Thursday, October 31, 2013

Seeking Alpha: Alliance Grain Traders Turning To Higher-Margin Opportunities

Canada's Alliance Grain Traders (OTC:AGXXF) (AGT.TO) already has a pretty decent business going for it. AGT is a global leader in the sourcing and processing of pulses (lentils, peas, beans, etc) and a vertically integrated processor with operations in Canada and Turkey. The company also happens to pay a respectable dividend.

It's not AGT's traditional processing operations that make this a stock worth following, but rather its emerging food ingredient and animal feed opportunities. These businesses hold the promise of not only meaningfully reducing the volatile cyclicality of the business, but also significantly upgrading its margins. Although I don't believe these shares are dramatically undervalued today, I'd keep an eye on them for the prospects of picking up shares on turbulence in the global pulse markets or a faster ramp of the value-added businesses.

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Alliance Grain Traders Turning To Higher-Margin Opportunities

Seeking Alpha: Xenoport Looks To '829 To Restore Its Lost Glory

Five years ago, XenoPort (XNPT) was a $40 stock, but while the biotech sector has enjoyed a strong run these shares have gone the other way on disappointments over the restless leg drug Horizant and the clinical failures of arbaclofen placarbil. Although I don't see a credible path back to $40 anytime soon, the company's monomethyl fumarate (MMF) prodrug XPS23829 ('829) does give the company at least a fighting chance of grabbing some of the billions of dollars in revenue expected for Biogen Idec's (BIIB) latest blockbuster Tecfidera. While the prospect of capturing some of Tecfidera's potential sales through competitive pricing or clinical differentiation is intriguing, investors shouldn't kid themselves about the risks and uncertainties still in play here.

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Xenoport Looks To '829 To Restore Its Lost Glory

Seeking Alpha: Helix Offers An Interesting Risk-Reward Mix

As I've made my way through the energy services sector recently, I've noted a pretty fair number of stocks that look undervalued on the basis of improving offshore activity and expectations for a better 2014 in North America. Helix Energy Solutions (HLX) is an interesting case, though, as although the shares don't appear to be remarkably cheap today, the company's strong utilization and contract positions, coupled with the economics of the services it provides, may make this a pretty good balance of reward relative to risk.

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Helix Offers An Interesting Risk-Reward Mix

Seeking Alpha: MSC Industrial Comes Through In A Tough Quarter

Maybe the best shine I can put on MSC Industrial's (MSM) fiscal fourth quarter is that it was one of the better results in an industry that has disappointed investors due to a slowdown in manufacturing, the sequestration, and the stubborn lack of recovery in construction. While MSC's organic revenue growth was weaker than that reported by large rivals like Grainger (GWW) and Fastenal (FAST), at least some of that can be attributed to the company's greater focus on small manufacturing companies.

I'm not looking for 2014 to be a banner year for industrial distributors, but I believe MSC Industrial is still meaningfully undervalued. The company is definitely vulnerable to further slowing in manufacturing and more activity from Fastenal in areas like metalworking, but the market's worries about MSC Industrial's cyclicality (worries that are harder to dismiss given the company's relative performance) means that investors can still take advantage of an undervalued stock.

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MSC Industrial Comes Through In A Tough Quarter

Seeking Alpha: Superior Energy Services Looks To Live Up To Its Name

Energy service stocks have had a pretty good run in 2013, even despite the fact that the expected second-half recovery in rig counts and activity doesn't seem to be materializing and pricing pressures are combining with cost inflation to squeeze margins in the U.S. land market. Even though Superior Energy Services' (SPN) shares are up more than 30% over the last twelve months, the stock still appears to be undervalued on the basis of good growth in offshore and international markets and the prospects for a recovery in the U.S. onshore market in 2014. Couple that with strong margin discipline and a commitment to return capital to shareholders, and I believe this name still deserves consideration from investors looking to add energy exposure.

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Superior Energy Services Looks To Live Up To Its Name

Tuesday, October 29, 2013

Seeking Alpha: Silicon Labs Waiting To Catch The Next Wave

"Innovate or die" is a pretty good mantra for most of the chip industry, and it's certainly true for Silicon Labs (SLAB). This diversified chipmaker's stock has spent most of the last four years oscillating between $30 and $50 as products like PC modems and FM tuners that once drove a large part of the company's growth have become commoditized or integrated into other products.

