Wednesday, July 31, 2013

Seeking Alpha: Old Faithful Portfolio Recovery Associates Does It Again

The kind of performance Portfolio Recovery Associates (PRAA) delivers just doesn't get boring. Although debt recovery is not a well-liked business by any stretch, PRA has done a remarkable job of refining its model so as to identify only those who can pay their debts, and the extent to which those customers are likely to respond to particular collection methodologies. Moreover, PRA has done a very good job of adhering to above-average standards such that it is one of the preferred buyers in the market and a likely beneficiary of rule/regulatory changes that could push some competitors out of the market.

Still, it's not as though the shares are notably cheap. The valuation model I use is very sensitive to changes in inputs like collection rates and discount rates, but almost all of the results end up falling into a valuation range of about $150 to $175. Further consolidation in the debt collection space and/or continued outperformance on collections and collection efficiency could certainly make those estimates conservative, but it's hard to see enough margin of safety here for me to recommend new investors make big purchases at these prices.

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Old Faithful Portfolio Recovery Associates Does It Again

Seeking Alpha: In-Line Doesn't Cut It For NuVasive

Small-cap spine specialist NuVasive (NUVA) may have reported basically in-line numbers for the second quarter, but that's not helping its shareholders today. Although the company continues to grow share in the stagnant U.S. spine market, investors are jittery about management's ability to hit the bold target of 20%-plus operating margins down the road. Add in a subpoena from the OIG, persistent worries that the spine market opportunity isn't what it used to be, and a fairly robust valuation, and it's not as hard to understand the big drop in the shares.

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In-Line Doesn't Cut It For NuVasive

Seeking Alpha: Wall Street Wants To Like Headwaters, But Should You?

I think everybody has a relative that won't ever let you get past who/what you used to be - it's probably one of those shared human experiences. I find myself slipping into that bad habit when I look at Headwaters (HW). I made some very good returns off this stock many years ago, back in the day when it was a coal treatment company with supposedly exciting catalyst technologies in the works. Management may have seen the writing on the wall with respect to the future of "clean coal," but the company's debt-fueled ventures into building products amidst the housing boom put this company into a bad spot for a number of years.

Now things are different. Headwaters is largely a residential building products company, but with some significant leverage to commercial and infrastructure construction as well. At the same time, the company has made some real strides in improving its debt situation and margin leverage. All of that aside, the sell-side has hiked its target on these shares by almost 100% over the past year (while the stock has climbed more than 40%) and it's worth wondering whether or not a large part of the housing recovery is already baked into the numbers.

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Wall Street Wants To Like Headwaters, But Should You?

Investopedia: After A Sharp Pullback, Is Allergan Pretty Enough?

With its very strong (and lucrative) positions in markets like aesthetics (including the well-known Botox), eye care, device-based plastic surgery, Allergan (NYSE:AGN) arguably merits the premium valuation it typically gets from the Street. Recent developments pertaining to generic competition to Restasis has shaken investor confidence, though, and sent the shares down more than 20% to today's level. Although I do believe that bears may be overestimating the threats to key franchises like Botox and Restasis, it is hard to make a confident call that Allergan is dramatically undervalued now, other than to say that the Street has often been willing to overpay for these shares and may again in the future.

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Investopedia: Is Cummins Building For Bigger Things?

Modeling and assigning a fair value to Cummins (NYSE:CMI) is not a particularly easy task. It's hard to find a better company in the transportation components sector, not to mention the wider industrial sector as a whole. Through all of the cyclical ups and downs of the commercial vehicle market(s), Cummins almost always generates double-digit returns on invested capital and has managed to stay in the green with free cash flow.

So quality and ability to execute are not problems. What is the problem is estimating fair future growth rates. It seems hard to imagine that Cummins can match its trailing revenue growth rate of 12%, but countries like Brazil, China, and India are still seeing trucking operators building their fleets, while the move to natural gas could fuel demand not only for LNG/CNG engines, but also compression facilities and more equipment for the energy sector. Although I think the Street may be a little too optimistic on the free cash flow margin leverage Cummins can deliver, I'm increasingly thinking this is a good stock to own for the longer term.

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Investopedia: Does Amgen Deserve To Be Part Of The Biotech Bull Run?

For as much as the sell-side seems to complain about Amgen (Nasdaq:AMGN), it doesn't seem to have resulted in the company missing out on the run-up in biotech and pharma names over the last 12 to 18 months. With uncertain risk from biosimilars and a pipeline that strikes many investors as lackluster, Amgen isn't the easiest name to like today, and the risk of the company overpaying for Onyx Pharmaceuticals (Nasdaq:ONXX) doesn't help. On balance, it's difficult to work up a lot of enthusiasm for Amgen at this price, but key clinical data in early 2014 could add some solid support to the stock.

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Investopedia: If Alcatel Can Keep This Up, The Turnaround Can Work

These are still very early days, but if the second quarter is any sign, Alcatel-Lucent's (NYSE:ALU) latest restructuring efforts may bring this company (and stock) back into relevancy. There is still plenty than can go wrong, but the carrier spending environment is looking better by the month, and will likely put some significant tailwinds into Alcatel's sales. While I definitely missed out on the early jump in these shares, a pathway to $3.50 (or higher) for the shares is at least worth talking about today.

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Tuesday, July 30, 2013

Seeking Alpha: Slow Capex Demand At Manitowoc Not Bothering The Street

I happen to be a big believer in the idea that subjects like psychology, philosophy, and theology can have real-world investing applications, and the market's treatment of Manitowoc (NYSE: MTW) reminds me a bit of William James' "Will To Believe" lecture. Although the recent trends in construction and QSR traffic haven't been all that encouraging, the market is still willing to value Manitowoc on the basis of the belief that trends will improve later this year. I don't think Manitowoc is necessarily overpriced today, but I do wonder if there aren't better plays on some of the same underlying themes.

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Slow Capex Demand At Manitowoc Not Bothering The Street

Seeking Alpha: Is Lincoln Electric's Stumble Another Chance To Buy?

Sooner or later, there will be a point when buying Lincoln Electric (LECO) on weakness doesn't make sense, but I don't think we're there yet. It's true that this company has seen business weaken on tough conditions in markets like shipbuilding, energy and construction, but I don't expect that weakness to continue indefinitely, and Lincoln still has much to gain from consolidation, expansion into automation and growth in emerging markets like China and Brazil. The shares haven't yet pulled back to what I'd call a safe level, but this will ultimately be a good stock to ride a global industrial recovery.

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Is Lincoln Electric's Stumble Another Chance To Buy?

Investopedia: Better Margins Can't Hide Merck's Growth Challenges

In spite of pretty weak top-line results, pharma companies like Merck (NYSE:MRK), Pfizer (NYSE:PFE), and Bristol-Myers (NYSE:BMY) have benefited from a relatively bullish sentiment on healthcare stocks. That sentiment may be petering out, though, and that could make it harder for Merck's stock to outperform. I believe that this company's pipeline strategy (significant quantity, but not necessarily many stars) leads to investors underestimating its potential, but I wouldn't go so far as to think it's a tremendously cheap stock today.

