Monday, September 30, 2013

The Motley Fool: The Expectations Hangover Still Hurting Edwards Lifesciences

It really wasn't that long ago when rampant enthusiasm for minimally invasive heart valves sent the shares of Edwards Lifesciences rocketing from around $22 to almost $110 per share in about four and a half years. While the stock was in the $90s, I dutifully played my role of Cassandra -- pointing out that analysts and investors were getting carried away with their expectations for the adoption of transcatheter heart valves and underestimating the risks of competition from companies like Medtronic (NYSE: MDT  ) .

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Seeking Alpha: Achillion Is Burnt Toast

At this point, I'll be quite happy to never hear or read the word "Achillion" again, as my former positive calls on Achillion Pharmaceuticals (ACHN) just keep looking worse and worse. With the company's post-Friday close clinical update, it's very difficult to argue that there's enough value left in this name to bother with it even further. I have no doubt that there will be a "never say die" contingent that wants to stick with this name, and I suppose I can't completely rule out the possibility that the next drug combo will work, but the combination of weak data, questionable reporting of that data, and the emerging competitive landscape just makes it too hard to look at this name even as a serious dumpster-diving candidate.

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Achillion Is Burnt Toast

Seeking Alpha: Tenneco Really Needs To Start Showing Margin Leverage

I was fairly bullish on Tenneco (TEN) when I last wrote about the company back in January of 2012, as I thought the market would turn to this stock as a recovery trade and also bid it higher on the prospects for a growing contribution from higher-margin commercial vehicle business. While the trade idea has worked pretty well - the stock is up about 70% since my recommendation, and significantly outperformed BorgWarner (BWA), Cummins (CMI), and the S&P 500 - I think it might be time to tap the brakes here.

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Tenneco Really Needs To Start Showing Margin Leverage

Friday, September 27, 2013

MassDevice: Will The Stryker-MAKO Deal Lead To More Action In Ortho?

Stryker (NYSE:SYK) certainly found a way to liven up the ortho space, with Wednesday's announcement that it is buying Mako Surgical (NSDQ:MAKO) for a whopping 13 times 2013 estimated revenue. Stryker had been pretty clear about its intentions to put cash towards M&A, and Stryker's relative challenges in knees were already known, but few industry-watchers saw this deal coming, and certainly not at this price.

Over time, I think Stryker could do a lot with Mako. Obviously Stryker's management thinks so too, or they wouldn't have paid so much for it. What I'm interested to see now, though, is whether this move leads to any sort of consolidation push in the ortho industry and/or whether Stryker+Mako will fundamentally alter the balance of power in major joint recon and push the likes of Johnson & Johnson (NYSE:JNJ) and Zimmer (NYSE:ZMH) to up their games.

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Seeking Alpha: Expectations For Arkansas Best May Be Higher Than They Seem

National less-than-truckload (LTL) trucking company Arkansas Best (ABFS) has been one of the best turnaround stories of 2013, as a new Teamsters agreement with meaningful cost concessions gives the company a real chance to repair one of the worst cost structures in the industry. With that, the shares have rocketed up more than 200% this year, and 300% from the 52-week low.

Even with that major leap, it would seem that the company is not getting all its due. The shares trade at about 4.6x the current average EBITDA estimate for 2014, against a long-term average of about 4.5x and industry averages that often run in the 6x to 8x range. On the other hand, Arkansas Best could still be facing significant pension liabilities, and the company may find it difficult to meet some aggressive growth goals. All told, I'm intrigued by what Arkansas Best could become again, but it's for me to not still prefer the more richly-valued (but better-run) Old Dominion (ODFL).

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Expectations For Arkansas Best May Be Higher Than They Seem

Seeking Alpha: With More Realistic Expectations, Itron Looks Interesting Again

Smart metering company Itron (ITRI) is a good example of why I'm always skeptical whenever I see people writing "don't worry about the valuation, just focus on the growth". This was a great growth story for a number of years, but the stock got expensive along the way and the high valuation only served to magnify the disappointment when the financial performance got wobbly.

Years later, I'm finding Itron more interesting. A lot of the wide-eyed optimism about the opportunity in smart metering and related utility smart grid technologies has been scrubbed out, and the global market potential is still pretty compelling. While a recently announced restructuring suggests that the turbulence within Itron isn't completely over, these shares seem like a reasonable opportunity in a market offering fewer and fewer of those.

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With More Realistic Expectations, Itron Looks Interesting Again

Seeking Alpha: LNG Continues To Fuel The Chart Industries Story

The picks-and-shovels approach to the LNG market that Chart Industries (GTLS) offers has already delivered great results for long-term shareholders. Up almost 70% in the past year and over 400% for the past five years, Chart Industries has shown itself to not only be the real deal in terms of offering leverage to LNG infrastructure growth, but smart about picking and choosing its market opportunities.

Chart is not cheap by any valuation approach I can come up with, but I don't think it will get all that cheap until the outlook for LNG infrastructure growth slows significantly… and I don't expect that to happen any time soon. I'm not going to push the "valuation doesn't matter" angle as I like to practice what I preach, but with the build out of LNG infrastructure in the U.S. and Europe still in early days, it won't surprise me at all if Chart continues to perform quite well.

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LNG Continues To Fuel The Chart Industries Story

Wednesday, September 25, 2013

Seeking Alpha: Did PacBio Just Sorta Sell Itself To Roche?

As a Roche (RHHBY.OB) shareholder, I've been waiting for a while for the company to do something with its life sciences research business, and its sequencing business in particular. The company took a well-known run at Illumina (ILMN) and made a lesser-publicized joint bid for Life Technologies (LIFE). With the options getting narrower, particularly with respect to systems that could be commercialized on a near-term basis, Roche made its move - signing a development and marketing agreement with Pacific Biosciences (PACB) covering sequencing, consumables, and related diagnostics products for the in vitro market.

I'd be curious to know if Roche has made any overtures toward Oxford Nanopore, but that's neither here nor there at this point. For Pacific Biosciences, this is a major public affirmation of the progress the company has made to recover from system performance and reliability problems that took a once-ballyhooed story to almost flirting with bankruptcy. PacBio has already been a great pick for me (having recommended the stock in an Alpha-Rich piece here), but I wouldn't assume that there is all there is left in the story.

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Did PacBio Just Sorta Sell Itself To Roche?

Seeking Alpha: Can A Commercial Rebound Rebuild ARC Document Solutions?

The multi-year decline in commercial construction has been particularly painful for ARC Document Solutions (ARC) (formerly known as American Reprographics). Despite having the only national reprographic services business in the country and five to 10 times the market share of its closest competitor, revenue in 2012 was only 40% of what it used to be in 2008 as the company's core architecture/engineering/construction market has gone into deep hibernation.

Although I've been writing on companies that I believe can leverage improving construction activity into higher share prices, I'm not completely sure where ARC Document fits into that group. I updated my research and models on ARC hoping to find an overlooked potential gem, but I'm just not sure that's what this is. The reprographics industry is changing and I'm not confident that the margins in the managed print services business will come close to what the company has achieved in the past. Although I can construct a bullish argument that would put ARC Document's potential fair value into the double-digits, my base-case assumption is much lower and not as much of a bargain relative to today's price when factoring in the risks of the company's changing business and end-markets.

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Can A Commercial Rebound Rebuild ARC Document Solutions?

Seeking Alpha: The Hurry-Up-And-Wait Continues At Maxwell

Many years spent in the market has taught me to be on guard whenever investors try to promote a story on the basis of technology that they call "disruptive", "world/game-changing" and so on. A quick look at the chart of Maxwell Technologies (MXWL) can show why - however game-changing ultracapacitor technology may prove to be, these are still very early days for the technology and the stock has chopped back and forth between $5 and $20 for almost 15 years after previously enjoying a roughly three-year run between $20 and $40.

