spin-off of Mallinckrodt could unlock some value, but it looks like the market is pretty well up to speed with Covidien's value.

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Investopedia: Total Looks Cheap, But There's A Reason

Some investors and commentators treat the international oil majors as an undifferentiated mass, suggesting that investors need only follow dividend yields and/or PE ratios to find the best bargains at a given point in time. Total (NYSE:TOT) offers a good example of why that's not a very good approach. While Total's aggressive exploration program could offer some upside to production and profits down the road, the company's leverage to high oil prices and lower margins/returns underline a riskier business model that ought to trade at some discount to peers.

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Investopedia: Good Profitability And Relative Valuation Make Chevron Interesting

If Exxon Mobil (NYSE:XOM) had the wrong kind of earnings beat, it would seem that Chevron (NYSE:CVX) had the right sort of miss. More to the point, Chevron continues to operate one of the most profitable upstream businesses among the oil majors, and the company has a rich pipeline of growth projects to maintain higher production levels across the next five years. Coupled with an undemanding valuation, Chevron looks like a solid name to consider for broad international energy exposure.

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Investopedia: Starbucks' Special Model Is Valuable, But Maybe Not This Valuable

Normally talking about “liquid meals” is something reserved for college students, but the reality is that Starbucks (Nasdaq:SBUX) has long since proven that there's room in the quick service restaurant (QSR) for something other than burgers and sandwiches. Starbucks has likewise capitalized on the brand value it built through its stores by establishing a significant retail/commercial presence that few restaurants come close to matching.

I don't want to make the mistake of underestimating what Starbucks can become. There's still ample room for store expansion in much of the world, not to mention additional products in the retail channel and follow-on markets like teas and pastries.

The only question I have is what this is all worth. On one hand, Starbucks doesn't seem priced all that out of line with successful QSR operators like McDonald's (NYSE:MCD), Chipotle (NYSE:CMG), or Dunkin' (Nasdaq:DNKN), nor successful packaged food and beverage companies like Coca-Cola (NYSE:KO), Mondelez (Nasdaq:MDLZ), and Nestle (OTC:NSRGY). On the other hand, investors have to either expect strong high-teens free cash flow (FCF) growth for at least another decade or accept relatively unimpressive expected annual returns for today's valuation to make a lot of sense.

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Investopedia: Slower Growth And Better Margins Probably Won't Help Amazon

If you ask most of the sell-side analysts and investors who follow Amazon.com (Nasdaq:AMZN) if they want high growth or stronger margins, I suspect that the answer will be “yes, both of those”. As a company with more than $100 billion in enterprise value and pretty eye-popping profit/earnings multiples, there are a lot of demands on Amazon and a lot of expectations about what the company ought to be. Although I do believe that Amazon's growth is likely to continue to slow (with improving margins) and that the cash flow-based valuation is reasonable, it won't surprise me if the stock stays stuck in this range of $255 to $275 for a little while longer.

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Seeking Alpha: Illumina Flexes Its Muscles A Bit

The strong revenue growth and lucrative margins of Illumina's (ILMN) core sequencing business has attracted ample competition over the years. It's testament to the quality of Illumina's technology (both acquired and internally-developed), though that a lot of these competitive attempts have only served to highlight the attributes and advantages of the company's approach.

I certainly have my questions and doubts about Illumina. I do think the company was caught a little flat-footed by the success of Life Technologies' (LIFE) Ion Torrent products, and my talks with several people in academic/research labs do lead me to believe they rushed their high-throughput products to market (leading to some unhappy customers). Last and not least, I think that Street expectations for sequencing-driven clinical diagnostics could be ambitious. All of that said, though, it's hard not to acknowledge and appreciate the business that Illumina is building here.

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Illumina Flexes Its Muscles A Bit

Seeking Alpha: Maybe More Than Meets The Eye To Stryker's Numbers

With a majority of the major orthopedic and medical technology companies having reported now, it's pretty clear that key markets like orthopedics and surgery are still seeing pretty sluggish performance. Yet the stocks of companies like Stryker (SYK), Zimmer (ZMH), and Covidien (COV) have done pretty well over the last year, as investors look for performance to rebound and return to names that were beaten up a little too much. Though I still think there's money to be made in Stryker's stock, the gains are likely to be more gradual from here.

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Maybe More Than Meets The Eye To Stryker's Numbers

Thursday, April 25, 2013

Investopedia: 3M Ends Up In The Same Industrial Tar Pit As Everybody Else

Investors who prize 3M's (NYSE:MMM) ability to muddle through the tough times a little better than most had to be a little disappointed with the company's first quarter results. Not only did the company miss on the top line, but the company's reported and incremental margins were soft. Although 3M continues to look like a solid long-term core industrial holding, the company is going to need to deliver better results if there's an argument to be made for paying a premium for the shares.

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Investopedia: Exxon Mobil's Profits And Growth Fail To Impress

As trite as it sounds, Exxon Mobil (NYSE:XOM) is what it is – a huge international oil, gas, refining, and chemical monolith that effectively refines crude oil and natural gas into shareholder capital. The process isn't always pretty (as witnessed by the recent pipeline spill in Arkansas) and it's getting harder to squeeze out the same level of profitability as before, but Exxon is still among the best-run oil and gas majors in the market. A little undervalued today, Exxon could offer some upside to investors who want a relatively lower-risk way to play energy.

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Investopedia: Investors Can't Seem To Get Enough Of Hershey

I have to give credit where it's due – Hershey (NYSE:HSY) is definitely one of the strongest stories in packaged/branded food today. While there are a few relative newcomers showing better volume growth (from a much smaller base), Hershey continues to lead the way when it comes to the large U.S. companies. Better still, Hershey is mixing that growth with strong margin leverage and making a pretty pleasing combo. Although I still think these shares carry a premium valuation, it's hard to argue with a story where management is making so many of the right moves.