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Investopedia: Pfizer Looking A Little Tired

At some point this bull market in all things health care will fade out, and I wonder if Pfizer (NYSE:PFE) shares will maintain this sort of valuation when that occurs. With the spin-off of Zoetis (NYSE:ZTS), years of restructuring, and a reorganization that will create “innovative” and “value” cores, I have to think that Pfizer management has pulled every trick out of its bag aside from a full break-up of the company. What's more, while there are some worthwhile products in the pipeline, I think the company is looking at pretty sluggish long-term growth as those new products will struggle to offset the loss of exclusivity on other lucrative drugs.

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Investopedia: BRF SA Serves Up A Feast For Investors

For reasons completely unknown to me, Investopedia editors chose to change the company name to "BRF SA" instead of Brasil Foods... 

The argument I've made for some time with BRF S.A. (Nasdaq: BRFS) is that this company is on a long-term plan to transform itself from a commodity- and export-driven protein company into a global branded food company like Kraft (Nasdaq:KRFT) or Nestle (Nasdaq:NSRGY). With that, I not only expect significant growth, but significant margin and free cash flow expansion over the next decade. BRF S.A. is by no means cheap according to conventional metrics, but the shares are still slightly undervalued on a cash flow basis and offer investors good exposure to emerging market consumer spending growth.

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Monday, July 29, 2013

Seeking Alpha: Forget The Temporary Worries, Lenovo Built To Continue Winning

Every time a new consumer tech gadget comes out, it seems like investors forget a simple a rule - sooner or later, everything becomes a commodity and success comes down to who can design, build, and ship at the most appealing cost structures. That's something that Lenovo (LNVGY.PK) has quite a bit of experience with, as it has used internal execution and significant acquisitions to become the world's #1 PC vendor and the #3 handset company.

I don't see any reason to believe that Lenovo is done. The company has started to build its server business, and may ultimately strike a deal with IBM (IBM) that would vault it into the #3 slot almost overnight. Likewise, the company is looking to take its growing mobile device business into the U.S. in 2014, and Lenovo's past success in the PC business suggests that investors shouldn't ignore the potential there.

There are risks that the Chinese PC market leads to some noise in the shares over the next quarter or two, but waiting for that to settle down could mean missing a few points in the stock. With long-term appreciation potential of more than 30% to 60%, Lenovo looks like a good play on emerging markets consumer and business spending.

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Forget The Temporary Worries, Lenovo Built To Continue Winning

Seeking Alpha: Commercial Vehicle Still Idling

Unlike truck builder PACCAR (PCAR) and commercial vehicle engine builder Cummins (CMI), Commercial Vehicle Group (CVGI) has yet to benefit the market's willingness to overlook tough current conditions in the trucking industry and transition to the recovery/rebound. But with about one-quarter of the company's sales coming from the construction sector, and construction-exposed companies like Caterpillar (CAT) and Deere (DE) still lagging, perhaps that's not entirely unreasonable.

Commercial Vehicle Group's new CEO is saying all of the right things. The company is going to focus on greater market diversification and greater customer penetration (selling more components to the same customers), continue to look for accretion deals, and aggressively extend operations in areas like China and India. At the same time, management continues to operate a relatively flexible operating structure, and is considering further changes to its manufacturing footprint to reduce costs. That all sounds good, and the shares do seem undervalued, but it's likely to leave the market unimpressed until and unless the company starts beating analyst targets again.

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Commercial Vehicle Still Idling

Investopedia: America Movil Sees An Uptick, But Strategy Still Uncertain

Investors in large Latin American mobile phone service provider America Movil (NYSE:AMX) have gotten a respite lately from the worries about serious changes to the regulatory environment in Mexico. A decent earnings report showed that there's still some room for performance, while a transaction in Europe highlighted the potential value of at least one of its strategic investments. All told, though, this is a company still facing some serious challenges in its business, and one where investors still aren't completely confident in management's long-term ambitions.

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Investopedia: Fear Dominating The Broadcom Story

A lot of what has worried Broadcom (Nasdaq:BRCM) analysts and investors appeared to come home to roost with the company's latest earnings report. Weak guidance has investors fearing that the company is losing more and more share to Qualcomm (Nasdaq:QCOM), with an overall stagnation in high-end devices leading to fears that ASPs and margins are in danger.

I can understand these fears, but I think there are still some positives to this story. The company's NFC business appears to be doing pretty well, and the higher-margin broadband and networking businesses are likewise more than just afterthoughts. I'd be nervous making a long-term commitment to any mobile chip company right now, but Broadcom could work as a rebound trade for aggressive investors.

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Investopedia: Markets Playing Tetherball With F5 Networks

When I last wrote on F5 (Nasdaq:FFIV) in early June, I still liked the prospects for the company and its shares, but I warned that it was likely to be a volatile holding. In the intervening two months or so, the shares have lived up to that prediction – initialing falling another 15%, before rebounding 30% and ending up with a net 11% gain since that June 3 article.

I see little reason to believe that these shares won't remain highly volatile. Although the company should see meaningful benefits from new product launches and a spending recovery in the coming quarters, there is still the spectre of greater competition and a slowing core market looming over the shares. While I continue to believe that F5 is the premier application delivery controller (ADC) company, and that the ADC market is slowing (not declining), the market's uncertainty regarding the company's future is likely to play out in outsized reactions in the stock price.

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Investopedia: Roche Delivering Leverage, But Needs Diversification

These remain good days for Swiss drug and diagnostics giant Roche (Nasdaq:RHHBY), as the company continues to see double-digit growth across most of its oncology franchise, with ongoing growth in diagnostics and early signs of additional operating leverage. While Roche's oncology pipeline looks solid, it's well worth asking if management has been too slow to move to bulk up other areas. Although Roche shares still look a little undervalued, M&A speculation is likely to remain in play for the foreseeable future, likely adding volatility to the shares.

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Friday, July 26, 2013

Seeking Alpha: Facing Up To A Bad Call On Synovus

Admitting mistakes is never fun, but if you're going to write about stocks in public fora it is a part of the job description. Four months ago, I thought Synovus (SNV) shares had gone far enough, as I saw the probable lack of revenue and operating profit growth, coupled with a potentially slower credit recovery and the need to pay back TARP as limiting factors. Since then, the shares are up 19%. Now, in fairness to myself, the stocks I liked better at the time - including BB&T (BBT) and Bank of America (BAC) - haven't exactly been embarrassments (up 14% and 21%, respectively), but Synovus' 19% gain is definitely more than I thought was likely to come.

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Facing Up To A Bad Call On Synovus

Investopedia: Starbucks Shows Why It's Starbucks

Alright, Will Ashworth, you win this round! One quarter ago, fellow Investopedia writer Will Ashworth took issue with me seeing limited appreciation potential in Starbucks (Nasdaq:SBUX) and laid out a case that Starbucks was still a good buy. With the stock up about 22% over the last quarter, blowing away other restaurants like McDonald's (NYSE: MCD) and other consumer stocks in general, there's little else for me to do but see where I got Starbucks so wrong and reevaluated where it can go from here.