There are plenty of criticisms you can level at Maxwell. The company has failed to keep its nose clean, with a DOJ deferred prosecution agreement over a bribery scandal and a more recent accounting scandal tied to revenue recognition practices. It's also true that the company has struggled to secure meaningful commercial adoption outside of China's wind power and hybrid bus markets.

And yet, the company has lifted itself to positive free cash flow, has managed to generate positive operating income, and sports an accumulated deficit of $155 million. What's more, the company has convinced leading manufacturers like Continental AG and Caterpillar (CAT) to at least give their technology a try. By no means do I believe the odds favor Maxwell, but unlike many energy tech names, Maxwell's valuation seems to at least factor in achievable expectations.

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The Hurry-Up-And-Wait Continues At Maxwell

Seeking Alpha: MAKO Surgical Gets Its Happy Ending

While many bullish analysts and investors had previously mentioned the possibility of MAKO Surgical (MAKO) receiving an attractive buyout bid, the reality proved even better than expected. On Wednesday morning, MAKO and Stryker (SYK) announced that the two companies had agreed on a deal that will see Stryker buy MAKO for $30 share in cash - a $1.65 billion deal that exceeded the highest sell-side price target on MAKO by 15%.

With only scant odds that a rival bidder will top Stryker's offer, the MAKO story comes to a relatively happy conclusion. What's more, Stryker would seem to be an ideal partner to grow MAKO's business and maximize the potential of the robot-assisted makoplasty concept.

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MAKO Surgical Gets Its Happy Ending

Seeking Alpha: Miller Industries Anything But A Wreck

I have a habit of digging deep into under-followed and obscure corners of the industrial world, and it has turned up a lot of good investment opportunities over the years. Leading tow truck and car carrier company Miller Industries (MLR) would seem to fit the profile, as this company leads an industry worth an estimated $600 million or more per year, and has only scratched the surface of its overseas opportunities.

To be fair, Miller's record with respect to margins and returns on capital isn't spotless, but I attribute much of this to the ups and downs of the towing industry it serves - an industry with few large-scale operators and above-average economic sensitivity. On its own, I believe Miller is worth around $23 per share, but I would expect the sale of the company to be a "when, not if" event, and Miller could be worth even more to the right acquirer than its stand-alone valuation would indicate.

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Miller Industries Anything But A Wreck

Tuesday, September 24, 2013

The Motley Fool: Will 3 Versions Of Pfizer Be More Valuable Than 1?

Like many value-oriented investors, I tend to take a dim view of companies that resort to financial gymnastics to make their reported numbers look better or to get a better valuation from investors. With that said, I'm curious, and more than a little skeptical, as to whether Pfizer's (NYSE: PFE  ) long-term plan to potentially break itself up into three separate companies will really generate any long-term value for investors.

To be fair, Pfizer has already done a little bit of this already. The company spun off Zoetis -- the world's largest animal health company with almost 20% share -- earlier this year, and Pfizer's shares have outperformed the S&P 500 by about 5% since then while Zoetis has lagged (though Zoetis is up more than 20% if you take the IPO price as the starting point). Time will tell regarding the ultimate value created by this transaction, but freeing Zoetis to invest in R&D and market development as it sees fit ought to be a win-win for both parties.

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Seeking Alpha: XPO Logistics Building Credibility In Aggressive Growth Targets

When I last wrote about XPO Logistics (XPO) in March of this year, I found the company's ambitions to be rather remarkable, but potentially very lucrative for shareholders. In the following four or five months, I didn't really second-guess my decision to "watch and wait" as the stock went nowhere fast. Then the company announced its largest-ever acquisition and the stock jumped to new highs before settling down a bit.

Six months later, it's hard not to like XPO Logistics even more. The company's combination of aggressive M&A and organic growth is building credibility that the 2016 target of $4 billion to $6 billion in revenue is attainable, not to mention the 5% EBITDA margin. A great deal could still go wrong between now and then and there are significant uncertainties about what the company's capital structure will look like at that point, but I think shareholders can still find meaningful value in these shares.

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XPO Logistics Building Credibility In Aggressive Growth Targets

Seeking Alpha: Keppel's Collected Parts Are Undervalued

I'll say it right up front - researching, valuing, and owning Singapore's Keppel Corporation (KPELY.PK) is going to be more of a headache than some investors want. This large conglomerate not only operates a huge rig-building shipyard and power/gas infrastructure business, it also owns sizable stakes in numerous listed companies, including Keppel Land (KPPLY.PK) and K-REIT. If that weren't enough, the government-owned investment company Temasek is a major holder of Keppel shareholders and quite a lot of Keppel's projects ultimately involve dealing closely with the government.

Despite those risk factors and/or drawbacks, I'm bullish on Keppel. While the company's shares took a big step down during the global recession, the company has a long-term history of building shareholder value. With the company still looking forward to significant rig orders and owning a majority stake in a premier Asian property developer, I believe Keppel is a solid, undervalued, income-generating stock trading about 20% below its fair value, and a stock that is capable of being a core holding for those looking to add international exposure.

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Keppel's Collected Parts Are Undervalued

Monday, September 23, 2013

MassDevice: Despite A Long Road Ahead, Sunshine Heart Is Worth A Serious Look

If you've been following the medical device (and/or pharmaceutical) space for a while, you know that congestive heart failure is one of the nastiest, hardest to treat, chronic conditions out there. There's really no way to reverse the disease short of a heart transplant, and the drugs and device therapies available sort themselves out between "largely ineffective" and "effective, but with serious issues".

That's terrible news for those patients who have congestive heart failure, but it leaves a tremendous opportunity for Sunshine Heart (NSDQ:SSH). This small-cap med-tech from Minnesota appears to have an ingenious solution to the problem, one that is based around well-understood principles and relatively simple technology. Although it will be at least four to five years before commercialization in the U.S., and that's only if the pivotal study shows adequate efficacy and an acceptable risk/benefit profile, this is definitely a name to watch in the med-tech space as the company looks to bring a new option to the table for seriously ill CHF patients.

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Seeking Alpha: Are Investors Getting Free Call Options On Advanced Emissions' Long-Tail Technologies?

Getting to this point hasn't been easy for Advanced Emissions Solutions (ADES), previously known as ADA-ES before a corporate restructuring (a legal/business structure restructuring, not a bankruptcy-related restructuring). Like most companies trying to market "clean coal" technologies, the company has faced regulatory uncertainties, a risk-averse customer base, and sector-wide image issues created by disreputable firms trying to capitalize on investor interest in the idea of making coal-fired electrical generation cleaner and more environmentally sustainable.

The solutions and services ADES provides don't make burning coal 100% clean, and there are still a host of long-term challenges facing coal as a fuel for electrical generation in the U.S., but the company's patented technologies and processes can help electrical utilities come into compliance with new regulations governing mercury emissions. While the way Advanced Emissions will generate most of its cash flow is fairly convoluted, it looks as though even the 75%-plus rise in the shares over the past year doesn't fully capture the potential value of the company. More to the point, relative to the company's potential cash flows from its Refined Coal operations, investors could be getting technologies like M-Prove and CO2 capture for virtually nothing today.

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Are Investors Getting Free Call Options On Advanced Emissions' Long-Tail Technologies?

Seeking Alpha: Wall Street Betting That Mueller's Profits Will Start To Flow

The markets have long loved water/fluid-management stories like Xylem (XYL), ITT (ITT), and Franklin Electric (FELE), and if you can add a residential construction rebound, you have an even better story in the making. That has certainly worked for Mueller Water (MWA), as shares have risen more than 75% over the past year, 235% over the past two years, and about 300% over the all-time low set in November of 2011.

Not surprisingly, it looks like the market has put a definite premium on the recovery potential here. I do believe that residential construction is on its way back, and I also believe that Mueller's investment in advanced products like advanced metering (AMI), leak detection, and pressure monitoring will provide a nice kicker to its growth in valves and hydrants. Mueller shares do look pricey on a cash flow basis, and could be vulnerable if the residential recovery proves shallower than expected, but I won't ignore the possibility that strong leverage could lead to significant profit growth and even higher multiples.