Now the question seems to be when (and perhaps "if") the company can latch on to the next big thing. At this point, Silicon Labs appears to be in good position to leverage the growth of the "internet of things", and could be positioning itself to be a much stronger player in lower-power microcontrollers and CMOS-based MEMS oscillators for timing applications. While the shares are, perhaps, undervalued on the basis of the PEG-based approaches that sell-side analysts favor, it takes a little more bullishness to get there with discounted cash flow.

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Silicon Labs Waiting To Catch The Next Wave

Seeking Alpha: GSI Technology May Be Cheap, But It's Not Easy

There is a big difference between "just cheap" and "cheap for a reason", and I have my doubts as to which bucket best describes GSI Technology (GSIT). While I do believe there is a solid argument to be made that GSI can regain share in the static random access memory (SRAM) market that it lost to Cypress (CY) on IP litigation worries, Cypress isn't throwing in the towel on this fight.

The bigger concern I have is about market growth. Over the last decade and a half, SRAM has transitioned from a large, high-growth market with numerous competitors to a slower-growing market with fewer players and a much greater reliance on networking/telecom equipment. I do believe that GSI's focus on higher-end products (and its longstanding relationship with Cisco (CSCO)) can drive share gains and better growth, but after the 20-plus years I've been researching chip stocks, I know better than to think that a chip company serving a market many believe to be in decline will have an easy time of it.

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GSI Technology May Be Cheap, But It's Not Easy

Monday, October 28, 2013

The Motley Fool: Wall Street Fully On Board With Boston Scientific

For as many execution issues as Boston Scientific  (NYSE: BSX  ) has had over the years, current management deserves credit for the extent to which they have changed both the reality of the business and Wall Street's perception of it. The company is still behind large rivals in key growth areas like transcathether heart valves and renal denervation, but it is no longer a notable laggard in terms of reported growth.

The only real downside that I see to the story is that expectations have moved to a point where it seems like the Street is giving the company a lot of benefit of the doubt with respect to its execution in 2014. The next 12 months should see meaningful progress across multiple product lines, but it's hard to argue that the shares are notably undervalued after the big move over the past year.

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Saturday, October 26, 2013

Apologies for the lack of posts

I'm sorry for the unannounced "mini-vacation" in writing this week. A variety of circumstances conspired to lead me to take what amounted to a break of a few days. The plan is to be back at it on Monday.

Tuesday, October 22, 2013

Seeking Alpha: Tidewater Already Riding High On Offshore Expectations

Having written about a few energy services companies over the past week or two that appear to be undervalued, it was a little startling to run the numbers on Tidewater (TDW) and find a services company that actually may be overpriced. Tidewater has a lot of positive things going for it, including a recently remodernized fleet, operating exposure to almost every major offshore market, and extensive expected rig deployments in the coming years. Even so, investors have to be prepared to use a higher-than-average multiple (or a higher expected level of EBITDA) to generate a target price that makes these shares look cheap today.

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Tidewater Already Riding High On Offshore Expectations

Seeking Alpha: PICO Requires Patience, But Should Pay

Some stocks demand a little more of their owners, and PICO Holdings (PICO) is one of them. PICO is essentially a holding company where management seeks out undervalued assets, buys them (whole in or in part), and looks to build shareholder value by harvesting cash flow from those assets and/or selling them at a later date.

What makes PICO more challenging than the average stock is that there virtually no analyst coverage and the company's three very different primary businesses (water development, real estate, and oilseed crushing) are not the easiest to value. Although the company's per-share book value performance hasn't been all that impressive in recent years, valuing this stock solely on book value can be a little misleading. Likewise, this company and stock should be leveraged to improving real estate markets in the western U.S., and trailing book value can understate that value.

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PICO Requires Patience, But Should Pay

Monday, October 21, 2013

Seeking Alpha: Unit Corp Doesn't Seem To Get Full Benefit Of The Doubt

Investors typically like "clean" investment stories where there are not a lot of moving parts or unusual combinations of businesses - this is why there used to be something called a "conglomerate discount", though that has largely gone away over the years. I mention this as the opener for the piece because I believe it's an important part of the investment story around Unit Corp (UNT) - a smallish energy company with operations in exploration and production, land-based drilling, and midstream.