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Investopedia: Are Market Factors Pushing Qualcomm Into The Penalty Box?

Financial writers often talk about overlooked or obscure stocks as though it's a bad thing to operate outside of the 24-7 glare of Wall Street attention. When it comes to stocks like Qualcomm (Nasdaq:QCOM), though, maybe a little obscurity would be a good thing. Although I can understand that investors are worried about the fundamental trends in the mobile device market, it seems like matters always get taken up a notch when it involves Qualcomm. To that end, while I wouldn't be surprised if this stock remains volatile through the summer (or the remainder of the year, for that matter), I think the underlying value here still makes it worth a look.

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Investopedia: Given Procter & Gamble's Performance, Should The Weak Volumes Matter More?

Investors seem to love gaudy expense-reduction programs, and Procter & Gamble (NYSE:PG) shares have certainly done better since Bill Ackman's Pershing Square got involved and management announced a $10 billion cost-cutting program. P&G's performance isn't so unusual in the wider context of a hot market for consumer staple stocks, but it's looking more and more like investors are overpaying for the margin improvement potential and earnings consistency of these names. Barring a quick turnaround in volumes, it looks like P&G shares have overshot the mark and offer less compelling potential from today's level.

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Wednesday, April 24, 2013

Investopedia: Absent Macro Shocks, Cash And Expenses Will Drive Boeing

A year ago I thought that Boeing (NYSE:BA) looked undervalued and ready to outperform as investors bought in to the company's considerable commercial ramp. Since then, the stock is up about 20% and although worries about batteries on the 787 did create some headaches, the company remains in good shape with respect to its market share and backlog. I still believe that Boeing should sport a triple-digit stock price and though I won't ignore the risks of a major macroeconomic slowdown, I think the biggest concerns for Boeing are now reaching cost/profit targets and how to use the considerable sums of cash it will generate.

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Investopedia: The Defenestration Of Apple Continues

As I suggested back in January on this website, I thought Apple (Nasdaq:AAPL) could have further to fall as growth investors and fan-boys dove off the bandwagon in the wake of less-than-perfect execution. In that short space of time, the shares dropped about 20%, leading to a huge loss of shareholder wealth (at least on paper).

Apple is a curious stock to me now. I do believe that the stock is too cheap relative to what I see as the probable trajectory of revenue and cash flow. By the same token, I've been at this too long to underestimate the headwinds that a stock can face when a large base of shareholders becomes disenchanted with a story and moves on for greener pastures. I do believe that patient investors will do better than just okay in Apple shares from these levels, but investors buying in today have to accept at least the risk of a further over-correction on the downside before the shares start to perform again.

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Investopedia: Another Revision Doesn't Make It Easier To Like Juniper

I thought that 2013 could be the year where long-suffering stocks like Ciena (Nasdaq:CIEN) and Juniper (NYSE:JNPR) earned a little love from the Street. So far that hasn't been the case, though Cisco (Nasdaq:CSCO) and Ericsson (Nasdaq:ERIC) have shown some signs of life.

The real question for Juniper remains what it has been for some time now – can the company take/regain share from companies like Cisco and Alcatel Lucent (NYSE:ALU) in routing, gain share in switching, and stabilize the security business? Although carrier spending has been looking and sounding a little better, another downward revision in Juniper's guidance makes it harder to step up and take a chance with this stock.

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Investopedia: Good Long-Term Trends, But Softer Conditions Today At United Technologies

It's pretty clear that United Technologies (NYSE:UTX) has built itself around two principal themes – the increasing urbanization of the world and the increasing accessibility of commercial air travel in emerging markets. While these look like good horses to ride for the long haul, they don't promise great growth every year. In addition, United Technologies still has to prove that it can successfully integrate Goodrich and make this expensive deal a value-creator for the long term.

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Tuesday, April 23, 2013

Investopedia: DuPont's Cyclicality Seems Overpriced

It seems like there is a segment of the investment community that is committed to believing that DuPont (NYSE:DD) will eventually figure out the right mix of businesses that will let it transcend its historical cyclicality and volatility. To be fair, management at DuPont has always been willing to move into higher-potential areas like agriculture, performance materials, and nutrition, but these efforts have never managed to decouple the close correlation of the company's performance and global GDP growth. Accordingly, I'm not sure I'd want to pay a premium to buy these shares.

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Investopedia: Good Margins Outweigh Weak Growth For ITW Investors

You never can quite tell what the market will value on one day or the next. For much of this reporting cycle growth has been all that investors have cared about, but the market seems to be making an exception for Illinois Tool Works (NYSE:ITW). Although management came in short of growth targets for the first quarter and lowered guidance for the rest of the year, investors seem to think the better margin results are fair compensation.

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Investopedia: Texas Instruments Not Quite In The Clear Yet

We’re about one-third of the way into the year, and 2013 isn't shaping up as a banner year for chip stocks. Although there is a widespread expectation that the industrial and automotive markets will improve, analysts are still unsure of the path for communications infrastructure, handsets, consumer electronics, and PCs. With Texas Instruments (Nasdaq:TXN) holding on to considerable margin leverage tied to utilization, industry-wide order and shipment volumes could well point to just how strong of a year this large chip company will have.

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Monday, April 22, 2013

Investopedia: Is Caterpillar Facing A New Normal In Mining?