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Investopedia: Wall Street Happy To Hum La AbbVie En Rose

For a business that seemed to be oft-maligned when it was still part of Abbott Labs (NYSE:ABT), AbbVie (Nasdaq:ABBV) has done pretty well on its own and sports a relatively high valuation amidst its pharma peers. Due in part to the huge influence of one drug (Humira) on AbbVie's results, there's a wider range of outcomes than with many large-cap drugs stocks. Even so, while I think the current valuation is a little steep, I can see numerous ways AbbVie could exceed present expectations and do well for shareholders in the coming years.

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Investopedia: Celgene Only Getting Started, But The Street's Already Looking Ahead

Celgene (Nasdaq:CELG) has been consistently profitable for a while, which is rare enough in the biotech space. What stands out to me with Celgene, though, is that the company has largely been riding just one drug in recent years (Revlimid) and the contributions of newer compounds should offer some very lucrative revenue growth over the next five to ten years. Although the multi-year bull market in biotech has stripped away most of the value from the sector, Celgene is operationally still a very interesting company to watch.

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Investopedia: Is Cameron Seeing The Beginning Of The End, Or The End Of The Beginning?

In the larger context of offshore energy equipment companies, Cameron's (NYSE:CAM) weak second quarter wasn't unique. Even so, this was the second straight weak quarter at Cameron, and with these stocks trading off of orders (which came up about 20% light) that's a problem. While I continue to believe that Cameron is gearing up for a period of significant revenue, margin, and order growth, I won't pretend that execution risks are now front and center with this story. So though the shares continue to look undervalued, the above-average likely volatility doesn't make them suitable for all investors.

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Investopedia: At A Minimum, Amazon Is Consistent

Although Amazon (Nasdaq:AMZN) is not close to being my favorite internet stock, it's hard for me not to admire the company on multiple levels. Not unlike, Google (Nasdaq: GOOG) Amazon isn't afraid to walk and chew bubblegum at the same time, and the company seems unafraid of flouting Wall Street's obsession over short-term growth by investing in multiple projects that likely won't produce meaningful margins for many years. While there's still a worry that investors will lose faith in the company's ability to generate strong margins and cash flows at some later date (and revise their opinion on “fair” multiples accordingly), Amazon seems focused on remaining a disruptive force in multiple markets.

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Thursday, July 25, 2013

Seeking Alpha: LSI Still Undervalued, As It Shows Hints Of What Lies Ahead

It was six months ago to the day that I wrote about the potential for LSI (LSI), highlighting both the upside if the company executed on opportunities in flash, networking, and storage/servers but also the risk that the path to prosperity would have some bends and potholes. That's proven more or less true so far, as the absolute return over the past half-year (barely positive) is well below that of rival Marvell (MRVL) and the overall Nasdaq composite, but second quarter earnings show some encouraging results.

Provided that the PC market doesn't get even worse (and/or that Marvell doesn't grab even more share), I believe there's still a case to make for LSI as a $9 to $10 stock. While the real ramp in revenue growth and margins isn't likely until 2014, improving sentiment towards chip stocks (at least those outside the wireless space) could pull the stock along in the meantime.

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LSI Still Undervalued, As It Shows Hints Of What Lies Ahead

Investopedia: ABB Gets Dinged On Orders, But Is It Timing Or Something Worse?

As more industrial companies report, what had originally looked like a pretty good quarter is looking increasingly mixed. While companies with exposure to aerospace, automotive, and energy markets are generally doing pretty well (including Honeywell (NYSE:HON), General Electric (NYSE:GE), and Dover (NYSE:DOV)), businesses leveraged to industrial and utility markets are seeing shakier results.

In the case of ABB (NYSE:ABB), the problem isn't so much about the quarter that is in the books, but rather the company's double-digit decline in orders. Although it seems that management believes this is mostly a timing issue, weakness in the peer group and declines in markets like mining and robotics could be more problematic. I'm still fundamentally bullish on ABB shares, and it's a rare undervalued industrial stock, but it may take a couple of quarters for the Street to feel comfortable with the story again.

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Investopedia: 3M Okay On Growth, But Margins A Growing Worry

For a company that trades largely on the basis of being a defensive stock with strong margins, 3M's (NYSE:MMM) repeated margin weakness in the second quarter is starting to become a cause for concern. Moreover, while 3M's growth doesn't look too bad compared to many of its peers, the relative comps are likely to get less favorable and 3M isn't really built to produce growth spurts. Much as I like and respect this company, the shares too look overpriced today and I'm considering selling my own shares.

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Investopedia: Has Facebook Crossed The Mobile Threshold?

There never seems to be a middle ground on Facebook (NYSE:FB), as opinions run very hot or cold based on the latest data point (real or imagined) concerning the company. There's no question that Facebook surprised the Street with its mobile ad revenue growth this quarter, and user data seems to run counter to the worries that users are disengaging from Facebook. While I remain basically bullish on the company (and the stock), that comes with the warning that sell-side analysts are significantly jacking up their estimates in the wake of this quarter and any shortfall in the third quarter will be swiftly and brutally punished.

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Investopedia: Qualcomm Delivers, But Clouds Are Building On The Horizon

Leading wireless chip company Qualcomm (Nasdaq:QCOM) delivered a pretty good set of results for its fiscal third quarter, but that stands in contrast to growing uncertainty and anxiety about the mobile device market. Concerns that the high-end market is at or near saturation are blending in with expectations that as more companies move down-market, margins will suffer. Even against that gloomy backdrop, though, Qualcomm shares look as though they may still be undervalued.

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Investopedia: EMC May Be Stronger Than It Looks

So far, this is looking like a quarter where the IT hardware space is still in rough shape, but not quite as bad as feared. That's good news for EMC (NYSE: EMC), as storage equipment budgets generally follow the overall space. It also looks as though VMware (NYSE:VMW) may be recovering faster/better than expected, and it's worth noting that EMC delivered an in-line quarter even though the launches of the new VNX2 products have slipped into third quarter. All told, while this wasn't a quarter worthy of a victory dance, the idea that EMC's performance is improving seems realistic and the stock's valuation still looks attractive.

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Wednesday, July 24, 2013

Seeking Alpha: Spectranetics Has Multiple Attractive Opportunities, But Will They Execute?

I've had a love/hate relationship with Spectranetics (SPNC) for more than 15 years now. I've always loved the potential of the company's laser ablation products in markets like pacemaker/ICD lead removal and peripheral atherectomy, but I've hated the company's pattern of inconsistent execution and the inability to ever "get over the hump" and establish a true growth trajectory.

I expressed similar reservations about a year and half ago, and it turns out that my timing was precisely wrong, as the shares (along with the med-tech sector) began an impressive run that has seen better than 130% appreciation and several positive sell-side initiations. Curiously, my financial model has proven to be accurate in terms of revenue evolution and my estimates for margins and cash flow have proven too bullish. What has changed is investor sentiment and optimism around the company's ability to penetrate the lead removal and atherectomy markets.

Spectranetics is now valued as a med-tech growth stock, and if management can continue to deliver double-digit revenue growth it is not unreasonable to think that the shares will reach the low-to-mid $20s over the next 6 to 9 months (approximately a 20% return). Unfortunately, that potential is tempered by the realities of a challenging market and improving alternatives.

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Spectranetics Has Multiple Attractive Opportunities, But Will They Execute?