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Wall Street Betting That Mueller's Profits Will Start To Flow

Seeking Alpha: Oshkosh Has The Margins; Can It Grow Revenue Enough?

It has been an interesting run for specialty vehicle manufacturer Oshkosh (OSK) over the last three or four years. The company was able to leverage its long expertise in tactical vehicles for the defense market into strong revenue and cash flow during the wars in Iraq and Afghanistan, but the sharp declines in defense demand, coupled with a weak market for construction-related and municipal vehicles, cut the shares down almost two-thirds between mid-2010 and the fall of 2011.

Oshkosh's struggles attracted the attention of Carl Icahn, but management successfully fended off his efforts by convincing shareholders that the company's MOVE strategy was the better plan for the company. I'd argue that the company's running tally of strong quarterly beats is a good argument that the MOVE strategy is a good one, and the market has rewarded the shares to the tune of a 70% gain over the past year. Looking ahead, though, the story is now evolving into one that less about margins and more about whether the company can log enough revenue growth in its non-defense businesses to keep the numbers moving forward.

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Oshkosh Has The Margins; Can It Grow Revenue Enough?

Seeking Alpha: Air Transport Group Looking To Post Meaningfully Higher Cash Flow

Done correctly, equipment leasing can be a lucrative business. General Electric's (GE) GE Capital has done quite well for itself leasing everything from jet engines to rail cars to shipping containers, and passenger jet lessors Aircastle (AYR) and AerCap Holdings (AER) have likewise performed quite well over the past year and reasonably well over the last five.

Air Transport Group (ATSG) isn't a straight-up leasing company, as about 80% of the company's external revenue comes from ACMI (aircraft, crew, maintenance, insurance) operations, but the stock has nevertheless been quite strong both over the past year and since a 2008/2009 crisis threatened the company's survival. With the company looking to generate business for under-utilized assets in an improving economy and taking a new, disciplined approach to further capex, Air Transport Group should be looking at a period of improving margins and cash flows.

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Air Transport Group Looking To Post Meaningfully Higher Cash Flow

Seeking Alpha: Genco Shipping Offers A High-Risk Charter Rate Call Option

Dry bulk shipping company Genco (GNK) is holding on by its fingertips. With charter rates crushed by capacity additions over the last three years, Genco is deep in the red and facing a day of reckoning with its lenders. Recent spikes in certain dry bulk rates are encouraging, but not enough to get the company back on its feet without the cooperation of those lenders. Although I do believe Genco will manage to restructure or renegotiate its debt, that's a risky call at this point and the company's net asset value is in the red. Still, for those investors looking to bet on further recovery in charter rates, Genco could offer meaningful bang for the buck.

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Genco Shipping Offers A High-Risk Charter Rate Call Option

Seeking Alpha: Old Dominion Isn't Done Yet

Earlier this year, I thought the Street's reaction Old Dominion's (ODFL) fourth quarter results offered investors a good opportunity to buy shares in this high-quality, growing trucking company. Since then, the shares are up about 30% - more than doubling the return of the S&P 500. Although that performance is more mixed relative to other trucking companies- better than Con-Way (CNW), but inferior to Arkansas Best (ABFS), YRC Worldwide (YRCW), and Saia (SAIA) - Arkansas Best and YRC have benefited from a major catch-up trade and still notably lag Old Dominion on a two-year comparison.

While valuation on the shares has moved up, I don't think the opportunity is over for Old Dominion or its shareholders. The company continues to gain share in the less-than-truckload industry, and I believe the company's combination of service quality, organic growth potential, and strong margin leverage can continue to deliver good returns.

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Old Dominion Isn't Done Yet

Friday, September 20, 2013

Seeking Alpha: Rofin-Sinar Looking To A Cyclical Recovery And Fiber Share Gains

About a month and a half ago, I wrote that IPG Photonics (IPGP) was a good name to know in lasers for its growth potential tied to the expansion of the fiber laser market (where it has at least two-thirds market share). Circling back, it's also worth exploring the potential of the 800lb gorilla in the overall industrial laser space - Rofin-Sinar Technologies (RSTI).

Rofin-Sinar is the leading company in market share terms in a market that I'd characterize as "cyclical growth" - there are certainly ups and downs from year to year, but the overall laser market continues to outgrow overall industrial spending on a multi-year basis. With a strong IP position and industry reputation, not to mention a wide array of products, Rofin-Sinar can benefit from the ongoing expansion of industrial automation and the continuing penetration of lasers into new cutting, welding, and marking applications.

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Rofin-Sinar Looking To A Cyclical Recovery And Fiber Share Gains

Thursday, September 19, 2013

Seeking Alpha: Is Titan Bottoming Out?

It's been a rough year for most companies that have much to do with the agriculture, earthmoving, or mining vehicle industries. Deere (DE) is up a little, Caterpillar (CAT) is down a little, Joy Global (JOY) is down a little more and the two Titans (Titan Machinery (TITN) and Titan International (TWI)) are down even more. Although AGCO (AGCO) and CNH Global (CNH) are up pretty strongly over the past year, they're more the exception and perhaps benefiting from less reliance on North America.

In any case, Titan International is the stock I'm interested in for this article. This company has had an up-and-down history, with management having something of a history of "I confess … it's not our fault!" excuses for operational issues, but also a cogent plan for building strong share in a variety of growth markets like Eastern Europe and Brazil. Calling a bottom in a stock always runs the risk of making you look stupid later on, and I do see risks that the ag and mining markets could get worse. Even so, unless Titan seriously drops the ball and actually loses share over the coming decade, I think the shares are undervalued today.

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Is Titan Bottoming Out?

Seeking Alpha: Alaska Air Still Different, Still Undervalued

I'm not sure any industry has a worse long-term reputation than airlines, but given that it is not so long ago that about 70% of the U.S. airline industry was in bankruptcy I'm not sure you can argue that reputation is undeserved. With that, I think the market has always waited in expectation for the other shoe to drop on Alaska Air Group (ALK), but the company stubbornly continues to out-execute and show that there is a better way to run an airline business.

Certainly Alaska Air is no longer any sort of hidden gem. The shares are up more than 80% over the past year, more than 500% over the past five years, and up almost 1,000% from the mid-2008 low. The company is facing more competition in some of its key routes, but returns and margins remain solidly above-average. I'm not naïve enough to believe that Alaska Air will ever get its full due, but I do still see some additional potential in these shares.

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Alaska Air Still Different, Still Undervalued

Seeking Alpha: Ship Finance Offers Good Returns For Above-Average Risks

Double-digit dividend yields often come with a substantial "but" attached. The junk in the trunk in the case of Ship Finance (SFL) comes in both the form of the significant ownership stake of shipping magnate John Fredriksen, as well as the company's heavily entwined dealings with other Fredriksen companies like Frontline (FRO) and Seadrill (SDRL).

While the shipping industry is still in rough shape, I don't think Ship Finance gets enough credit for the moves it has made to diversify into operations like offshore drilling (admittedly, another boom-bust industry) and offset the risk of customer defaults. A default from Frontline would certainly be noisy and negative, but not nearly as harmful to underlying cash flow and dividend support. With these shares trading below what appears to be fair value on an EBITDA and NAV basis, and paying a 10%-plus yield as of this writing, I believe Ship Finance is an attractively-priced, albeit risky, way to play shipping and collect a large dividend.

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Ship Finance Offers Good Returns For Above-Average Risks

Seeking Alpha: Ply Gem Highly Leveraged To New Housing

If investors want to own stocks leveraged to a recovery in new home construction in the U.S., it's hard to do better than Ply Gem (PGEM) in terms of sheer end-market leverage. Distributor Builders First Source (BLDR) has more overall leverage to new housing construction, but at nearly 50% of sales, Ply Gem is well ahead of companies like Masco (MAS) and Fortune Brands (FBHS), and is roughly on par with Louisiana-Pacific (LPX).