Although Unit Corp has done reasonably well over the years, particularly with respect to growing its reserves and shifting its resource base away from gas and toward liquids, the stock doesn't really reflect the multiples you'd expect from its mix of operations. There are certainly some operational risks tied to the company's E&P activities and the U.S. land drilling market is unlikely to show a real recovery until 2015, but I do believe Unit shareholders have reason to expect at least a little more upside in these shares.

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Unit Corp Doesn't Seem To Get Full Benefit Of The Doubt

Seeking Alpha: Nyrstar Far From Health

It's not hard to find a base metal mining or smelting company whose stock is down over the last twelve months. In fact, the bigger challenge is finding a winner. So it's not necessarily an unforgivable black mark against Nyrstar (OTC:NYRSY) (NYR.BR) that the shares have been so weak (down 30%) over the past year.

The bigger problem here is that the company has made a series of poor capital allocation decisions and may well find it next to impossible to cut costs to a point where the returns from the business are attractive again. But there's another side to the story, one that may appeal to more trading-inclined investors. This is one of those rare stories where almost every sell-side analyst covering the stock is negative on it (either rating it a Sell/Underperform or a weak hold), and if zinc prices stage a recovery (and/or the company irons out its operational issues), these shares could bounce.

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Nyrstar Far From Health

Friday, October 18, 2013

The Motley Fool: Intuitive Surgical In The Penalty Box

Surgical robot manufacturer Intuitive Surgical  (NASDAQ: ISRG  ) has committed the cardinal sin for high-multiple growth stocks -- the growth has stopped. Investors need only pull up a chart of Heartware or Edwards Lifesciences to see what happens when the music stops and growth investors can't find enough chairs. Intuitive is going to need to show convincing improvements in system placements and procedure volumes to regain the Street's love. Unfortunately, I think that will take a few quarters at a minimum.

I feel like I am in a strange place with Intuitive. Above $450 a share, where the stock has spent most of the past two years, I thought the shares were overvalued and that almost everything had to go right for the stock to work from those levels. Although I wouldn't go as far as to say that Intuitive has been beaten into a value stock, I do believe that robot-assisted procedures are here to stay and that Intuitive has a major lead on any prospective rivals. Moreover, with growth harder to come by in the device world these days, maybe Intuitive could actually find itself in play if the stock languishes further.

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The Motley Fool: Strong Recon Pushing Stryker's Rebound

Although it wasn't all that long ago that Stryker  (NYSE: SYK  ) traded at a pretty meaningful discount to fair value, Wall Street has come back around to the enduring value of one of the better-run names in the sector. Helping matters greatly is a recovery in major joint reconstruction and early success with margin improvement initiatives. These shares are no longer a tremendous bargain, but they're still priced to generate decent long-term returns for long-term shareholders.

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Thursday, October 17, 2013

Seeking Alpha: Cal Dive Seems To Be Fighting The Tides

Offshore diving and construction specialist Cal Dive (DVR) is an interesting story. The company's low stock price (close to $2 a share) catches an investor's attention, as does the fact that the shares trade below tangible book value and that there is a sizable short interest in the shares. If Cal Dive can drive better vessel utilization and reap the margin improvements that should come with it, Cal Dive is the sort of story that could spike fairly quickly.

The problem is that I'm not sure how likely that is. Recent awards have swollen the backlog to levels not seen in years, but it remains to be seen just how much they will improve utilization and margins - with weak pricing in the market, did Cal Dive have to surrender margins to secure revenue and cash flow? I'm also concerned that the company is fighting a losing battle with technology as remotely operated vehicles (ROVs) owned by Oceaneering (OII), Helix (HLX), and Saipem (SAPMY.PK) take share away from diving, while energy companies move exploration and production activity from the shallow waters and into the deep.

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Cal Dive Seems To Be Fighting The Tides

Seeking Alpha: New Products And Technologies Can Continue To Push Cascade Microtech

Within the world of semiconductor equipment, Cascade Microtech (CSCD) is a tiny player, though it has respectable market share in what management has traditionally viewed as its core markets. New product launches and improving margins have done wonders for the stock (which is up almost 90% over the past 12 months), but I think there could still be more to come.