For those investors who believed a year ago that Caterpillar (NYSE:CAT) had somehow outgrown its cyclicality, the past twelve months have been a painful reminder that it's never “different this time”. The real question now, though, is what the new normal will look like. Although there's good reason to believe that Caterpillar's power and construction businesses can do better, the longer-term outlook for mining isn't as robust anymore. There is certainly the risk that estimates head even lower, but Caterpillar shares are starting to look a little interesting in terms of value.

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Investopedia: Strong Execution Justifies Honeywell's Price

Many investors are so obsessed with finding bargains that they sometimes overlook excellent companies trading at reasonable valuations. This can be a long-term mistake, as it is often better to own the more expensive stocks of superior companies. That seems like a relevant point with Honeywell (NYSE:HON) today. While these shares are not significantly undervalued today, the quality of the company's execution and the prospects for better margins (and growth) argue for a long-term position.

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Investopedia: Halliburton Has Gotten Interesting Again

Slipping oil prices have definitely taken the steam out of what had been a strong seasonal move in many oil service and equipment stocks. Even so, many in the oil and gas industry seem to think that rig counts have bottomed and that exploration and production activity will start picking up again in 2013 barring a major economic downturn. While the timing and magnitude of that recovery does present some risk to Halliburton (NYSE:HAL) investors, today's valuation looks like a pretty attractive entry point to play an eventual recovery in the services and equipment sector.

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Investopedia: Kimberly-Clark Looks Way Too Expensive For What It Is

Investors can certainly make good money investing in well-run personal care companies with solid brands. Along those lines, names like Procter & Gamble (NYSE:PG), Colgate-Palmolive (NYSE:CL), Unilever (NYSE:UN), and Kimberly-Clark (NYSE:KMB) have all delivered very strong capital gains over the past year. In the case of Kimberly-Clark in particular, though, I do worry that this consumer staples melt-up has gone a little too far. I do like the company's growth potential in emerging markets, but commodity inflation could threaten further margin improvements and I believe the stock is too expensive relative to its growth prospects.

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Investopedia: Schlumberger Looks Good At Today's Prices

For better or worse, Schlumberger (NYSE:SLB) is a stock that will give investors multiple second chances. Although this company is regarded as the best of the oil services companies, the ups and downs of the energy market (and the resulting impacts on exploration, drilling, and production activity) lead to wide swings in operating performance and the stock price. With surprisingly solid margins, signs of improvement in North American activity, and strong multi-year prospects in deepwater, subsea, and international projects, this could be a good time to consider these shares.

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Friday, April 19, 2013

Invesotpedia: GE's Guidance Wasn't Great, But Expectations Seem Low

Many investors are desperately hanging on to the idea that the economy will spring back in the second half and validate the multiples in the market. When companies like General Electric (NYSE:GE) report earnings and give guidance that makes that second-half recovery look shakier, the stocks pay the price. While I understand short-term investors selling GE on disappointment over the company's outlook, the stock still seems too cheap from a long-term cash flow perspective.

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Investopedia: Is Controversy About Robot-Assisted Surgery Showing Up In Intuitive Surgical's Numbers?

There has always been controversy around Intuitive Surgical (Nasdaq:ISRG) and its daVinci robotic surgical system. In recent months this controversy has reignited over allegations that device malfunctions/adverse events are increasing and that the system is little more than an expensive, unnecessary toy in procedures like minimally invasive hysterectomy. Making matters worse, this has long been an expensive stock where success has been predicated on double-digit growth in minimally invasive surgery and Intuitive's share in the market.

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Investopedia: Does A Tough Patch Really Matter To McDonald's Shareholders?

Excellent earnings consistency and a long history of dividend payments will buy a lot of patience and support from investors. Consequently, I find it hard to imagine that even this disappointing patch of weak same-store sales will really dent McDonald's (NYSE:MCD) all that much. Though I'm not very fond of the multiples being paid for consumer stocks these days and won't be looking to add McDonald's to my own portfolio, I don't expect a mass exodus from these shares unless the market as a whole takes a tumble.

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Investopedia: IBM Makes It Official - Tech Has Some Troubles

Although I doubt there were many investors still holding serious hope that the first quarter of 2013 was going to end up being a good one for tech companies, IBM (NYSE:IBM) likely snuffed out those hopes with an uncommonly weak quarter. With Big Blue missing for the first time in eight years, and missing across the board, it's pretty clear that business conditions have slowed markedly. Management remains optimistic that business will recover with a strong second half, but even with the big post-earnings decline these shares are not exactly cheap.

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Investopedia: Weak PC Growth And Slow Mobile Penetration Weighing On Microsoft

It really is too bad that the conversation on Microsoft (Nasdaq:MSFT) always seems to be dominated by what the company isn't. Bearish analysts and investors hammer the company for its heavy reliance on PCs and fault the company for letting Apple (Nasdaq:AAPL) and Google (Nasdaq:GOOG) build such a large lead in mobile operating systems, while also complaining about the company's relatively weak online business and below-average entertainment profitability.

Those are legitimate criticisms, but only to a point. It is not as though smartphones and tablets have replaced PCs in the office environment, nor are they likely to anytime soon. What's more, Microsoft has a bigger (and faster-growing) presence in enterprise software than is usually appreciated. Last- and by no means least, Microsoft remains an exceptionally profitable company that generates exceptionally large amounts of cash every year.

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Investopedia: Thermo Steps Up And Seals A Deal For Life Technologies

After months of speculation, Thermo Fisher (NYSE:TMO) has brought its rumored pursuit of diversified lab equipment and supply manufacturer Life Technologies (Nasdaq:LIFE) to a successful close. The two companies announced on Monday that they had reached an agreement whereby Thermo would acquire the company in an all-cash deal. While Life Tech's share price after the deal seems to show a little larger-than-normal discount, the bigger question may be whether Thermo anticipates another deal down the line.