It takes more than just good end-market exposure to be a long-term winner, though, and Ply Gem certainly has work to do in improving margins and cleaning up its balance sheet. Although I think management has a solid plan for improving margins and I like the growth prospects, it feels like you have to stretch to really make the numbers work on the fair value side of things (and it seems like many sell-siders have done exactly that). Though I do believe Ply Gem will be a good stock proxy for new home construction (and investor sentiment about it), I'd be wary of a slower, more drawn-out recovery.

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Ply Gem Highly Leveraged To New Housing

Wednesday, September 18, 2013

Seeking Alpha: Tower Group Goes From Bad To Worse To Almost Unbelievable

When I last wrote about small insurance company Tower Group (TWGP) back in January of this year, my faith in management was wavering after management chose to compound the poorly-executed acquisition of OneBeacon and successive reserve charges (that essentially revealed that prior earnings and returns on equity had been overstated) with a risky transformative merger. In the interim I lost what remaining faith I had in management and sold my shares, and the company's ongoing issues with reserves certainly erodes confidence in the company's future prospects

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Tower Group Goes From Bad To Worse To Almost Unbelievable

Seeking Alpha: Bio-Rad Built For Consistency, Not Short-Term Out-Performance

Within the life sciences and clinical diagnostics worlds, Bio-Rad (BIO) is an odd duck. More like Techne (TECH) than Illumina (ILMN), Cepheid (CPHD), or even Thermo Fisher (TMO), Bio-Rad isn't looking to redefine its markets or change the game. Instead, this is a company that lets others be the first-movers and focuses on leveraging its large global distribution system and driving consistent, dependable financial results.

That's all well and good when the stock is priced that way. Unfortunately, Bio-Rad is often picked as an undervalued "hidden gem" in the life sciences/diagnostics space on the basis of its EV/EBITDA or EV/rev ratio, but without the acknowledgment of the differences in the models. None of this is to say that Bio-Rad is a bad company - trailing growth rates of 8% to 16% for revenue, free cash flow, and book value per share are quite good - but I do think investors have to be careful about the extent to which they goose their growth rates when considering the shares' fair value.

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Bio-Rad Built For Consistency, Not Short-Term Out-Performance

Seeking Alpha: PolyOne Has A Great Business, But Is It A Great Stock?

With the major market indices having performed as they have this year, it's not exactly surprising that there are numerous situations where you see a good or great business with a stock up 40%, 50%, or 60%-plus over the past year. Such is this case with PolyOne (POL), as investors have bid up the shares of this chemical company not only on expectations of improving construction and transportation markets, but also its clear commitment to transitioning to a higher-margin specialty chemical model.

Valuation admittedly always comes down to elements of guesswork and judgment, and arguments over the "right" multiples or discount rate for PolyOne can lead to pretty significant swings in estimated fair value today. Even so, it's hard for me to still call PolyOne a great stock for new investors at this level, as a lot of the company's plans and intentions seem to be already incorporated into expectations.

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PolyOne Has A Great Business, But Is It A Great Stock?

Tuesday, September 17, 2013

Seeking Alpha: DigitalGlobe Hopes A Near-Monopoly In Satellite Imaging Pays Off

"Up here in space, I'm looking down on you; My lasers trace everything you do." Judas Priest, "Electric Eye"

The jury is still out as to whether or not DigitalGlobe (DGI) can build a strong business in satellite imaging outside of government defense and intelligence contracts. The integration of the company's merger with GeoEye already appears ahead of schedule, and not unlike the merger that created Sirius XM Radio (SIRI), I expect the combined entity to be stronger and more profitable than either of its constituent parts would be on their own. Even so, getting companies in industries like oil/gas, mining, and agriculture is going to be the factor in whether investors' solid enthusiasm for these shares in 2013 pays off down the road.

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DigitalGlobe Hopes A Near-Monopoly In Satellite Imaging Pays Off

Seeking Alpha: MTS Systems Isn't Afraid Of Bold Expectations

For many companies, the role of CEO comes down to carefully massaging expectations such that institutional shareholders stay happy and stock options end up in the money. That sort of attitude doesn't lead to much in the way of boldness, and it probably goes some length to explain just why "average" performance is often so mediocre.

MTS Systems (MTSC) isn't like that, though. Management here has laid out bold targets - compound revenue growth of over 10% through 2018 and doubling revenue to $1 billion. Double revenue in six years would be aggressive for most companies, let alone a company that serves cyclical industries like autos and aerospace and competes with large companies like Illinois Tool Works (ITW) and Moog (MOG.A). While I'm not 100% convinced that management will hit that market (it's a goal, not a guarantee), I do believe that even a "near miss" would make these shares undervalued at today's price.

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MTS Systems Isn't Afraid Of Bold Expectations

Seeking Alpha: Kirby Looking At A Rising Tide Of Volume

Unless you live near a major river or coastal waterway, you may not give much thought to barges as a means of bulk transport, but it's a significant carriage option for agricultural and petrochemical products. With roughly 30% of the inland tank barge market and more than 20% of the coastal market, Kirby (KEX) not only has uncommonly high share, but is in a good position to benefit from the ongoing growth in U.S. oil and gas production, as well as the billions of dollars of new petrochemical capacity coming online. While these shares are seldom cheap, waiting for a significant pullback can be a frustrating exercise.

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Kirby Looking At A Rising Tide Of Volume

Monday, September 16, 2013

Seeking Alpha: Manitou Looks Like A Hidden Gem In France

France is probably not a country where most investors are going to think of searching for a quality industrial company, but Manitou (MAOIF.PK) (MTU.PA) just may be the exception. Although the company is heavily exposed to Europe and the shares aren't all that liquid even on the Paris exchange, the company's rough terrain handling and industrial material handling equipment could fuel years of above-average global growth.

This is definitely a riskier-than-average proposition. The stock is basically controlled by two families, sales to the U.S. and Asia are minor, and the company has yet to rebuild its margins in the wake of the global credit crunch. But if Manitou can return to free cash flow generation on par with Terex (TEX), Oshkosh (OSK), and CNH Global (CNH), these shares are set to rise more than 40%.

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Manitou Looks Like A Hidden Gem In France

Seeking Alpha: Relative To The Risks, The Turnaround Rewards At Bebe Don't Impress

With shoppers seemingly on a general strike, there is no shortage of turnaround/recovery ideas in the apparel sector. It's different situation with bebe stores (BEBE), though, as this company isn't suffering from the fickle whims of teen fashion or the sudden drop in mall traffic. Rather, bebe has seen its reported sales decline year over year since 2008 and hasn't sniffed a double-digit operating margin since that same year.

The company has a turnaround strategy in place, as well as a CEO who is less than a year into the job. While management has done a good job of telegraphing what are likely to be ugly-looking numbers until legacy merchandise is off the shelves and out of the stores, I'm not sure the probable long-term gains are worth the pains. The shares do look a little undervalued, but bebe will have to go from its current stressed state to new all-time performance records to justify a target price that would make it a superior investing option to names like American Eagle (AEO) or Aeropostale (ARO) in the broader retail space.

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Relative To The Risks, The Turnaround Rewards At Bebe Don't Impress

Seeking Alpha: AEIS Offering A Semi Rebound And A Long-Term Solar Kicker

There are two ways you can look at Advanced Energy Industries (AEIS) - it's an up-and-coming leader in solar power inverters with a cyclical semiconductor equipment business attached, or it's a leading supplier of power conversion and thermal instrumentation products to the semiconductor industry with a growing (but intermittently profitable) solar business attached. Either way, I believe AEIS is still an undervalued tech stock with a clean balance sheet and multiple potential growth drivers in the coming years.