Seeking Alpha: AmSurg Has Surged Far Enough

The uncertainty in the healthcare services space created by the Affordable Care Act, sequestration, Medicare policies, and the economy has led to some interesting days for the service providers. While there's still a lot of doom-and-gloom talk, service providers like Team Health (TMH), Mednax (MD), and AmSurg (AMSG) have actually fared quite well in the market over the past year.

In the case of ambulatory surgery center (ASC) operator AmSurg, though, I think the momentum has gotten ahead of itself. It's true that shifting more procedures from hospitals to ASCs could save billions, but the company is at risk from ongoing reimbursement cuts, tighter restrictions on physician financial conflicts of interest, and new procedures and technologies reducing center volumes. While these shares admittedly don't look so expensive by popular metrics, the underlying cash flow picture doesn't seem to support today's price.

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AmSurg Has Surged Far Enough

Investopedia: What's The Glide Path For Apple's Margins?

Wall Street is a quarter-to-quarter world, and that means analysts are always going to obsess over the unit and ASP numbers for Apple's (Nasdaq:AAPL) iPhone and iPad. What I think is more important to consider, though, is the future path of Apple's margins. The inexorable reality for consumer electronics companies is lower ASPs and lower margins, and lower margins are never good for stocks. Even conservative free cash flow growth assumptions suggest Apple shares are much too cheap now, but the realities of holding shares in a company facing persistent margin erosion may mean that it's a long path to reaping that value.

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Investopedia: PepsiCo Has Caught Up, Now It Needs To Outperform

Even though PepsiCo (NYSE:PEP) is routinely lashed for not being Coca-Cola (NYSE:KO), I wrote earlier in this year that I thought the stock's relative undervaluation to the increasingly overvalued packaged food sector seemed out of line. Since then, PepsiCo has closed the gap with the likes of Coca-Cola, Mondelez (Nasdaq:MDLZ), and Kellogg (NYSE:K) as the shares have underperformed the S&P 500 by a smaller amount.

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Investopedia: Caterpillar's Numbers Look Ugly, But That Was Expected

Even though the mining and construction markets stubbornly refuse to get better as quickly as analysts want them to, there's still a “want to believe” trade alive and well in Caterpillar (NYSE:CAT) shares. In other words, investors know that this company is built to withstand the ups and downs of the very cyclical construction, mining, and energy markets, and there's a definite interest in trying to buy low ahead of the recovery. Although the recovery looks a little further away now after the second quarter and Caterpillar shares aren't exactly cheap, they are a quality vehicle for playing those eventual recoveries in construction, energy, and mining.

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Tuesday, July 23, 2013

Seeking Alpha: Gravity's Only A Theory With Neogen

Neogen (NEOG) is one of the more remarkable med-tech companies out there, but I'll bet it's all but unknown to a large swatch of the Seeking Alpha reading audience. This relatively small ($1.4 billion market cap) med-tech has grown its revenue by an average of 16% a year for the past 10 years, with the stock price rising almost 900% over that same stretch of time, and there could yet be ample room to the upside.

The problem is that Neogen always looks expensive and I just cannot get comfortable with the idea that the stock's multiples will always continue to defy gravity. While the company's record of organic growth, solid margins/ROIC, and accretive acquisitions would make this a very dangerous stock to short, I'd nevertheless need to see a substantial sell-off before wanting to buy it as anything more than a growth trade.

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Gravity's Only A Theory With Neogen

Seeking Alpha: Federal Mogul Could Still Have More Under The Hood

If you bought Federal-Mogul (FDML) shares in March or April of this year, then you certainly deserve to bask in the success of taking a major gamble that paid off handsomely. Shares of this heavily indebted auto parts company have nearly tripled from the April lows as a recovery in the auto parts business, the ongoing support of Carl Icahn, and a successful rights offering have all provided a little extra breathing room.

As crazy as its sounds, there could still be room for this stock to run. Both sides of the business are growing ahead of vehicle production rates, and a shift towards more emerging market sales and a focus on efficiency-improving/emissions-reducing products fits with what vehicle makers want these days. In addition, the company is already in the midst of transitioning production to lower cost regions, while further debt reduction should reduce both the company's interest burden and its cost of capital. Even with the huge move in the stock, a continuation into the high teens or even low $20s is not out of the realm of possibility, suggesting 20% to 40% potential even from here.

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Federal Mogul Could Still Have More Under The Hood

Investopedia: United Technologies Still Has Plenty of Runway

Not unlike Honeywell (NYSE:HON) and General Electric (NYSE:GE), United Technologies (NYSE:UTX) has built its business to take advantage of emerging growth cycles in commercial aviation, urbanization, and energy efficiency. Weak construction activity and share losses have limited the growth at Otis, Carrier, and Fire & Security, but the company's aviation business seems to doing relatively well and I believe there's further upside in all of these businesses. My question with UTX, though, is how much margin and cash flow leverage is waiting to emerge, as these shares seem fairly rich without some significant improvements along those lines.

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Investopedia: Texas Instruments Just Out Of The Starting Blocks

I'm not going to say that every part of the semiconductor space is back on track, but the earnings and guidance that coming suggests that things are getting better outside of consumer electronics and PCs. That's good news for Texas Instruments (NYSE:TXN), particularly as the company is seeing stronger conditions in industrial and auto markets and better margins in the wake of moving on from wireless. Although the stock does not look cheap on a cash flow basis, I do believe the company's margin leverage, and subsequent improvements in ROE, are likely to send the shares higher over the next 12 to 24 months.

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Investopedia: Illinois Tool Works Comes Up Short On Growth

Margins typically drive industrial stocks over the long term, but growth can certainly impact share prices on a more short-term basis. That's working to the detriment of Illinois Tool Works (NYSE:ITW), as this high-quality industrial has broken from the peer group this quarter in reporting pretty weak growth numbers. As is typically the case with this company, the shares are not particularly cheap today and even the company's quality edge isn't quite enough to argue strongly for buying today.

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Investopedia: Netflix Results Are Always About Tomorrow

Subscription video service Netflix (Nasdaq:NFLX) posted good results relative to Wall Street expectations, but once again it's the company's view of the future that matters more than the trailing results. To that end, there's likely to be at least some negative fussing tied to a view of third quarter subscription growth that was a few percentage points below the average expectation. While I like the business that Netflix has, and I believe management has wisely carved out some points of distinction from the competition, it's tough to see how these shares are cheap.

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Monday, July 22, 2013

Seeking Alpha: LMI Aerospace Neither A-OK Nor DOA

Based on the comments managements have made with the earnings reports from companies like Honeywell (HON) and General Electric (GE), it sounds like the commercial aerospace market is getting back on to its growth trajectory. That's good news for Boeing (BA), EADS' Airbus, and the myriad suppliers that serve them, and it puts the bull thesis back into play that it's going to take many years of production growth to satisfy the burgeoning demand for air travel in regions like Asia and Latin America.

I have my doubts, though, as to whether LMI Aerospace (LMIA) is the right way to play this trend. The company does business with key players like Boeing, General Dynamics (GD), and Spirit AeroSystems (SPR), but I am not sure that LMI's capabilities in fabrication, machining, and engineering hold enough value to make this a key player in that trend. Along those lines, the company's margins and returns on capital have been erratic and generally unimpressive, albeit with enough bright spots here and there to make an investor wonder "what if" should management execute on its goals and targets.