Cascade has not only been developing new products to broaden its addressable market, but has also been acquiring technologies and products that should help the company transition to the next major developments in chip design. Cascade does not have a great record when it comes to sustainable margins or cash flows, and it does operate in a notoriously cyclical industry. Even so, I don't believe it takes particularly heroic assumptions to suggest that the shares could still have upside.

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New Products And Technologies Can Continue To Push Cascade Microtech

Wednesday, October 16, 2013

The Motley Fool: Abbott A Little Light On Growth, But Margin Improvements Will Unlock Value

Even with sluggish patient volume, reimbursement pushbacks, and the medical device tax, it hasn't been a bad year for the med-tech sector, and there aren't all that many bargains left. Abbott Labs (NYSE: ABT) is certainly not a med-tech pure play (more than 50% of revenue comes from non-device businesses), but it gets grouped into the sector all the same, and this does appear to be one of the few remaining bargains. While Abbott still has work to do on its margins, and more growth in the device business would be very welcome, these shares look like a relative bargain in an increasingly expensive market.

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The Motley Fool: St. Jude Firmly Back In Wall Street's Good Graces

Wall Street can punish stocks quickly, but investors will return to a solid story almost as quickly. It was only about a year ago when St. Jude Medical  (NYSE: STJ  ) shares were hammered on worries that lead failures would severely compromise the company's ICD business and that the company was trailing major rivals like Medtronic  (NYSE: MDT  ) and Johnson & Johnson  (NYSE: JNJ  ) in key growth market opportunities.

Since then, sentiment has come back around in a big way. Not only does the company appear to be gaining some share in its cardiac rhythm management, or CRM, business, but the atrial fibrillation business has also been performing well. Add to that interesting opportunities in heart failure monitoring, neurostim, ablation, renal denervation, transcatheter heart valv
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Seeking Alpha: Vistaprint May Have Sizable Potential, But Also A Great Deal To Prove

If you're a nimble trader, you might like Vistaprint (VPRT). These shares have spent most of the last four years chopping between $30 and $60, as the company's inability to perform on a consistent basis has created sharp sell-offs and subsequent rallies. Now the shares are up again on investor's confidence (or hope) that the company's turnaround/self-improvement efforts will lend stability and consistency to the business, and possibly also on confidence that conditions in Europe have bottomed.

I have a hard time sharing this enthusiasm. Although I believe the company has a leveragable edge in its printing operations, I'm not sure that's a dependable long-term growth driver. Likewise, I'm not confident that Vistaprint will emerge as a strong presence in digital marketing for small businesses. Last and not least, serving the small business community is inherently volatile - a large percentage of businesses fail and the constant "flow" of new and failing businesses won't help the company establish a lasting market presence.

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Vistaprint May Have Sizable Potential, But Also A Great Deal To Prove

Seeking Alpha: RPC Needs Activity To Pick Up To Sustain The Rally

Many investors are already looking ahead to 2014, and it's probably just a matter of weeks before we start seeing the "stocks to own for 2014" pieces coming out. As it pertains to the energy sector, one of the biggest questions is the extent to which drilling activity will pick up in North America and how much of the excess capacity in areas like pressure pumping will get absorbed into the market.

Given how stocks like RPC (RES), Halliburton (HAL), C & J Energy Services (CJES), and Calfrac (CFW.TO) have been behaving of late, it looks investors are expecting a pretty favorable answer. Although the valuation on RPC isn't so great at this point, I do believe it's a stock worthy of further due diligence. Despite overcapacity in pressure pumping, the company has maintained solid margins and returns in capital, due in part to other service offerings like downhole tools and coiled tubing.

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RPC Needs Activity To Pick Up To Sustain The Rally

Seeking Alpha: Summer Infant's Self-Improvement Could Take It A Lot Further

I approach a bullish article on Summer Infant (SUMR) with more than a little trepidation, as I have been burned by writing favorably about this name once before. I previously underestimated the serious operational challenges that the company faced after a series of debt-fueled acquisitions and the resulting missteps with new product introductions, not to mention challenges at major retailers like Toys R Us/Babies R Us and the increasing penetration of private label competition.