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Thursday, April 18, 2013

Investopedia: Mediocre Performance Clouding BB&T's Long-Term Value

The management of BB&T (NYSE:BBT) once enjoyed a pretty sterling reputation for their performance, but a variety of missteps seem to be accumulating. Couple that with “industry standard” mediocre performance, and I can understand why BB&T shares have gone almost nowhere over the past year and are, in fact, one of the worst performers of the peer group. For investors willing to play the long game, though, I do believe that meaningful value remains in these shares at today's price.

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Investopedia: Nokia Still Straddling Fault Lines

Roughly 18 months into his tenure as the CEO of Nokia (NYSE:NOK), Stephen Elop hasn't yet proven much of anything about the future of this former mobile device leader. The company has done a better-than-expected job of cutting costs and its Nokia Siemens Networks joint venture is looking a lot better, but the company continues to lose mobile device share at an alarming rate. While the company's ongoing existence as a going concern is arguably not an issue, there's a great deal more to do before the company can be considered a real turnaround stock.

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Investopedia: Broad Weakness Makes It Harder To Like St. Jude Today

I've been relatively optimistic about St. Jude Medical's (NYSE:STJ) long-term prospects as the company navigates its current multi-year lull in growth. The company has a legitimate presence in important markets like cardiac rhythm management, atrial fibrillation, neurostimulation, and heart valve replacement, plus a pipeline that could reignite growth. With all of that said, it's still getting harder to ignore the realities of just how growth-challenged the company is in the here and now. Although I do believe the long-term expectations for St. Jude are increasingly beatable, this could be a frustrating stock to own for a little while yet.

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Investopedia: Dover May Be Bottoming, But The Street's Already Thinking Recovery

Dover (NYSE:DOV) is one of those industrial conglomerates that is so diversified, it's not hard to feel a little sympathy for the analysts that cover the stock. From energy to smartphones to commercial refrigerators and gas pumps, covers the gamut of end-market exposures.

To that end, it doesn't say anything especially great about the economy that first quarter results were pretty weak, though the book-to-bill and management's optimism about a second-half recovery are encouraging. When it comes to the stock, however, it's a little hard for me to believe that the Street hasn't already skipped ahead a few pages and priced this stock for a recovery.

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Investopedia: Intel - A Bond's Downside And A Stock's Upside?

Intel (Nasdaq:INTC) still has a long road ahead of it to regain the love of tech investors who believe that the core PC market is in permanent decline and that rivals like Qualcomm (Nasdaq:QCOM) and ARM Holdings (Nasdaq:ARMH) are still too far ahead in the expanding mobile market.

The concerns about Intel – revenue growth potential, cost structure, capital spending needs – are valid, but should also be viewed in context. Even though Intel is currently converting revenue to free cash flow (FCF) at a historically poor rate, it's generating more than enough to pay its dividend and fund ongoing buybacks. I wonder, then, if investors should approach Intel from the viewpoint that the downside scenario sees Intel grinding along with a bond-like total return, but with the potential upside of a more equity-like return if the company's efforts in mobile and foundry pay off.

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Investopedia: Investors Seem To Be Overrating Bank Of America

Few large bank stocks have come close to the market performance of Bank of America (NYSE:BAC) over the past year. While some of that appreciation may have been due to investors accepting that BoA is still a going concern in banking, the reality is that the bank still has a lot of work left to do, and the current banking environment is not exactly hospitable. With legal risks still pretty high and near-term growth opportunities looking more modest, Bank of America seems pretty fairly valued today.

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Investopedia: CSX Adapating To New Realities

It wasn't long ago at all that the rails seemed to have things pretty much all going their way. Better management was producing better margins, pricing advantages over trucking were leading to good intermodal growth, and a recovering economy was supporting higher traffic and strong pricing. Then came a structural shift in electricity generation and a serious drought that hammered both coal and agricultural volumes.

To its credit, eastern rail operator CSX (NYSE:CSX) is rolling with the punches. The company is largely through the worst of the volume reset caused by declining coal demand, and while management has stretched out its margin improvement targets, there's still a pretty good case to be made for solid operating performance over the next few years. Unfortunately, the market has been quick to anticipate this and the shares don't look like a tremendous bargain today.

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Investopedia: Pharma Is Doing All The Pulling For Johnson & Johnson

While other healthcare companies including Covidien (NYSE:COV) and Abbott (NYSE:ABT) have seen fit to split their drug and device businesses, it's perhaps lucky for Johnson & Johnson (NYSE:JNJ) shareholders that their company has not gone the same route. While it wasn't really so long ago that JNJ's drug business was struggling, now it's the consumer and device business that need the pick-me-up. Even with the strength of the drug business and the wider healthcare sector, though, it's hard to see a lot of surplus value in the shares at these prices.

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Tuesday, April 16, 2013

Investopedia: DISH Network Makes Another Bid For Mobile

It's hard not to give some credit to DISH Network’s (Nasdaq:DISH) leadership for realizing that they've taken the satellite TV concept about as far as they can. Instead, the company has been acknowledging (for some time now) that the company needed a pretty significant strategic transformation- one that would allow the company to leverage its wireless spectrum and compete more directly in the growing mobile broadband market.

To that end, Monday's bid for Sprint Nextel (NYSE:S) is bold, but not entirely surprising. In fact, I suggested a few months ago that DISH's bid for Clearwire (Nasdaq:CLWR) could be as much about forcing Sprint to the table as any particular desire to own Clearwire. Now the question is whether or not Sprint's board welcomes the overture, and whether Sprint's other bidder, Japan's Softbank, decides to up the ante.