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AEIS Offering A Semi Rebound And A Long-Term Solar Kicker

Seeking Alpha: CCL Industries On A Path Toward Printing Cash Flow

Like it's smaller American cousin Multi-Color (LABL), CCL Industries (CCDBF.PK) is a company whose products are in front of readers' eyes every day, and yet go largely unnoticed. You would never buy a bottle of shampoo or beer that had no label on it, and likewise all manner of companies in consumer goods, healthcare, chemicals, and so on require labels for their products.

That has created a global market worth an estimated $30 billion a year, with close to one-third of that in North America. Through organic growth, helped by the development of more advanced label-making capabilities, and acquisitions, CCL Industries has emerged as the leader in the industry. In this case, though, "leader" still means less than double-digit share, and CCL Industries not only has the opportunity to benefit from acquisition-related synergies, but also further utilize its balance sheet to consolidate a slow-growing but essential industry.

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CCL Industries On A Path Toward Printing Cash Flow

Sunday, September 15, 2013

MassDevice: Once More Unto The Breach With Intuitive Surgical

The stock market is a funny place, and it's not all that uncommon for an analyst or investor to find himself defending a company/stock he once was not all that interested in owning. That's where I'm at these days with Intuitive Surgical (NSDQ:ISRG), as although I'm accustomed by habit to lamenting Wall Street's excessive enthusiasm for the company and the "everything is awesome" blue-sky feedback from docs during due diligence calls, sentiment has shifted quite a bit over the past few months.

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The Motley Fool: Johnson & Johnson Looks To Turn The Fading Ortho Diagnostics Unit Into Cash

While Foolish readers know all too well that a good turnaround story can drive excellent shareholders, sometimes discretion is the better part of valor and it makes more sense to just get out and move on. That is the attitude of Johnson & Johnson (NYSE: JNJ  )  with respect to its Ortho Clinical Diagnostics, or OCD, business, with the company openly acknowledging that it has begun discussions to sell this long-underperforming unit.

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Seeking Alpha: Waiting For The Next Pullback At FEI Company

Writing about FEI Company (FEIC) is a mixed blessing in some respects. While I really like what this leading microscopy company is doing, the nearly 400% appreciation in the stock over the past three years easily lends itself to "If you're so smart, why didn't you own it?" catcalls from the peanut gallery.

Putting that aside, I continue to be very bullish on the company's business prospects in the coming years. Not only is the company rolling new products with enhanced capabilities that could significant expand its addressable revenue potential, but management isn't losing sight of its operating responsibilities in the pursuit of more growth. Although FEI Company is more cyclical than some investors may like from a growth company and it doesn't look particularly cheap at first glance, this is a stock that I'd keep an eye on in the hopes of adding shares on a pullback.

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Waiting For The Next Pullback At FEI Company

Friday, September 13, 2013

Seeking Alpha: Entegris Is Another Small-Cap Play On Future Semi Spending

Investors aren't exactly in danger of running out of ways to play expected improvements in semiconductor capital spending in 2014. I've already talked about opportunities in companies like Ultratech (UTEK) and Mattson (MTSN), and both appear to offer significant value if and when next-gen capital spending increases.

Entegris (ENTG) is a different sort of play. Unlike Ultratech and Mattson, there really isn't much of a missionary aspect to sales - semiconductor manufacturers already understand the need for contamination control and advanced material handling, and Entegris already holds solid share in its core markets. That said, more advanced fab processes should require more filtration equipment and a larger sales opportunity for Entegris. While I don't necessarily see as much upside in the Entegris bull-case scenario (compared to Ultratech or Mattson, that is), I believe there is less execution risk here and still an opportunity to generate worthwhile capital gains.

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Entegris Is Another Small-Cap Play On Future Semi Spending

Seeking Alpha: Graham Corp Already Seems To Be Building In Better Days

Investors have seen multiple examples recently that demonstrate how quality industrial companies can bring in buyout offers at valuations above what I believe most analysts would calculate as fair on a stand-alone basis. Over the past three months, Gardner Denver, Edwards Group (EVAC), and Kaydon (KDN) have all accepted deals that I believe fit that pattern.

That brings me to Graham Corp (GHM). I love the idea of a company that holds strong market share in engineered-to-order ejectors, condensers, heat exchangers, and pumps, not to mention one that produces good returns on invested capital without overwhelming institutional ownership. On the other hand, shares are up more than 80% over the past year and it's tough to find a metric under which the shares are cheap. With that, I believe these shares are already baking in some degree of takeout premium, though I intend to keep it on the watchlist in case it sells off at some point.

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Graham Corp Already Seems To Be Building In Better Days

Wednesday, September 11, 2013

Seeking Alpha: Just How Far Can International Markets Take Wabtec?

Wabtec (WAB) is one of those uncommonly well-run industrial companies that just does not provide an investor with many opportunities to "buy the dip". Yes, there have been pullbacks along the way of 25% or so, but the company seldom looks cheap on conventional metrics.

On the other hand, here's a company with strong share in about 50% of its business, and a long record of generating high single-digit or double-digit revenue growth and improved operating margins in a cyclical industry. Although I don't want to get carried away with this bull market and a stock that is already up more than 50% over the past year, the argument for a fair value in the $70's doesn't seem ridiculous if you believe the company can replicate its success in North America in other parts of the world.

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Just How Far Can International Markets Take Wabtec?

Seeking Alpha: Hollysys Automation Still Good, Just Not As Cheap

I last wrote about HollySys Automation (HOLI) on December 18, 2012 ("HollySys Looks Like A Name To Watch..."), saying at the time that I thought it was a very interesting (and undervalued) company in the Chinese industrial automation and trail/subway control markets. Since then, the shares have risen about 34% - doubling the return of the S&P 500, and doing considerably better than other players in automation and mass transit like Siemens (SI) (up 5%), ABB (ABB) (up 10%), Emerson (EMR) (up 20%), Invensys (up 22%), Rockwell (ROK) (up about 23%), and even Honeywell (HON) (up about 32%).

Certainly plenty has happened over the past nine months, including ongoing struggles in the Chinese industrial automation market and delays in rail and subway projects. Along the way, HollySys also spent about $73 million on an acquisition in Singapore/Malaysia, and continued to make progress with its automation portfolio. I no longer see HollySys as a table-pounding buy, but I'd suggest current owners hang on and non-owners keep this one on their watch list.

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Hollysys Automation Still Good, Just Not As Cheap

Seeking Alpha: The Street Still Doubts Gamesa Has A Business For The Long Term

Retail investors always react angrily whenever you mention it, but even the hottest markets always come back to real-world concerns like economic value added, margins, and cash flows. Nobody wanted to hear about the per-kWH costs of wind power or the importance of government subsidies back in the glory days of the renewable/alt energy bubble, but the chickens ultimately came home to roost (as they always do), and they left a big mess on former high-fliers like Vestas (VWDRY.PK) and Gamesa (GCTAY.PK) (GAM.MC).

Extreme industry over-capacity and order declines tied to lower government subsidy payments have forced turbine manufacturers to restructure their operations and rein in their ambitions. To that end, I think Gamesa has made a lot of progress, progress that shows in the 220% jump in the share price over the last year and the more than 450% appreciation from the worst of the lows. While Gamesa still has to deal with well-heeled rivals like General Electric (GE) and Siemens (SI) and a host of low-cost Chinese rivals, I think Gamesa's stable turbine market share is an underrated positive in this story, and it looks like the market still doesn't quite believe that this is a viable story for the long-haul.

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The Street Still Doubts Gamesa Has A Business For The Long Term

Seeking Alpha: Can Orbital Sciences Be More Than Just A Good Idea?

If you want to be uncharitable, you could say that Orbital Sciences (ORB) is a company with a great future in its past. Going beyond the "gee whiz" factor of a company that builds launch vehicles and space systems, this is a company that has shown generally solid progress in revenue growth over the years but has struggled to show consistent free cash flow production or stock price appreciation.