Even with the stock up more than 80% over the past year, I do wonder if Summer Infant is back on stronger footing and has further gains ahead of it. Management has elected to discontinue low-margin licensing arrangements, is rationalizing its SKU count, and is broadening its retailer base. What's more, it would seem that conservative estimates for revenue and cash flow (not to mention discount rate) still leave appreciation potential in excess of 40% from today's levels. It has to be noted, though, that Summer Infant is a tiny player in the baby care products market and has yet to demonstrate that it can deliver consistent organic revenue growth, let alone attractive margins or cash flow.

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Summer Infant's Self-Improvement Could Take It A Lot Further

Tuesday, October 15, 2013

The Motley Fool: Johnson & Johnson Continues To Play To Its Strengths

I continue to be impressed with the strength Johnson & Johnson has been showing of late. The only fly in the ointment is that it's not a particularly well-balanced strength, as the company's drug business is really driving the improvements. As ointment-flies go, though, that's really not so bad and the company continues to see respectable performance in key categories like cardiology, orthopedics, and surgery. Johnson & Johnson isn't particularly undervalued today, but investors should nevertheless be able to expect high single-digit to low double-digit returns from this point, which is pretty compelling for investors looking for a quality long-term holding.

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Seeking Alpha: EnerNOC Looks Undervalued, But Mind The Risks

It feels as though almost anything related to the U.S. electricity market never manages to work out quite as well as hoped or advertised. Independent power producers like Calpine (CPN) have had their struggles, as have metering technology companies like Itron (ITRI), and the complex interplay of regulation (environmental and otherwise), utility business models, energy demand, and other factors has made for a pretty challenging operating environment.

So too for EnerNOC (ENOC). On one level, what EnerNOC does should be pretty simple. Utilities don't really want to build new plants, nor do they want to use expensive peaking plants any more than necessary, and there's more "slack" in power demand than commonly realized. As an intermediary between businesses and utilities, EnerNOC can help both sides - utilities can get the demand reduction they need and businesses can get paid to curtail their demand during peak periods. What's more, there's theoretically billions of dollars in helping enterprises better plan and manage their power/efficiency needs.

Of course it's never that simple. Between an ever-changing regulatory environment and the year-to-year uncertainties of auctions within its largest operating region, EnerNOC has had some huge swings in the market. I do believe these shares are undervalued today, and that management's plan to diversify and grow the business will bear fruit, but I also believe that this is likely to remain a risky situation with above-average volatility for the foreseeable future.

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EnerNOC Looks Undervalued, But Mind The Risks

Seeking Alpha: WEX Has The Growth, But How Much Do You Want To Pay For It?

It's getting a little disheartening to write up articles on solid companies with good prospects but demanding/rich valuations. But then that's not exactly a surprise given how strong the markets have been for some time now.

That brings me to WEX (WEX) - the latest entry on the "keep an eye on this if it gets cheaper" list. WEX has a very good business in its fleet card operations, and one where I believe there's still good growth prospects. Likewise, while the growth of virtual card business will bring overall margins down, the growth potential there is worth the margin compression in my opinion. It's really just a question of what you want to pay, as it is challenging (at best) to work up a scenario where WEX really looks like a cheap stock.

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WEX Has The Growth, But How Much Do You Want To Pay For It?

Seeking Alpha: Universal Stainless & Alloy Products Looking For Improving Markets And Mix ASAP

End-markets like aerospace, oil/gas, and power gen may not be back up to full power right now, but investors have already started positioning themselves for a better 2014. With that, the stocks of specialty metal/alloy producers like Allegheny Technologies (ATI) and Carpenter Technology (CRS) have strengthened recently, as have those of more conventional steel producers like Nucor (NUE) and Steel Dynamics (STLD).

The much smaller and less well-covered Universal Stainless & Alloy Products (USAP) has also enjoyed a solid rebound of late, with the shares up about 30% since early August. USAP is well-positioned to benefit from destocking in end-markets like aerospace and oil/gas, but the company also has a potentially powerful earnings driver in a mix that is shifting toward higher-value products. This stock is like many others in that it is not particularly cheap today, but I do like the prospects for better results in the coming years.