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Investopedia: On Track With Volumes And Margins, Coca-Cola Refreshes

As a value-oriented investor, once you relax and accept the fact that stocks like Coca-Cola (NYSE:KO) are almost never going to look cheap, evaluating them becomes quite a bit easier. With stocks like Coca-Cola, the reality is that investors view them as something almost like a hybrid of stock and bond, and so the valuation nearly always seems a bit stretched compared to other equities.

But as this quarter shows, Coca-Cola still has the ability to surprise to the upside. Decent volume growth helped to offset some price pressure and the company's progress on margin should reassure investors that management's long-term growth goals are attainable. So while these shares continue to look expensive by conventional valuation methodologies, and there does seem to be a general state of overvaluation in consumer-oriented stocks, the fundamental case for Coca-Cola remains pretty positive.

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Investopedia: U.S. Bancorp Is Strong But Needs Growth

This earning season is starting to feel like a broken record, or at least for the high-quality banks. Economic uncertainty has led many would-be borrowers to delay taking out loans, low interest rates make it tough to make money on the spread, and new regulations have hurt fee income and increased costs.

Add U.S. Bancorp (NYSE:USB) to that list of banks where the Street seems to be saying “yeah, we know you're good, but we want growth.” While this large super-regional bank looks like a very solid long-term banking holding, this stock may not really get going unless or until the economy picks up and/or investors shift funds from overheated sectors towards the financials.

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Investopedia: Comerica Looks Like A Slow-Coiling Spring

With interest rates so low, loan demand pretty sluggish, and regulations chewing into once-lucrative sources of income, most banks are stuck in a holding pattern. That's particularly true for those banks with relatively clean credit stories that don't have the tailwind of improving provision and loan loss reserve releases to pump up results.

That puts investors in a tough place with Comerica (NYSE:CMA). Certainly there isn't much near-term growth potential to get excited about here. Yet, the company remains very highly leveraged to an eventual rise in interest rates. At the same time, the company's underlying quality and footprint make it an appealing M&A candidate should the board decide it's time to look to sell. In the meantime, though, it's hard to get excited about these shares at the present valuation.

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Monday, April 15, 2013

Investopedia: Citigroup Looking More Like A Normal Big Bank These Days

With its first full quarter with new CEO Michael Corbat in charge now in the books, Citigroup (NYSE:C) continues to make progress towards operating more like the large money-center bank that it is. While there are some very valid questions about the company's long-term strategy (including managing its far-flung global empire and rebuilding share in U.S. banking), it seems like the bank can increasingly focus on more common banking issues like dealing with a very adverse yield curve and pretty sluggish loan growth.

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Investopedia: Infosys Struggling To Make The Changes

Change seldom comes easy, particularly when the underlying market conditions are challenging. With multiple reports and warnings pointing to a tough environment overall in tech and companies like Accenture (NYSE:ACN) seeing more challenging conditions in outsourced IT, Infosys (Nasdaq:INFY) has some headwinds. At the same time, the company's fiscal fourth quarter results suggest some self-inflicted wounds. While the shares look undervalued on a long-term basis, it may be a rocky ride if near-term results don't get meaningful better soon.

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Saturday, April 13, 2013

Investopedia: Commerce Bancshares Growing Its Balance Sheet, But Profits Are Harder To Come By

When a bank has significantly below-average funding costs and non-performing assets, and didn't have to take a dime of TARP money, it's a pretty good sign that management is doing something right. And to be sure, conservatively-run Commerce Bancshares (Nasdaq:CBSH) is a high-quality Midwestern bank with top-four deposit share in both Kansas and Missouri. That quality is not lost on the Street, and today's valuation doesn't leave a lot of value on the shelf for new investors.

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Investopedia: Fortinet Stumbles, Making Tech Investors Very Insecure

Although you wouldn't necessarily always know it by the growth rates at leading enterprise security vendors like Check Point (Nasdaq:CHKP) and Cisco (Nasdaq:CSCO), security has been one of the better markets in enterprise IT. So the real question in the wake of Fortinet's (Nasdaq:FTNT) warning on first quarter results is whether this is company-specific, market-specific, or a more widespread problem within the security sector.

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Investopedia: Titan Machinery's Margin Problem

Although I have mentioned it before in previous articles on Titan Machinery (Nasdaq:TITN), it bears repeating – Titan Machinery is pursuing a risky, debt-fueled roll-up model that puts a premium on driving solid long-term operating leverage. This makes the company's fourth quarter miss all the more concerning. While I'm the last person to advocate freaking out (or abandoning a position) over one bad quarter, the long-term impact to fair value of even a half-point adjustment to margin estimates can be significant.

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Investopedia: J.B. Hunt's Bigger Challenge Today Is Expectations, Not Operations

The markets remind us over and over again that quality stocks often appreciate well beyond fair value, particularly when they become popular picks in attractive sectors. That would seem to be the case at J.B. Hunt (Nasdaq:JBHT), as it is quite difficult to call the stock's price a bargain by conventional means. While the Street's love for J.B. Hunt has been great for shareholders, it does come with a price, as expectations seem to be quite high for this well-run transportation company.

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Investopedia: Credit Comes To The Rescue, As JPMorgan Sees Soft Core Banking Results

Maybe today's banking environment isn't quite “famine” on the feast-or-famine scale, but with results in hand from Wells Fargo (NYSE:WFC) and JPMorgan (NYSE:JPM) it's pretty clear that this a very slow patch in core banking. While I expect that some (if not many) investors will be more attracted to stronger growth/recovery stories at once-troubled banks, I believe JPMorgan continues to offer very good value for money in the banking sector. Even if the company's sterling reputation has acquired some patina, the valuation suggests that the company doesn't get its due for its market share, credit quality, and profitability.