Orbital could be looking at a period where results turn up, though. The commercial satellite business should benefit from a cyclical upswing in orders, and the company's participation in NASA programs tied to the International Space Station (ISS) should begin to pay off in the coming five years. Underlying that is a relatively stable business built around missile defense and military and research satellites. There will always be risks tied to government budgeting priorities and spectacular operating failures, but I can sympathize with investors taking a "it's different this time" approach to Orbital Sciences.

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Can Orbital Sciences Be More Than Just A Good Idea?

Tuesday, September 10, 2013

Seeking Alpha: Should Investors Go With The Flow?

If you follow the earnings reports of machine tool companies like Hurco (HURC), Hardinge (HDNG), and Gildemeister, these are not happy-fun-times in the machine tool industry, though there seems to be a big difference between companies that address high-volume and low-volume markets (the smaller the target company, the worse things appear to be). Likewise, companies with big exposure to metal-cutting, including Kennametal (KMT), Atlas Copco (ATLKY.PK), and MSC Industrial (MSM), have been reporting pretty challenging market conditions in North America and Europe.

As Flow International (FLOW) sells metal-cutting machine tools, you can probably guess where this is going. While Flow is a leader in waterjet cutting equipment, a business that seems under-penetrated, weak capex demand in the U.S. has made it difficult for this company to make real headway. I do believe there may be a worthwhile opportunity in these shares, but investors considering them are going to need patience (and maybe a buyout) to see this story work out.

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Should Investors Go With The Flow?


BOT: Lundbeck (LUN.CO)

Seeking Alpha: Palo Alto Networks Trying To Win Back Wall Street's Love

It's so common as to be practically cliché - a young tech company with disruptive technology comes out as a hot stock, gets sell-side analysts racing to put out ever-higher targets, stumbles, and then has to spend some time in the penalty box before it wins back institutional investor love. We can argue about the extent to which Palo Alto Networks (PANW) has followed exactly that pattern, but I think the relative performance of "new security" firms like Palo Alto and Fortinet (FTNT) is pretty striking relative to "old security" firms like Check Point Software (CHKP).

I've long been a die-hard supporter of Check Point Software, but I'm actually wondering whether Palo Alto may be the better buy for the time being. True, the company does have to deal with litigation brought against it by Juniper (JNPR), and that may lead some investors to step aside pending a resolution. Likewise, the recovery in IT spending that seems to be emerging could go away with little warning. Even so, I think Palo Alto has a meaningfully better mousetrap in enterprise security and I think the shares may be undervalued to a worthwhile extent today.

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Palo Alto Networks Trying To Win Back Wall Street's Love

Seeking Alpha: HD Supply An Expensive Play On Construction And MRO

Admittedly, I have a thing for the industrial/MRO distribution sector - I own MSC Industrial (MSM) and follow others like Fastenal (FAST), Grainger (GWW), and WESCO (WCC) pretty closely. Although it's a very competitive space with a strong cyclical component, it's a fragmented market where companies with a good business plan (e.g. MSC Industrial and Fastenal) can really make a name for themselves.

Into this mix comes one of the bigger dogs in the yard - HD Supply (HDS). Once part of Home Depot (HD) and then sold to private equity, HD Supply has already enjoyed a pretty good post-IPO run, rising about one-third since its debut. Although I do appreciate the leverage that HD Supply offers to a U.S. construction rebound, not to mention margin improvement and consolidation potential, I think the multiple today is demanding unless you are really bullish on the company's growth plans and the recovery potential of the U.S. construction market.

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HD Supply An Expensive Play On Construction And MRO

Seeking Alpha: A More Focused Sulzer Should Be A Better Sulzer

Leading pump manufacturer Sulzer (SULZF.PK) (SUN.VX) hasn't been on the best run of late. Relative to fellow pump players Flowserve (FLS) and Weir Group (WEIGY.PK), Sulzer's performance over the past year (up about 4%) has been pretty poor, due in very large part to a huge miss with second quarter earnings and a three-day fall of nearly 20%.

Admittedly, the company's guidance for fiscal 2013 isn't exciting - sales and order growth in the low single digits - and Sulzer's margins and returns on invested capital have been stepping lower since 2008. That said, this company has 20% to 50% share in its core pump markets and a decision to refocus around its pump and fluid control businesses in markets like oil/gas, power, and water should lead to improved results down the line. Buying Sulzer today is a contrarian move, and a bet on improved operating performance, but one that I don't think is unreasonable given the company's past performance and future potential.

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A More Focused Sulzer Should Be A Better Sulzer

Seeking Alpha: Neurocrine Takes Strike 2 On VMAT2

Right up until today, Neurocrine (NBIX) had been a pretty strong call for me. I last wrote about this biotech for Seeking Alpha on September 18 ("Neurocrine Still Looks Significantly Underrated"), and the stock had been up more than 100% since then. While making money in biotechs has hardly been difficult over the last year, a lot of optimism had been building around both Neurocrine's endometriosis and fibroid treatment Elagolix (being developed under license by AbbVie (ABBV)) and its VMAT2 inhibitor ('854) for tardive dyskenesia (TD).

That all came to a screeching halt when Neurocrine announced yet another Phase II trial failure for '854 in TD. Although the KINECT-1 study may not be technically a failure, as the 100mg arm showed a statistically significant impact at two weeks, the 50mg arm failed, there were more than a few odds aspects to the study, and the company is going back to the Phase II drawing board to design another study.

While I do remain bullish on Neurocrine on balance, I would suggest investors ignore those who try to look past this setback with some version of "VMAT2 doesn't matter, it's all about Elagolix". The market potential for Elagolix is hardly guaranteed and the company's troubles with getting '854 through the clinic have me more than a little concerned.

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Neurocrine Takes Strike 2 On VMAT2

Monday, September 9, 2013

Catching up on transactions

Have fallen behind updating my transactions (though my portfolio page is always up to date).

So, without further ado -

BOT: Broadcom, Lenovo, Manitex, Ultratech
SOLD: AES, America Movil, Tower Group

Seeking Alpha: The Strange Story At Nam Tai Will Go On

I have fond memories of Nam Tai Electronics (NTE), as the shares did very well for me from late 2002 to early 2003 when the company was still an assembler of "knock-down" cell phone kits. I do like to occasionally check in on past winners, and while Nam Tai was a little "different" even then, the company has chosen to go in a radically different direction.

With apparently only limited desire to continue competing in the electronic manufacturing/assembly space, Nam Tai is basically running off its liquid crystal display module (LCM) assembly business and putting its eggs in the real estate development basket. While Nam Tai's real estate assets likely do have meaningful value, the company's apparent preference to develop rather than sell means investors could be looking at a long wait before recognizing that value, let alone dealing with the vagaries of the Chinese real estate market.

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The Strange Story At Nam Tai Will Go On

The Motley Fool: Should Johnson & Johnson Be Looking For A Cougar In Devices?

Several years ago, Johnson & Johnson (NYSE: JNJ  ) realized it had a problem with its drug business. This wasn't a particularly poignant revelation, as the struggles of the business from around 2004 to 2010 were pretty easy to see, but the company went and did something about it. Licensing agreements with Bayer and Mitsubishi Tanabe brought in drugs like Xarelto and Invokana, while the billion-dollar acquisition of Cougar Biotechnology ultimately turned into the blockbuster prostate cancer drug Zytiga.

I mention this because other parts of J&J could use some TLC. Not only is the consumer/over-the-counter business still on a slow path to recovery from repeated product quality and recall issues, but the device business has turned into a perpetual disappointment with low organic sales growth. While the large acquisition of Synthes (announced in 2011, completed in 2012) has spiffed up the orthopedics business, I think it's worth asking whether Johnson & Johnson should think about going Cougar-hunting in the device space.

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Seeking Alpha: Monotype Imaging May Be On Hold For 2013, But The Long-Term Outlook Is Solid

Given that Monotype Imaging (TYPE) is up about 16% since I recommended it in mid-March (against 6% for the S&P 500), I'm feeling pretty good about that call. Likewise, I still like the long-term opportunity for this company. Fonts and typefaces are one of those businesses that fits in with Peter Lynch's philosophy of targeting overlooked businesses that provide essential products/services that nobody thinks about much, if ever.