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LMI Aerospace Neither A-OK Nor DOA

Seeking Alpha: Hancock Holding Needs To Marry Better Performance With Its Good Footprint

While speculating on where people are going to want to live in five, 10, or 20 years' time may be enjoyable as a thought-exercise, it's not really a good thesis for investing in any particular company. That said, I believe that Hancock Holding's (HBHC) footprint across the Gulf Coast states is an attractive one on balance, and one where ongoing population trends and the dynamics of the U.S. energy industry are likely to create an attractive operating environment.

Although Hancock's location may be good enough, the recent performance hasn't been. This bank has made something of a habit lately of missing expectations, with weak internal loan growth, higher than expected margin compression, and non-interest expenses weighing down results. A cost-cutting program and sizable share buyback offer some support, but it looks like the valuation here already presupposes better results in the coming years.

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Hancock Holding Needs To Marry Better Performance With Its Good Footprint

Investopedia: Expectations, Not Operations, Weighing On Halliburton

Going into this quarter, I had wondered whether expectations for Halliburton (NYSE:HAL) were running a little hot and whether that might set the company and stock up for a tough post-quarter reaction. I don't know whether it was the lack of major upside to second quarter numbers or management's comments that the pace of oil spill settlements has slowed, but the shares were a little soft in early trading Monday morning. Although Halliburton is not really my favorite company in the energy service space, it's hard for me to ignore the value and I believe this remains a good candidate for investors looking to play the rebound in North America and the future growth in offshore and international unconventional development.

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Investopedia: McDonald's Has Eased Off, But Hardly Cheap

It seems as though gravity is finally weighing on the valuations in the consumer space, as stocks like Nike (NYSE:NKE), Coca-Cola (NYSE:KO), and McDonald's (NYSE:MCD) have underperformed over the past quarter. Worries tied to the ongoing sluggishness in China and margins may be the preferred talking points, but it's hard to overlook how expensive many of these consumer stocks got.

Turning back to McDonald's, there are now some worries about near-term performance, as management's comments on same-store sales suggest slowing growth. While I think selling McDonald's shares because of a couple months' worth of same-store sales is more of a justification than a reason, and I have every confidence that McDonald's will continue to find ways to continue growing, the shares are still well above what I'd call bargain territory.

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Investopedia: The AMD Story Sounds Very Familiar

There is a group of tech companies out there whose greatest accomplishment is simply staying in business over the span of decades. Advanced Micro Devices (NYSE:AMD) is a good example, as this company has a horrible record when it comes to generating cash flow or building/maintaining market share, but still seems to get investors re-excited about its prospects every so often. With no reason to believe that AMD will regain share in PCs, build share in tablets or microservers, or achieve any meaningful sustained cash flow from consoles, I see no reason to own AMD shares at this point.

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Investopedia: Schlumberger Leads The Way, Like It Usually Does

There are lively debates to be had about whether it's better to own the leaders or laggards as a sector bottoms, the idea being that the laggards have more to gain when conditions improve. Schlumberger (NYSE:SLB) is definitely no laggard, as the company once again delivered a set of results that confirms its leadership in multiple sectors and geographies in the energy services space. With Schlumberger doing well in North America, well-positioned in offshore/deepwater with its OneSubsea venture with Cameron (NYSE:CAM), and only beginning to take advantage of what China may have to offer, Schlumberger continues to look like a worthwhile idea in the energy space.

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Investopedia: Ingersoll-Rand Outperforming As Management Hits Its Marks

Credit were credit is due – Ingersoll-Rand (NYSE:IR) has been in a seemingly never-ending state of restructuring since 2008, but management seems to be hitting its marks recently. Leaner manufacturing, smarter sourcing, a refreshed product line up and solid pricing all seem to be leading to the improved results that have been expected for some time now. Although these shares still don't look particularly cheap, Ingersoll-Rand is heavily leveraged to a recovery in residential housing and commercial construction and continued outperformance on margin targets could very well push the shares higher.

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Investopedia: Baker Hughes Still Playing Third Fiddle

You don't have to the biggest or the best to succeed in energy services, but you do have to execute on the opportunities in front of you. On that score, Baker Hughes (NYSE:BHI) still has work to do. Although the company is making some progress with its North American pressure pumping business and the Mideast continues to be a solid source of growth, there is still the risk of a one-two punch from softer margins and less E&P spending than expected. Baker Hughes is still undervalued today and arguably has more upside from better management execution, but it's tough to work up a lot of enthusiasm for the stock.

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Investopedia: Honeywell Rewarding Wall Street's Enthusiasm

Wall Street has turned very positive on industrial conglomerate Honeywell (NYSE:HON), to the tune to of a market-beating 12% rise over the past quarter and a 44% rise over the past year. Certainly there are reasons to like Honeywell – the company's commercial aerospace is well-positioned for global growth, as is the building controls business. What's more, years of investments in the performance materials business should start paying off soon. Even so, there's a limit to what any business is worth, and it seems like Wall Street's enthusiasm has sent the shares above that limit.

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Investopedia: GE Delivers Some Much-Needed Normalcy

General Electric (NYSE:GE) hasn't been looking all that “GE-like” in recent quarters, and investors have reacted badly to soft margins and disappointments in the Industrial business, as well as uncertainty with regard to the future of GE Capital. I wouldn't go so far as to say that one clean quarter proves that things are back to normal, but a generally surprise-free second quarter at least allows investors a chance to appreciate GE for the virtues it does have. GE shares aren't a major bargain today, and the expectations for Industrial are still pretty high, but I think owning GE is still likely a money-making proposition from these levels.

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Friday, July 19, 2013

Investopedia: Stryker Seems Back On Track

It's hard to call the current state of the med-tech world healthy, but some companies are definitely starting to do better. Prominent among them is Stryker (NYSE:SYK), which seems to be past its problems in joint reconstruction and back to building for the future. While I have hopes for the company's ongoing cost reduction initiatives and its plans for further M&A, I wouldn't ignore the challenges facing the U.S. orthopedics market. On balance, absent a new major growth driver, I think Stryker is more or less fairly valued today, albeit still a high-quality option in the healthcare space.

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Investopedia: Another Bad Quarter Highlight's Microsoft's Growth-Vs-Value Problem

Just when you think you've found a fool-proof business, a better fool evolves to mess things up. I've long thought that Microsoft (Nasdaq:MSFT) shares seemed much too cheap, but held off on buying for fear that ongoing operational shortcomings would obscure that value. With a fiscal fourth quarter that was weak across almost every metric, it looks like that has come home to roost.

Although I think the base Windows, Office, and server/tools businesses are still valuable, it's increasingly difficult to trust management to adequately execute or communicate their plan. So while I still think these shares are too cheap on a cash flow basis, it's likely going to take something more dramatic than another reorganization or stabilization in the PC business to get these shares closer to fair value.