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Investopedia: Bank Of The Ozarks Continues To Build Value

I've long praised Little Rock-based Bank of the Ozarks (Nasdaq:OZRK) as one of the best-run banks that most investors probably don't know about. This bank has long used a mix of opportunistic M&A and focused lending expertise to grow what has become an increasing valuable Southern/Southeastern banking franchise. While today's price is not exactly a bargain, there are worse fates in investing than to hold somewhat expensive positions in very promising companies.

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Investopedia: Core Growth At Wells Fargo Is Weak, But The Multiple Doesn't Look Demanding

During bull markets, investors typically prize growth more than anything and that would seem to explain a lot of the relative valuations I'm seeing in the banking sector these days. To wit, investors don't seem nearly as concerned about quality or long-term business prospects as the they do about the near-term growth and capital returns potential. That may be frustrating for Wells Fargo (NYSE:WFC) shareholders in the short term, but I think it does leave some long-term potential in the shares today.

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Thursday, April 11, 2013

Investopedia: Progressive Improving Quality At The Expense Of Growth

Every insurance company has to maintain a delicate balance between earning on capital as much as possible, and not take excessive risks in the pursuit of those earnings. As a high-quality, well-run insurance company, Progressive (NYSE:PGR) has a long history of making good decisions. Those decisions are starting to compromise growth, however, and it's becoming more difficult to make a value case for Progressive in the insurance sector.

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Investopedia: Pricey Constellation Brands Has A Lot To Live Up To

Complaining about the high valuation of beverage stocks like Coca-Cola (NYSE:KO), Diageo (NYSE:DEO), and Anheuser-Busch InBev (NYSE:BUD) is largely a futile exercise. Investors prize the strong cash flows and returns on capital that these businesses can achieve, and many analysts and investors are completely sold on the idea that ongoing income growth in the emerging market will lead to both higher sales and higher scale-driven margins down the line.

I can accept all of that to a certain point, and I certainly can't complain if the market wants to award a rich valuation to the shares of SABMiller (OTCBB:SBMRY) that I own. In the case of Constellation Brands (NYSE:STZ), I can see multiple avenues for better long-term performance, particularly if the U.S. Department of Justice ultimately gives the “all clear” to the restructured Grupo Modelo transaction. That said, investors should ignore the strong performance expectations that are already built into the valuation and the risk that the shares could underperform the market as a result.

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Investopedia: Weak Metalworking Rusting MSC Industrial's Growth Outlook

These are not great times for the industrial sector. Worries about the fiscal cliff transitioned into fears of sequestration, and a variety of metrics are showing decreasing industrial activity. That is spilling into the results of industrial component suppliers like Fastenal (Nasdaq:FAST) and MSC Industrial (NYSE:MSM). While MSC Industrial's near-flat revenue growth this quarter and flat guidance are certainly unsettling , I think the long-term growth story here is still an attractive one and I'm happy to hold onto my shares.

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Investopedia: For Alcoa, It Can Still Get Worse Before It Gets Better

Alcoa (NYSE: AA) management must feel like they're running on a treadmill or swimming in a flume. No matter the progress that the company makes with productivity or improved downstream operations, it feels as though ongoing global supply growth strips away the advantageous. So, although Alcoa continues to look underpriced, the brutal competition in this market makes it a hard stock to recommend to investors

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Investopedia: GE Pays Up To Get Into Another Attractive Energy Business

General Electric (NYSE:GE) is not messing around when it comes to making itself into a leading manufacturer of equipment for the oil and gas industry. Having already established a strong presence for itself in areas like subsea and surface equipment, GE is taking a deeper dive into artificial lifts with its high-priced acquisition of Lufkin Industries (Nasdaq:LUFK).

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Investopedia: AngioDynamics Still Struggling To Get Back On Track

Throughout what has proven to be a difficult time for small-cap medical device company AngioDynamics (Nasdaq:ANGO), I've been optimistic about the company's long-term potential. While businesses in vascular access, dialysis, and fluid management are not high-growth areas of medical technology, I thought the company's focus on product development would lead to better revenue and margin leverage than the Street seemed to be expecting.

So far that has been a bad call. While products like NanoKnife, BioFlo, and AngioVac do still hold the potential to drive long-term growth rates in excess of the industry norms, sales execution and market shares need to improve. Likewise, investors should not underestimate the potential risk of rejuvenated large competitors like Covidien (NYSE:COV) and CR Bard (NYSE:BCR).

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Wednesday, April 10, 2013

Investopedia: ADTRAN Looks To Rebound From A Pretty Miserable 2012

It's almost cliché to talk about how bad of a year 2012 was for communications equipment vendors dependent on American and European carrier spending. With core broadband access product sales down 13% in 2012, ADTRAN (Nasdaq:ADTN) definitely found itself among the laggards, with shares down more than 30% over the past year and well below the S&P 500.

But 2013 is a new year, and hope springs eternal in the hearts of tech investors. While investors should not discount the competitive risks from rivals like Calix (NYSE:CALX) and Alcatel Lucent (NYSE:ALU), there is reason for at least cautious optimism that carrier infrastructure deployments will lead to better results for ADTRAN. At a minimum, it certainly doesn't seem like the Street has priced this stock for particularly breathtaking performance.

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Investopedia: Slowing Sales At Fastenal Not Denting Investor Enthusiasm ... Yet

It's an unfortunate reality of financial writing today that you can't express concern about a stock's valuation and/or investor expectations without reaping a whirlwind of angry readers claiming you hate the company (while in secret many are shorting the stock). Be that as it may, only a fool wouldn't appreciate the business that Fastenal (Nasdaq:FAST) has built in the industrial distribution market, but that doesn't mean that the shares are cheap – particularly with growth becoming more of a concern than at any time before in this latest post-recession recovery.