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Universal Stainless & Alloy Products Looking For Improving Markets And Mix ASAP

Seeking Alpha: Innospec Looking To The Next Run

Specialty chemical company Innospec (IOSP) has been quite the stock over recent years. Up almost 40% over the last year, over 60% over the past two years, and over 600% over the last five years, Innospec has done a good job of leveraging its solid share in fuel additives and surfactants used in personal care products. Along the way, Innospec has also uncovered a pretty interesting growth opportunity in drilling/oilfield chemicals that could ultimately increase its addressable revenue opportunities by several times.

The only "but" in the story is the valuation. As strong as the markets have been, this is a familiar lament (particularly from value-oriented investors like me) and certainly not exclusive to Innospec. On one hand, I do recognize that this company is well-positioned to out-grow the average specialty chemicals company and continue to generate good margins and returns on capital. On the other hand, you do have to stretch the growth estimates and/or multiples to generate an attractive price target today.

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Innospec Looking To The Next Run

Seeking Alpha: Orchids Paper Products Is Small And Solid, But Not So Cheap

Small, illiquid, and under-followed companies can be above-average alpha generators, as they are often overlooked by analysts and institutional investors or outright disqualified due to their low liquidity and so on. It's not always the case, though, that these small gems are cheap. In the case of Orchids Paper Products (TIS), I believe this is an interesting paper products manufacturer with an opportunity to further diversify its customer base and go up-market. I also believe, though, that despite a lack of sell-side coverage and institutional ownership, it's really not as cheap as I'd hoped it might be.

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Orchids Paper Products Is Small And Solid, But Not So Cheap

Monday, October 14, 2013

Seeking Alpha: There's Still Room For Parker Drilling To Outperform

Parker Drilling (PKD) has been a public company for quite some time, but the company hasn't had what you'd call a consistent record of performance. Energy services, and drilling particular, has always been a volatile, cyclical business, but I would estimate that the company has only earned its cost of capital once or twice over the last decade. Maybe it's not altogether surprising then that the stock has stayed pretty much stuck in a band between $4 and $6 over the past four years.

These shares dipped slightly below that range in April of this year, only to exceed it slightly in July and here again more recently, but I believe these shares may yet be undervalued. Demand for drilling barges in the Gulf of Mexico has picked up, and so too has demand for rental tools (particularly for deepwater activities). At the same time, I think the company's progress with its international operations still has not been fully appreciated by the Street. Although Parker Drilling remains a "show me" story, I wouldn't be surprised if these shares trade between $8 and $9 before too much longer.

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There's Still Room For Parker Drilling To Outperform

Friday, October 11, 2013

Seeking Alpha: Lionbridge Still Not Living Up To Its Potential

It's a big world out there, and keeping up with the local needs and demands of customers is an increasingly significant part of growing global sales. To that end, maybe it goes without saying that the translation and product localization services offered by Lionbridge Technologies (LIOX) are certainly necessary. Likewise, the company's development and testing services allow companies to more efficiently test and improve their mobile, web, and software releases prior to full commercial launch.

That all sounds fine, and Lionbridge boasts some major customers like Microsoft (MSFT), Nokia (NOK), and Google (GOOG). Unfortunately, the company hasn't been able to really carve out a lucrative niche for these services, and the company's revenue growth, margins, and returns on capital have been unimpressive for some time now. Although I do think there is significant untapped potential in this business, investing in the shares today requires a certain degree of faith that management will figure out the right combination to unlock that potential.

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Lionbridge Still Not Living Up To Its Potential

Seeking Alpha: Neenah Paper's Specialty Focus Sets It Apart

If you're going to thrive in the paper and paper-related products industry, you need to find a way to set yourself apart. Low-cost production is one option, but Neenah Paper (NP) follows a strategy broadly similar to Glatfelter (GLT) - focus on specialty niches where customers will pay a premium and where it is possible to carve out market share on factors related to performance and not price. That strategy has already done a lot of good for the stock's valuation and though these shares aren't exactly cheap, the company's focus on growth markets and share, market, and product expansion give it above-average odds of future outperformance.