All told, I still believe that Monotype has less than 20% of its potential market, and the revenue opportunity for the company could be as high as $1 billion. On the other hand, demand for consumer and business electronics like handsets, tablets, and printers has been softer lately and the company has had to reduce guidance on the basis of higher/worse-than-expected FX headwinds and taxes. I don't believe that investors need to freak out over the lower guidance for 2013, but it does suggest that these shares may be just marking time until revenue growth reaccelerates.

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Monotype Imaging May Be On Hold For 2013, But The Long-Term Outlook Is Solid

Seeking Alpha: Gazprom's Discount Seems Extreme

I can understand why investors may not be elbowing each other aside to buy shares of Gazprom (OGZPY.PK). Gazprom is controlled by the Russian government, and while it is a major source of Europe's natural gas supplies, Western oil and gas companies are hard at work boosting production in areas like the North Sea to reduce that dependence. It also doesn't help matters that Gazprom reports financial results on "Russian time", with March quarterly IFRS results only just reported in the first week of September.

And yet, we're talking about a company that produces 17% of the world's natural gas and holds a similar percentage of the world's natural gas reserves. We're talking about a company that literally monopolizes Russia's gas exports and represents a major source of energy to Europe. We're also talking about a company that will likely begin exporting natural gas to China in the future, and could ultimately supply even more of the world's gas needs.

Trading at approximately 2.6x 2014 EBTIDA estimates, Gazprom's valuation seems to already incorporate some rather sizable doubts about the company's ability to improve domestic pricing, control production costs, and support rising dividend payouts. While Gazprom shares are not appropriately for investors with low appetite for risk, the shares do seem undervalued even by the stressed standards of Russian energy companies and offer more than 40% upside from today's levels.

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Gazprom's Discount Seems Extreme

Seeking Alpha: AudioCodes May Need A Breather, But The Company's Making Progress

For all of the companies that talk about restructuring and refocusing and go nowhere with it, some do turn a corner and start delivering improved financials. I think AudioCodes (AUDC) belongs in that second box, as the company's efforts to refocus itself around enterprise VoIP, and Microsoft's (MSFT) Lync in particular, have already started to pay dividends.

The shares are already up more than 250% from last year and well off the sub-$1.50 lows. Even so, the company still has low institutional ownership and minimal sell-side support. As I believe that smaller enterprises will start pushing money-saving SIP trunking and unified communications up the list of spending priorities, I think AudioCodes has a good market opportunity ahead of it. While my base-case assumptions don't suggest huge cash flow-based upside at this point, I won't be that surprised to see AudioCodes outperform over the next few quarters and support even stronger long-term projections (and a higher fair value).

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AudioCodes May Need A Breather, But The Company's Making Progress

Seeking Alpha: From Russia With No Love, Lukoil Trading At A Very Low Multiple

It's easy to come up with good reasons to steer clear of Russian equities. The Russian government has shown itself perfectly willing to play fast and loose with the rule of law, corruption is still an endemic problem, and the notion of shareholder rights can be pretty iffy.

Even so, I find that some of best investment returns have come from places where the "conventional thinking" was much too bearish, and so I think it may be with Russia and its second-largest oil producer Lukoil (LUKOY.PK). Although Lukoil does need to bring new fields into production to offset declines in its Western Siberia fields, those developments are underway and the company could surprise to the upside with long-term oil production. With only a 3.5x multiple to 2014 EBITDA supporting a price target 30% above today's price and a 5%+ dividend, Lukoil appears to be meaningfully undervalued even relative to the "Russia discount".

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From Russia With No Love, Lukoil Trading At A Very Low Multiple

Friday, September 6, 2013

The Motley Fool: Cooper Leveraging Share Gains For Eye Opening Growth

Cooper (NYSE: COO  ) , or more formally "The Cooper Companies" is a sort of odd duck in the med-tech world. It's fairly well-respected by eye care rivals like Johnson & Johnson (NYSE: JNJ  ) and Novartis (NYSE: NVS  ) ; it has done well in the market (up more than 280% over five years and about 55% over the past 12 months); and it's well-followed and well-owned on the Street.
Even so, it doesn't generate much pizzazz with individual investors, and there's not much coverage of it out there. Some of that may be due to valuation -- as Cooper rarely trades at a multiple I'd call cheap -- but this is a story likely to feature strong market share gains and meaningful margin/free cash flow leverage, and those tend to be the stocks that outperform.

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Seeking Alpha: Layne Christensen Still Clear As Mud

Layne Christensen (LAYN) has never been an easy stock, and a variety of problems in recent years hasn't made things any easier. This was always an unusual resources conglomerate, with operations in water, minerals, and energy, but a corruption scandal, downturns in the market, and an inefficient corporate structure have made the situation even more challenging. Though I can see a viewpoint whereby these shares may be undervalued, I think the company is looking at some challenging end market conditions and a lot of internal heavy lifting - Layne Christensen is, I believe, getting better, but it's operating environment is getting worse.

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Layne Christensen Still Clear As Mud

Seeking Alpha: Hurco Disappoints Amidst A Murky Machine Tools Market

There's an old NFL Films clip of Vince Lombardi fuming along the sidelines and yelling out "What the 's goin' on out here?" That encapsulates my feelings about the machine tool market and Hurco's (HURC) place within it. Hurco's limited focus on short-run, high-spec systems reduces the comparability to larger firms like Gildemeister, Mori Seiki (MRSKY.PK), Okuma (OKUMF.PK), and Makino Milling (MKMLF.PK), but it's still frustrating to see the company fail to make progress with its revenue, margins, and order flow.

Please read the full Seeking Alpha article here:
Hurco Disappoints Amidst A Murky Machine Tools Market

Seeking Alpha: Wall Street Too Eager To Believe In VeriFone's Turnaround

I have thought for some time now that Wall Street badly wants to believe that VeriFone (PAY) can turn around its business, and the reaction to the company's third quarter earnings backs that up. VeriFone went out of its way to lower the hurdle for this quarter - to a point where a gopher could clear it - but pre-market indications on the stock seem to suggest that this was a meaningful beat for the company. Suffice it to say, I'm not a VeriFone bull. I believe the right CEO hire could make a real difference here, but even a 10% growth estimate doesn't point to much value.

Please click this link for the full article at Seeking Alpha:
Wall Street Too Eager To Believe In VeriFone's Turnaround

Thursday, September 5, 2013

Seeking Alpha: Two Valuable Lessons From Kaydon's Sale To SKF

I wrote on bearings and velocity control products company Kaydon (KDN) in early March of this year, and I didn't see a lot of value at the time. As the year went on, that call looked worse and worse, as the stock climbed about 18% - well above the S&P 500, and well above industry peers/competitors like Timken (TKR) and SKF (SKFRY.PK). To top it all off, Kaydon announced this morning (September 5) that it had received and accepted a buyout offer from SKF valuing the company at $35.50 - some 45% higher than the price when I thought it looked only about 10% undervalued. So what did I get wrong here, and what can investors do to avoid a similar mistake?

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Two Valuable Lessons From Kaydon's Sale To SKF

Seeking Alpha: Titan Machinery - Is This Roll-Up Rolling Over?

I've had my doubts about Titan Machinery (TITN) for a while now, as I've seen more than a few debt-funded equipment dealership roll-up stories in the past, and they often don't end well. To that end, the last year and two years have been pretty dicey for buy-and-hold investors, as concerns about the health of the agricultural equipment market and the potential for a rebound in construction equipment demand weigh on sentiment.