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Tuesday, April 9, 2013

Seeking Alpha: Alkermes Still Not Getting Full Credit For Its Pipeline

Biotech is a strange world, one where investors often seem to prefer stories that are relatively weak on sales, earnings, and actual data. Maybe that makes a certain amount of sense - in the absence of data, investors are free to dream about blockbuster drugs and multi-baggers.

In the case of Alkermes (ALKS), it would seem that having an actual cash flow-generating business is almost a detriment to the stock. Given that I believe Alkermes combines a strong (and fairly stable) royalty-generating business with a high-risk/high-reward, but undervalued, pipeline, I believe this is a stock worth considering even at these relatively elevated prices for biotech stocks.

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Alkermes Still Not Getting Full Credit For Its Pipeline

Friday, April 5, 2013

Investopedia: F5 Networks Takes Another Whirl In The Tech Spin Cycle

Between earnings from the likes of Oracle (Nasdaq:ORCL) and TIBCO (Nasdaq:TIBX) and yesterday's negative guidance from F5 (Nasdaq:FFIV), I think it's safe to say that the tech spending market has cooled noticeably. Given the hype and hope that had been built into so many tech company valuations, that should probably have investors feeling at least a little uncomfortable now. While I am still a believer in F5, it's going to be tough to own tech stocks until there is a real sign of renewed momentum in the sector – likely a second-half event.

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Investopedia: Schnitzer's Results Are Better, But The Challenges Are Still Significant

All parts of the steel cycle have been volatile lately, as investors fret over demand for steel from ArcelorMittal (NYSE:MT) and Nucor (NYSE:NUE) and the demand for inputs like met coal, iron ore, and scrap steel. While improving economic conditions and a possible revival in North American commercial construction may seem to augur well for Schnitzer Steel (Nasdaq:SCHN), investors shouldn't ignore the significant long-term challenges of this leading scrap processor.

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Investopedia: RPM's Performance Isn't Perfect, But Continues To Generate Cash Flow

Specialty chemicals is a tough sector, and just about anything tied to construction (particularly commercial construction) is even worse. And yet, while RPM International (NYSE:RPM) has seen plenty of ups and downs over the years, the company's growth-by-acquisition strategy has continued to generate solid cash flow and decent returns on capital. While I still don't see these shares as a bargain today, an ongoing revival in the residential market does seem to be tiding the company over until commercial construction improves.

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Thursday, April 4, 2013

Seeking Alpha: Will A Different Model Lead To Sustainably Different Results For SolarWinds?

Over the last decade or so, a host of software companies have tried to build successful businesses with models different than those used by industry giants including IBM (IBM), Oracle (ORCL), and Microsoft (MSFT). While Salesforce.com (CRM) and NetSuite (N) have gone the software-as-a-service (SaaS, or Cloud) route, others like Red Hat (RHT) have looked to maintenance and support instead of the software itself as the source of value.

That brings us to SolarWinds (SWI). There's nothing unusual per se about network management tools - companies like IBM and Hewlett-Packard (HPQ) have been selling them for years. What's different about SolarWinds is both the sales model (a low-touch model that relies on 3rd parties like search engines) and the product positioning (lagging tech, but cheap and easy to use). So far, the results have been impressive as SolarWinds has posted exceptional revenue growth and operating margins. As is so often the case, though, the question is whether the company can maintain this momentum and whether the Street is already ahead of the story.

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Will A Different Model Lead To Sustainably Different Results For SolarWinds?

Seeking Alpha: Most Of The Action At Medical Action Will Come From Margins

When most med-tech companies trade at an EV-to-sales multiple of 2x to 4x, Medical Action Industries' (MDCI) 0.4x multiple is a pretty clear signal that something is very different about the company. In this case, we're talking about a small medical disposables company that has not only been seriously growth-challenged, but also had to absorb significant gross margin pressures. Although patient value-oriented investors may want to consider Medical Action Industries for its margin improvement potential, investors should keep in mind that the market seldom give full credit to companies with weak internal growth prospects.

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Most Of The Action At Medical Action Will Come From Margins

Investopedia: A Thick Order Book Is Only Part Of The Story For Greenbrier

There are certain industries were achieving sustainable economic returns and steady equity appreciation is nearly impossible, and rail car manufacturing seems to be one of them. Among the major manufacturers, a list that includes Greenbrier (NYSE:GBX), Trinity Industries (NYSE:TRN), American Railcar (Nasdaq:ARII) and FreightCar (Nasdaq:RAIL), two straight years of double-digit operating margins and/or return on invested capital is exceedingly rare.

With that in mind, investors would probably do well to approach Greenbrier with caution. While the company's move into tank car manufacturing should lead to higher revenue as crude oil producers turn to rails to move their product, the company has its work cut out to improve long-term margins and returns on capital. Although there could still be a trading opportunity in these shares, investors considering a long-term commitment should take a long look at the very poor historical industry returns.

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Investopedia: Samsung Stores A No-Risk Opportunity For Best Buy

Give credit to Best Buy (NYSE:BBY) – the company is not going down without a fight. While there are still ample concerns about whether there's life in big-box electronics and appliance retailing, Best Buy is trying to find ways to rejuvenate the stores. Even in the absence of a buyout led by founder Richard Schulze, the stock has rallied back to a 52-week high on optimism about these moves.

The latest move is an interesting one for the company – the launch of a “store within a store” concept with Samsung, the other 800-lb gorilla of the smartphone and tablet market. Although these mini-stores are unlikely to significantly improve overall sales for Best Buy, they could be good for margins and could point to a new direction in big-box retailing.