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Investopedia: Google Building For A Bigger Future

My first boss on Wall Street (and a long-time friend ever since), Archie Smith, used to say “What do you want, egg in your beer?” when faced with situations where people just didn't seem to be appreciating what they were getting. The expression made no sense to me then, nor does it now, but I do understand the frustration that fueled it. Google (Nasdaq:GOOG) is an enormous company ($14 billion in quarterly gross revenue) still growing at a 20% clip, but investors and analysts hen-peck the company for its ongoing investments into future sources of growth and the prospects for declining margins in the future. While the shares don't seem terribly cheap today, this is not a company that I'd underestimate today.

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Investopedia: Intuitive Surgical Burning Up On Re-Entry

Surgical robotics leader Intuitive Surgical (Nasdaq:ISRG) consistently posted exceptionally strong growth for a long period of time, gaining an out-of-this world valuation from the Street in the process. Now investors having to re-learn a familiar med-tech lesson all over again – if something looks to good to continue, it probably won't. Although I'm still bullish on the underlying thesis that Intuitive Surgical will continue to see growing adoption and procedure counts, investors are seeing a harsh reassessment of the company's growth prospects and the “fair” price to pay for those prospects. I believe that Intuitive Surgical shares are too cheap at these levels, but investors considering the stock ought to remember that the bias of the Street will likely be against the shares for a couple of quarters.

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Thursday, July 18, 2013

Investopedia: Is This The Turn For Check Point?

Waiting for the right time to jump into Check Point Software (Nasdaq:CHKP) was a trying exercise as the company's product revenue growth continued to grind lower and then turn negative. And now with the shares up almost one-quarter over the last three months, it looks like Wall Street has already moved on the recovery trade. The one solace for investors who've missed the move (myself included) is that even with exceptionally conservative assumptions, Check Point still does not look like an expensive stock and this company virtually mints money.

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Investopedia: Even IBM Subject To Gravity

Strong market share in a variety of hardware, software, and IT service markets makes IBM (NYSE:IBM) a great company, but it doesn't immunize investors against the risks of holding an overpriced stock. To that end, while I've liked the company for some time, I've also thought the shares were too pricey. With the stock down about 5% over the past quarter (and underperforming the S&P 500 by about 14%), though, IBM shares have gotten closer to a potential buy point.

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Investopedia: Concerns About Near-Term Results Only The Appetizer For Intel

Wall Street is infamously myopic with companies and stocks, and that obsession about the next quarter seems even sillier in the case of a stock like Intel (Nasdaq: INTC). The real question investors need to ask themselves is not whether Intel can beat third quarter estimates, but rather if the company can really gain meaningful share in the mobile market and/or whether the company's manufacturing and technological capabilities will translate into meaningful market share and cash flow. I do expect Intel to “stay in the game” as it were, but I don't see a particularly compelling case for owning the stock.

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Investopedia: BB&T In Good Shape With Credit, But Growth Is Iffy

Southeast regional bank BB&T (NYSE:BBT) definitely got the memo this quarter about the themes being higher fee income and lower credit costs. Unfortunately, BB&T also had significantly higher non-operating expenses and a little more covered loan run-off than expected, leading to pretty uninspiring operating profit performance. BB&T should be in a good position to benefit from the above-average population and economic growth expected in the southeast part of the U.S., but it's hard to call the shares a screaming bargain at today's price.

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Investopedia: Dover Does A Little Better

Dover (NYSE:DOV) is doing nothing to contradict the notion that this company may be one of the better organic growth stories in the industrial sector today. Better still, businesses like energy, refrigeration, and “industrial” should be tilting more towards upside risk today than downside, suggesting a pretty good runway for growth in the coming years. So long as Dover continues to post better-than-expected results valuation won't matter much, but new investors should be aware that these aren't exactly cheap shares today.

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Investopedia: eBay Seems Undervalued, But Wall Street Will Need Convincing

It has to be a source of frustration to some investors that Amazon (Nasdaq:AMZN) can basically ignore margins and cash flow and get away with it, while eBay (Nasdaq:EBAY) delivers double-digit returns on invested capital and ample free cash flow and doesn't seem to get the same love. Given that the company is likely looking at years of ongoing investments to grow its payments business, that may not change right away. Even so, eBay looks like an underrated cash flow generator, with ample balance sheet flexibility to make additional strategic moves and/or return cash to shareholders.

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Investopedia: Where Do The Bears Go Next With St. Jude Medical?

In a sell-side world where Underperform/Sell ratings are pretty rare, is a bit of exception, as several analysts have either recommended that investors sell St. Jude Medical (NYSE:STJ) or have issued what I'd call “neutral … but we really mean sell” calls. Many of these analysts believe that St. Jude is going to see serious share loss in cardiac rhythm management (pacemakers and ICDs) due to safety problems with the leads, but that just hasn't happened. But with CRM revenue holding up, they're increasingly turning to worrying about earnings quality and long-term growth potential.

Although I think St. Jude shares have gotten a little expensive, I think the bears are going to have to work harder to make their case. Simply put, while St. Jude isn't even close to the most dynamic name in med-tech, it's doing better than the bears want to acknowledge. So although I expect another round of attempts to talk down the numbers/performance, I still see more opportunities for the company to do better in the coming years.

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Wednesday, July 17, 2013

Seeking Alpha: Non-Core Ops Nail First Cash In Q2

First Cash Financial Services (FCFS) has been a solid growth stock for quite some time now, delivering better than 17% annual revenue growth over the past three and ten years and delivering market returns of almost 130% and over 900% over those time periods. But it has also always been a volatile stock as well as a quick look at a long-term chart will show. Some of that volatility can be tied to the economy or the evolving regulatory environment for pawn lending (and to a lesser extent payday lending), but some of it is simply the ups and downs of the business.

Those "ups and downs" came back to bite First Cash this quarter, as significantly lower gold scrapping and a lower peso led the company to lower guidance for the year about 10% a month ago and led to a second quarter financial report that was weak on multiple lines. While the stock has already reclaimed some of the lost ground and remains a promising long-term growth story, I wouldn't encourage new investors to rush into this name at this point.

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Non-Core Ops Nail First Cash In Q2

Investopedia: Abbott Labs Making Progress On Margins, Now It Needs More Growth

Since making the split from AbbVie (Nasdaq:ABBV), Abbott Labs (NYSE:ABT) has had something of a mixed debut. The stock has not only lagged AbbVie to a meaningful degree this year, but also other med-tech stocks like Medtronic (NYSE:MDT) and Johnson & Johnson (NYSE:JNJ). While some of this can be tied to concerns about the infant nutrition business, the fact remains that the new Abbott isn't as high-growth or high-margin as some investors want to believe, and management has their work cut out to improve performance. I do like the company's recent M&A moves to bulk up the device business, but this doesn't look like a particularly cheap stock today.

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Investopedia: Bank Of America Brings The Growth

Nobody likes to be wrong, but I have to admit that I have significantly underestimated just how willing investors would be to pay up for Bank of America's (NYSE:BAC) above-average near-term growth, even if that growth is more a product of just how bad things were rather than how good things are getting. With the shares up more than 75% this year (and 20% in the last quarter), investors continue to reward BAC for capping its legal costs through settlements and launching expensive cost-cutting programs.

Although I still don't see much long-term value in these shares, I cannot ignore that Bank of America is going to post some of the best year-on-year growth numbers this year, and that that is Wall Street is craving from the banking sector today.