As it stands today, I have very mixed feelings about this business. I do have some concerns about the health of the ag equipment sector in the coming years, and I have real doubts about Titan's ability to leverage CNH Global (CNH) construction equipment into a viable construction equipment dealership business. On the other hand, it seems harsh to say that the company creates no value at all, and it trades only about 5% above tangible book value. I'd rather play a bullish (or bullish relative to consensus) call on agriculture and/or construction through names like Deere (DE), Caterpillar (CAT), Kubota (KUBTY.PK), or Komatsu (KMTUY.PK), but Titan's underperformance makes it hard to be loudly bearish on the name.

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Titan Machinery - Is This Roll-Up Rolling Over?

Seeking Alpha: Improving Housing And A Major Deal Make Louisiana-Pacific Much More Interesting

The housing recovery trade seems to have hit a bit of a snag recently, as even hot trades like Home Depot (HD) and Mohawk (MHK) have cooled a bit recently. With mortgage rates heading higher and new construction activity still not that strong relatively to long-term averages, timber, lumber, and wood products companies have gotten dinged. While I had already been planning to write on Louisiana-Pacific (LPX) and point out that it seemed as though the market was pricing in too much skepticism about the OSB, siding, and engineered wood markets, the company did a deal that only makes the story more interesting.

In buying Canada's Ainsworth Lumber (ANSBF.OB), Louisiana-Pacific is not only adding capacity ahead of increased demand, but it is also improving its sales/margin mix, adding an Asian export business, and perhaps helping to quell fears that the industry will act irresponsibly with respect to capacity restarts/additions. While I'm actually surprised at how undervalued Louisiana-Pacific appears to be, it looks like there could be room here for 20% to 40% appreciation even after the strong positive reaction to the Ainsworth deal.

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Improving Housing And A Major Deal Make Louisiana-Pacific Much More Interesting

Seeking Alpha: The Wait Goes On For NCI Building Systems

Investors waiting for the recovery in non-residential construction are still waiting, and that's not good news for NCI Building Systems (NCS). Although this company has attractive market share leadership in metal coating, building components, and engineered building systems, that leadership isn't worth as much in a construction market that has struggled to lift off the bottom. There does appear to be value in these shares, but the timing of that non-residential building recovery is a major unknown right now.

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The Wait Goes On For NCI Building Systems

Wednesday, September 4, 2013

Seeking Alpha: Home Is Where The Bard Is

Patient, if not long-suffering, shareholders in Rochester Medical (ROCM) finally got their vindication on Wednesday, as Bard (BCR) stepped up with an all-cash offer for this largely home-care focused urology devices company. Although this deal is not going to radically change the growth outlook for Bard, it is a logical buy-vs-build move that should add long-term value and give the company entry into a market that should be poised for growth in the coming years.

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Home Is Where The Bard Is

Seeking Alpha: Amidst Rate And Commodity Worries, Oneok Partners Looks Interesting

Master limited partnerships (MLPs) aren't like most stocks. You don't generally buy these stock (technically, units) for multi-bagger appreciation potential, but rather for meaningful distributions (dividends) that also typically come with significant tax advantages. While I don't suggest that ONEOK Partners, L.P. (OKS) is one of those aforementioned multi-baggers, I do believe the shares are at least 20% undervalued today. What's more, the company's sizable natural gas and natural gas liquids capacity is tough to match, and multiple ongoing growth projects should lead to greater distributions down the road.

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Amidst Rate And Commodity Worries, Oneok Partners Looks Interesting

Seeking Alpha: Patient Investors Get A Crack At Plum Creek Timber

Timberland investing has become one of the more popular "open secrets" of institutional investing - numerous papers have been published comparing the long-term value and performance of investments in timberland to other asset classes, and timberland has often come out looking quite good. Not surprisingly, that has led to institutional dollars flowing into the asset class, leading to quite a bit of volatility in the price (or value) per acre of this class of real estate.

While investing in timberland itself is not very easy for the average investor, REITs like Plum Creek Timber (PCL) offer an appealing alternative. While Plum Creek (and comparables including Weyerhaeuser (WY), Rayonier (RYN), Deltic (DEL), and Potlatch (PCH)) are not pure plays on timber (many of them produce wood-based products and/or sell off lands for real estate development), they're as close as most investors will find, and the popularity of timber as an asset class has generally kept these shares well-valued.

Financial writers often talk about "waiting for a pullback" before buying a stock, and Plum Creek looks like it's offering just that sort of opportunity. With U.S. housing and real estate on the mend (albeit slowly), more lumber going to China, and new opportunities for wood like fuel pellets, Plum Creek's long-term value looks solid. Even so, the shares are down sharply from the May 2013 high and flat for the year. Assigning an objective fair value to Plum Creek may be like nailing Jell-O to a tree, but I would argue that the shares are worth at least $54 today which, in combination with a nearly 4% dividend yield, makes this a stock worth consideration today.

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Patient Investors Get A Crack At Plum Creek Timber

Investopedia: Ciena On A Roll With Carrier Spending Picking Up

It looks like the good times have arrived for Ciena (Nasdaq:CIEN), as this optical telecom equipment company delivered another beat-and-raise quarter with its fiscal third quarter results. Although carrier spending is not uniformly strong, Ciena shares could move higher as telcos loosen up their purse strings and move forward with badly needed capacity upgrades.

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Investopedia: Gerdau Seeing Brazil Get Better, But U.S. Ops Are Struggling

The wait for the turnaround in the steel industry has been a challenging one for shareholders. While some companies, including U.S. minimill operators Steel Dynamics (Nasdaq:STLD) and Nucor (NYSE:NUE) and foreign producers like Ternium (NYSE:TX) have seen their shares turn around, other steelmakers like ArcelorMittal (NYSE:MT), U.S. Steel (NYSE:X), and Gerdau (NYSE:GGB) have had a rougher go of it.

Sentiment seems to be turning around for Brazil-based Gerdau. Steel companies there are having more success in pushing through higher prices and demand has been pretty solid from customers in autos, aviation, and other types of heavy industry. What's interesting, though, is that sell-side enthusiasm isn't really reflected in their estimates, and Gerdau doesn't look all that cheap on a near-term numbers basis. While improving conditions in Brazil and a pick-up in the U.S. could definitely lead to upward estimate revisions, the bull case does require investors to look out beyond just the next 12 to 18 months of EBITDA.

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Investopedia: Arch Capital Is Excellent, But No Bargain

It feels as though it was a very long time ago when Arch Capital (Nasdaq:ACGL) last traded at a meaningful discount to fair value. But then, that's the price of excellence – there are few insurance management teams I'd rather invest with and the market is not shy about rewarding the shares for the skill of the team here. While there's always a chance that an active storm season could create an investment opportunity in Arch Capital, investors shouldn't this stock to offer many opportunities to buy at significant discounts to fair value.

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Investopedia: Coca-Cola FEMSA Adds More Volume In Brazil

Coca-Cola FEMSA (NYSE:KOF), the second-largest Coca-Cola (NYSE:KO) bottler in the world and owned by both Coca-Cola and FEMSA (NYSE: FMX), continues to show a willingness to invest for future growth and margin leverage. KOF has spent roughly $6 billion over the last two years, including nearly $700 million to expanding into the Philippines. Now KOF has added some significant assets in Brazil with the $1.9 billion acquisition of Spaipa, the second-largest private Coca-Cola bottler in Brazil.

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Investopedia: Nokia Sells Its Handset Business To Microsoft And Remakes Its Future

From virtually the day that Nokia (NYSE:NOK) and Microsoft (Nasdaq:MSFT) began working together on mobile handsets and smartphones investors have speculated whether Microsoft would acquire Nokia's handset business. Not only had Nokia continued to struggle with the transition to smartphones, some argued that Microsoft would want to “control its ecosystem” in the same way that Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) do through their software and hardware operations.

That all came home to roost on Tuesday, as the two companies announced a transformative deal that will see Microsoft acquire Nokia's phone business and license significant intellectual property (IP). After the deal, Nokia will be a cash-rich wireless infrastructure company, while Microsoft will be much more geared towards handsets and consumer devices.

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