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Wednesday, April 3, 2013

Seeking Alpha: CareFusion On The Right Path

This recent melt-up in the market has left relatively few undervalued opportunities in the med-tech sector. While there are still some bargains to be had at the various market cap levels, it's not altogether unfair to say that anything that looks notably cheap today is cheap for a reason. With that in mind, it's not so surprising that CareFusion (CFN) shares don't offer huge upside from today's level. That said, I like the moves that management has made here and if the market (or med-tech sector) were to sell off significantly, this would be a name well worth considering.

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CareFusion On The Right Path

Investopedia: Monsanto Looks A Bit Vulnerable At Current Levels

While Monsanto Company (NYSE:MON) may be evil incarnate to some people, the fact of the matter is that the company's products work quite well and the company has fixed its marketing problems such that it has become one of the go-to names for investors looking for exposure to agriculture. While Monsanto's fiscal second quarter results were decent and it looks like this will be a successful planting season, new investors may want to be careful about making a big new investment at today's levels.

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Investopedia: ConAgra Now Getting Almost Full Benefit Of The Doubt

It's been an interesting few months for packaged food companies. Volume trends have looked softer than expected as consumers continue to feel a pinch, but input costs have also eased up. Most significant, though, was the acquisition of Heinz (NYSE:HNZ) by Berkshire Hathaway (NYSE:BRK-A,BRK-B) and 3G and the near-immediate upward revaluation of the sector.

Against that backdrop, ConAgra (NYSE:CAG) continues to be a “yes, but...” company. As in, “yes, the RalCorp deal helps, but the company has to execute on the integration” or “yes, input costs are lower, but the company is having to spend on marketing/promotion to prop up weak volume”. While I liked ConAgra as an undervalued play in the sector back in December, I don't feel as strongly about it today given the significant move in the sector and this stock in particular.

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Investopedia: Hope Seems To Outshine Reality At Acuity Brands

It has been almost two years since I last wrote on Acuity Brands (NYSE:AYI), and in that time the company has seen only the barest recovery in residential and commercial construction, the acquisition of a major competition by a large conglomerate, and the advancement of LED lighting as a more feasible alternative. It is this last item that is likely to be the biggest driver for Acuity, as a switch to more efficient LED lighting could stimulate significant sales. As often seems to be the case with Acuity shares, though, it seems like investors are already well ahead of curve on this name.

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Investopedia: Global Payments Still Feeling An Uncomfortable Squeeze

Life still isn't easy in the narrow space between merchants and banks. Regulators have taken a much sharper pen to the fees that many players along the way can charge and earn, rivals continue to bludgeon each other for market share, and new entrants like Square threaten to upset the entire apple cart. That's led to less-than-spectacular performance from merchant acquirer and processor Global Payments (NYSE:GPN), as well as long-term concerns about the sustainability of what had previously been a pretty high-margin/high-return business model.

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Tuesday, April 2, 2013

Investopedia: Verizon, AT&T, And Vodafone - Here We Go Again

Large companies aren't really famous for being good at sharing. With that in mind, the shared ownership of Verizon Wireless between Verizon (NYSE:VZ) and Vodafone (Nasdaq:VOD) has always seemed inherently unstable. While the companies once contemplated an IPO for the business, the decision to maintain the status quo has led to nearly annual speculations as to whether the two companies will reach agreement on some sort of M&A transaction.  

Whether it's due to real interest or just the fact that the market is in a dry patch for news prior to the next earnings cycle, these rumors have heated up once again. In an interesting twist, rumors are now including AT&T (NYSE:T) as a potential third party to facilitate a transaction that would essentially split up Vodafone between the two American carriers.

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Investopedia: A Slimmed-Down Vestas Hopes For More Than Just Survival

Investors didn't want to hear (or think) about it back in 2006-2008, but the renewable energy “revolution” has followed a pattern that is pretty familiar to most experienced investors, and left a great deal of debris in its wake. Wind turbine manufacturer Vestas (OTC:VWDRY) has found itself one of the worst-hit companies to still be in business, as the stock is down more than 90% from its 2008 highs.

Growing global capacity and shrinking government subsidies have hammered this company, as margins have plunged. The company has tried to respond - changing management, cutting costs, and streamlining operations – but the ultimate outcome is still very much in doubt. While Vestas seems undervalued if the company can in fact survive this winnowing process, survival is far from certain at this point.

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Investopedia: McCormick Continues To Defy Gravity

When I last wrote on McCormick (NYSE:MKC) in October of 2012, I liked almost everything about the company except the valuation on the stock. However, as I've mentioned repeatedly in the past, valuation is no impediment to further appreciation in the short term and McCormick shares have climbed a further 15% from that point (beating the market by more than 7% over that time).

Accordingly, the story on McCormick largely remains the same. While some investors will argue that the valuation of Berkshire Hathaway's (NYSE:BRK.A) and 3G Capital's deal for Heinz (NYSE:HNZ) “proves” that packaged food stocks are undervalued, I don't share that sentiment. The strong volume growth at McCormick is certainly positive, and I like both the company's commanding U.S. share and growth prospects, but today's share price suggests future appreciation potential more suited to bonds than an equity.

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Investopedia: The Market May Be Overestimating Adecoagro's Risks

Brazilian agriculture and ethanol company Adecoagro (NYSE:AGRO) has not had a good run as a public company. Not only is the stock down more than 30% from its January 2011 debut, the stock has noticeably lagged its Brazilian small-cap peers. Some of this can be chalked up to the unpredictable results of the company's farming operations, but worries about currency and the Argentine government have certainly done the company no favors. While this remains a risky investment prospect, bold investors may want to consider this name given its large apparent discount to fair value.

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