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Investopedia: Weak Profits Don't Help The Case For U.S. Bancorp

Bank stock investors don't seem so concerned with quality these days as they do near-term growth prospects, and that's bad news for U.S. Bancorp (NYSE: USB). Nothing changed this quarter with respect to the quality of one of the best-run large banks in the country, but the company came up short in net interest income, expenses, and operating income – a constellation that is likely to only fuel the “they can't grow” concerns for this year. I do believe that U.S. Bancorp is still cheap enough to own profitably for the long-term, but I know what it's like to own an unpopular bank stock and U.S. Bancorp shareholders need to realize that these shares may not get much love in the short term.

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Investopedia: CSX On Target, But Hard To Find A Reason To Pay Up

Although rail stocks have come a bit off their highs, particularly the eastern operators, Wall Street still remains pretty bullish on the prospects of rail continuing to take share from trucking. With that, an in-line quarter for CSX (NYSE:CSX) isn't likely to change the story much in either direction. Improvements in the coal business next year, a continued housing recovery, and ongoing growth in the intermodal business should all lead to better volume and operating profits, but the stock's valuation indicates that Wall Street is already counting on that happening.

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Investopedia: Yahoo! Still Needs To Generate Better Intrinsic Value

A year into her tenure as Yahoo!'s (Nasdaq:YHOO) CEO, Marissa Mayer may have ruffled a few feathers, but Yahoo!'s feathers were badly in need of ruffling as it was well on the AOL (NYSE:AOL)/MySpace path to irrelevance and doom. While there's still quite a lot of work to be done in turning the business around, the better-than-70% rise in the shares over the past year has to be encouraging to shareholders. The biggest question now is whether or not Yahoo! can take the cash coming from the Alibaba IPO and reinvest it into sustainable cash-generating growth opportunities.

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Investopedia: Drugs Driving JNJ, With Slow Progress In Devices And Consumer

Another quarter is in the books, and not all that much has changed at healthcare giant Johnson & Johnson (NYSE:JNJ). The company's drug business continues to grow exceptionally well, lifting margins along the way. Meanwhile, the recovery in the consumer business continues to be slow, as is the progress in producing better growth from the large device business. Although I've been lukewarm on JNJ's shares relative to other (better-performing) stocks in the drug and device space, the shares have done pretty well over the past year and while not cheap, aren't all that expensive for long-term holders.

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Tuesday, July 16, 2013

Seeking Alpha: Too Many Questions To Get Comfortable With PhotoMedex

Sometimes you go into researching a company expecting to find one thing, and you come out with a completely different idea of a company. When I first started digging into PhotoMedex (PHMD) a few months ago, I thought I was going to be looking at a company that was something like DUSA Pharmaceuticals (acquired by Sun Pharmaceuticals back in December of 2012), Cynosure (CYNO) or Solta Medical (SLTM).

Instead of finding a dermatology med-tech company, I feel that PhotoMedex is more of a consumer products company with a small medical business attached. What's more, digging around turned up some concerns with customer service/satisfaction and evidence that this is a company eager to get its message out to investors. While I suppose the valuation is not that demanding given the recent trends in reported growth, I just can't get comfortable enough with the company to find the stock appealing today.

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Too Many Questions To Get Comfortable With PhotoMedex

Investopedia: Even When Coca-Cola Stumbles, It Does Okay

If this is what a bad quarter from Coca-Cola (NYSE:KO) looks like, it's not hard to see why the stock carries a rich multiple. Even in one of the weakest quarters in a long time (from a volume perspective), Coca-Cola did well with its margins. Add in the possibility of improving the company's global operations, particularly in fast-growing markets like China and Indonesia, and the long-term prospects still look pretty good. Alas, the stock still isn't anything close to “cheap” and is unlikely to become so anytime soon.

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Investopedia: Absent Higher Rates, Comerica Has Probably Gone Far Enough

Comerica (NYSE:CMA) is a curious bank in multiple respects. Although it has a sizable commercial loan book, the net interest margin isn't all that impressive. On the other hand, this looks like one of the most asset-sensitive of the larger banks, and income could accelerate relatively quickly if rates head meaningfully higher. All things considered, while I think Comerica's market position in Texas and California is worth more than average, I think the shares don't offer all that much promise unless you have a firm belief that the company can generate significantly better long-term returns on equity than the sell-side presently expects.

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Monday, July 15, 2013

Seeking Alpha: Software AG - All The Buzz, But Can It Deliver The Honey?

If you're a software company these days, you pretty much have to be positioned for Big Data, Cloud, Mobile, and Social/Collaboration to get investor attention. The extent to which these are real and meaningful concepts or just buzzwords is a topic for another day, but the point stands that Software AG (STWRY.PK) has gone out of its way to make sure you know it is targeting these markets.

The question is whether or not the company can deliver. Software AG is a veteran company, but its recent record of in-house development isn't all that impressive and suggests promised growth may have to come from the checkbook (M&A). What's more, it's an open question as to whether the company can deliver sustained profitable growth. If things work out well, this stock could trade more than 30% above today's level, but execution risk is a serious issue with this stock.

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Software AG - All The Buzz, But Can It Deliver The Honey?

Seeking Alpha: Bank Of The Ozarks Growing Gangbusters, But Not At All Cheap

For as long as I've followed Arkansas's Bank of the Ozarks (OZRK) (which is quite a few years now), I've been very impressed with this company's aggressive but extremely focused strategy. While it's true that having a loan book tilted heavily towards commercial real estate (CRE) and construction lending is risky, it's sort of like walking a high-wire - it's risky, but the risk doesn't matter if you don't fall off, and Bank of the Ozarks has a system in place that has kept the falls to a minimum.

As much as I like this bank, it rarely gets very cheap and this is not one of those times. I had hoped that investors might misread this second quarter earnings report and sell the shares, but it appears that that's not happening. In any case, while I wouldn't sell these shares if I owned them, I need at least a 10% pullback before I could be enticed to think about buying.

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Bank Of The Ozarks Growing Gangbusters, But Not At All Cheap

Investopedia: Abbott Adds Two Promising Products

Abbott Labs (NYSE:ABT) has never been shy about using M&A to build its business, and it was generally assumed that more deals would follow in the wake of the company's split with AbbVie (Nasdaq:ABBV). While Monday is often the preferred day to announce deals, Abbott went above and beyond this week with two acquisition announcements – both of which could be highly promising down the line.

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Investopedia: Intermodal Growth Continues To Push J.B. Hunt Higher

Sometimes it's tempting to just say “okay, valuation doesn't matter”, throw caution to the wind, and go into a growth story like J.B. Hunt (Nasdaq:JBHT). After all, with seemingly every quarter this company demonstrates why it's one of the leaders in the still-growing intermodal space. While the stock did lag the S&P 500 over the last quarter, it continues to enjoy rich multiples and ample support on the sell-side. Even though I really do like this company and wish I had bought the stock four years ago, I still can't resolve the valuation in light of the probable returns and cash flow that this business will produce.

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Investopedia: Yara Built To Last, But Looking At A Downturn In The Cycle

Norway's Yara International (Nasdaq:YARIY) is no run-of-the-mill commodity company. Not only is the largest supplier of mineral fertilizers in the world, holding 9% share of the global nitrogen fertilizers market, but Yara has a rare record of consistent double-digit returns on capital and assets.

While the quality of the company's assets, the benefits of nitrogen fertilizers, and the discipline of management speak well to the company's future, a surge in Chinese exports and energy costs is squeezing the company's profitability. Making matters worse, it's likely to get uglier from here, as the company could be looking at EBITDA bottoming out in the 2014/2015 timeframe. Although Yara is a little undervalued today and is likely to continuing paying a healthy dividend through the lows of the cycle, holding commodity stocks through the bottom of the cycle can be painful for shareholders.

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Investopedia: AT&T Makes One Small Step For Leap

Maybe AT&T (NYSE:T) was insurmountably frustrated in its rumored attempt to buy all or part of Telefonica (NYSE:TEF), or maybe there never was any substance to that rumor. In any case, in lieu of the $150 billion or so that Telefonica would have cost, AT&T's surprising announcement Friday night that it was acquiring Leap Wireless (Nasdaq:LEAP) for $4 billion seems like a much smaller step.

This is a curious deal on multiple fronts. Leap is not a particularly strong company, and it is not as thought AT&T is badly hurting for spectrum. Instead, this may be a case of AT&T flexing its financial muscles to make life harder on its competition (especially T-Mobile (Nasdaq:TMUS) and Sprint (NYSE:S)) and deny this asset to other potential bidders.

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Investopedia: Citigroup Continues The Theme Of Decent Big Bank Earnings

Not to be left behind by JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC), Citigroup (NYSE:C) announced a respectable set of results for its second quarter, featuring much of the same “better fee income, lower credit costs, but tighter spreads and weak lending” themes we have seen and expected for this quarter. Citi continues to make progress pulling itself out of its own credit/loan loss mess, and relative normalcy seems to be in sight.

Citi is a curious stock when it comes to valuation, though. While the market seems willing to assume that the bank will return to a low double-digit ROE for the long-term, investors appear to be awarding the company a lower tangible book value multiple than would otherwise seem fair relative to the returns it generates on assets. In any case, these shares appear to be somewhat undervalued, but don't seem like a major opportunity at this point.

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Friday, July 12, 2013

Seeking Alpha: Schneider Bids For Invensys, Throws A Big Rock In The Pool

Whenever you throw a rock into a pool, you produce ripples. So too will Schneider Electric (SBGSY.PK), I think, with its announced bid for automation and process control rival Invensys (IVNYY.PK). With its rail business sold to Siemens (SI) and its pension issues cleaned up, Invensys is an appealing target for any company that wants to add scale in automation and process control, to say nothing of grabbing one of the best industrial software businesses around.

The question is whether or not Schneider's GBP 5.05/share bid gets the job done. This bid is already pretty fair (perhaps even more than, if you don't believe Invensys can/will improve its margins), but there aren't too many properties that can offer what Invensys can to a strategic buyer. Consequently, while there are many reasons why Emerson (EMR), ABB (ABB), Honeywell (HON), and General Electric (GE) wouldn't bid, I'd be very surprised if Schneider gets Invensys without fending off at least one rival bid.

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Schneider Bids For Invensys, Throws A Big Rock In The Pool

Seeking Alpha: AngioDynamics Stronger Than It Looks, But Not So Cheap

When AngioDynamics (ANGO) reported last night, it brought a challenging fiscal year to close for this small med-tech company. A combination of weak job growth, higher co-pays/deductibles and uncertainties ahead of the full implementation of the Affordable Care Act have impacted procedure counts, while the company tried to digest a sizable acquisition and restructure its sales approach. All told, the company's performance has looked pretty soft, with rivals likely gaining share in many markets.

Going over the numbers and listening to management's call, though, suggests that the business may have already started to turn the corner. This is still a "show me" story in that regard, and management needs to show that it can regain momentum in the face of larger rivals like Covidien (COV), Edwards (EW) and Bard (BCR). Investors have already started coming back around to this story, as the shares are up almost 30% from their late April lows, and I'm not sure the company can grow fast enough to make today's price a bargain.

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AngioDynamics Stronger Than It Looks, But Not So Cheap

Investopedia: So Long, Spreadtrum

Spreadtrum's (Nasdaq:SPRD) time as a publicly-traded semiconductor company wasn't all that long, and it certainly wasn't always easy, but it looks like it's coming to a happy conclusion for shareholders. Speadtrum announced Friday morning that it had accepted an improved bid from Tsinghua Unigroup and agreed to sell itself for $31 per share in cash.

A Fair Bid...
Not only was Tsinghua's final bid about 10% better than its initial bid, but it represents a takeout price above the company's prior all-time high in late 2011. Spreadtrum is selling itself for about 14 times its trailing EBITDA, only a very slight discount to the mid-teens average of well-known mobile chip companies like Avago (Nasdaq:AVGO), Broadcom (Nasdaq:BRCM), and Qualcomm (Nasdaq:QCOM). Moreover, relative to the company's cash flow growth potential, this was a very reasonable price for the stock.

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Investopedia: Infosys Hints At What It Can Do

Once a growth darling and a play on the rise of outsourcing, Infosys (Nasdaq:INFY) has had a rougher go of it over the past few years an strategic missteps compromised the company's growth and market share. More recently, investors have cheered the return of NR Narayana Murthy to the company as executive chairman and the vision he laid out for a return to success based around improving employee morale/performance and better appreciating the actual needs of customers.

It's much too soon for any of that to make a major difference, but Infosys's strong first fiscal quarter results are a positive step all the same. If nothing else, it does show that the company is not so far behind that it can't still win deals and deliver good results. While the shares have already bounced about 20% off of a recent low, a fair value in the mid-$50s gives investors a reason to hang on for a little while longer.

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Investopedia: Wells Fargo Managing The Slowdown Quite Well

Like it's larger rival JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC) delivered a solid, better-than-expected second quarter on Friday morning. Clearly there is still pressure on the business, as loan growth is faint and yields are low, but lower credit costs are helping underpin earnings. Wells Fargo and JPMorgan seem virtually equally undervalued, and both offer investors a quality play on the banking sector. With JPMorgan's greater exposure to trading and investment banking, as well as further regulatory changes, Wells Fargo is arguably the better play for investors looking to benefit from an eventual improvement in loan growth and yields.

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Investopedia: JPMorgan Seeing Strong Credit, But Iffy Growth Momentum

The expectation for most banks this year has been that core growth will be challenging given low rates and competitive lending markets. Those banks that can wring out better credit and/or better fee income should do a little better, and that seems to be the case for JPMorgan (NYSE:JPM). An influx of deposits thumped the net interest margin and lending growth was iffy, but overall results were boosted by good credit outcomes and solid fee income results. All told, this remains an undervalued bank and one with solid earnings power in the coming years.

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Investopedia: Will The Recovery Underwhelm Linear Technology Investors?

Analog chip companies have largely been marking time this year, with individual stock performances bracketing the performance of the S&P 500. With expectations for a recovery in industrial, auto, and communications already factoring into the valuations, though, it's worth asking if expectations have gotten a little overheated. Between slower-than-expected industrial markets, high trailing inventory, and a relatively low payout ratio, Linear Technology (Nasdaq: LLTC) seems a little expensive at the current price.

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