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Neenah Paper's Specialty Focus Sets It Apart

Seeking Alpha: Even Near A 52-Week High, Investors Expect Little From Home Retail Group

Imagine a combination of Service Merchandise, Best Buy (BBY), and an overgrown ACE Hardware (or shrunken Home Depot (HD)) and you get into the neighborhood of what the UK's Home Retail Group (HMRTY.PK) is about. Combining Argos, a former trading stamp and catalog retailer that has transformed into a multichannel retailer, and Homebase, a home/garden-focused home improvement chain, Home Retail is a share leader in many parts of the UK retail market.

Home Retail Group is not a particularly popular stock in some respects. The shares are up more than 70% this year, but down 10% over the past five years and the shares trade at levels that suggest minimal growth and near-constant erosion to Amazon (AMZN) on an ongoing basis. Although I don't want to suggest it's smooth sailing from here on for Home Retail, I think the company's ability to drive online sales at Argos is encouraging and I believe even modest success from here on could drive worthwhile returns.

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Even Near A 52-Week High, Investors Expect Little From Home Retail Group

Thursday, October 10, 2013

Seeking Alpha: Medifast May Be The Best House On A Scary Street

In principle, weight loss should be an incredible honey pot for pharmaceutical, packaged food, and consumer service companies. In reality, it has proven considerably more difficult for anybody to make consistently good money in the space. Sometimes the problems are largely self-inflicted (Weight Watchers (WTW) certainly comes to mind here), and sometimes the issue is more related to consumer patience/discipline.

Whatever the case, investors trying to profit from the weight loss theme through publicly-traded stocks have faced a treacherous environment. Nutrisystem (NTRI) has been strong this year, but the five-year returns of stocks like Weight Watchers, Nutrisystem, Arena Pharmaceuticals (ARNA), and Vivus (VVUS) haven't been that great relative to the S&P 500.

That brings me to Medifast (MED). Medifast has been quite strong relative to this group of weight loss-centric stocks (and the S&P 500 as well) over the past five years, though the last year hasn't been nearly so good. Although the company's weight control center strategy hasn't worked out so well, the relationship-driven "Take Shape For Life" has, and the company has generated some solid free cash flow of late. Although I have my concerns with the business model and the concept, the valuation doesn't seem demanding to me and this may be the best house on a very scary street.

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Medifast May Be The Best House On A Scary Street

Seeking Alpha: Waiting For Glatfelter To Cool Off

I'm generally a fan of "specialty" paper and fiber companies like Rock-Tenn (RKT), Packaging Corp (PKG), and Glatfelter (GLT), as these companies don't tend to be wildly popular with larger investment banks or the financial media and they can often give patient GARP-type investors good bang for the buck. On the other hand, we're not talking about companies that are developing the next blockbuster cancer drug or the next must-have consumer electronic gadget; overpaying for these companies can lead to painful losses as there often isn't nearly the same level of growth to bail out investors.

I am not particularly bullish on Glatfelter's stock right now, but it is due solely to valuation. While this company's management team has been canny in transitioning from declining/shrinking products and end-markets to other high-value opportunities, the shares seem to be richly valued on the basis of discounted cash flow, EBITDA, and ROE. I do not doubt the possibility that Glatfelter could attract an acquisition bid (as rival Buckeye Technologies (BKI) did) and that an acquirer could pay more than the company's independent stand-alone value, but I'd be careful about making a major new commitment to these shares, as I do think there will be a time when investors can buy them at a more reasonable valuation.

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Waiting For Glatfelter To Cool Off.

Seeking Alpha: Calavo Growers Presents A Tricky Growth/Value Trade-Off

Fresh produce is one of those industries where margins and free cash flow generation are typically poor across the board. Dole Food (DOLE), Chiquita Brands (CQB), and Fresh Del Monte (FDP) all have struggled to generate attractive margins over the long term. Even so, this sector can offer good capital appreciation potential when bought/sold opportunistically.

Calavo Growers (CVGW) is an interesting story right now. Although the shares do look expensive, management has some ambitious plans to diversify the business, further leverage its fresh produce capacity, and consolidate the fresh produce space (at least on a limited basis). The company is also trying to increase the percentage of value-added products it sells, while simultaneously launching an overnight fresh produce/meal business. With those initiatives in place, the possibility certainly exists that Calavo could deliver positive revenue and margin surprises and redeem what otherwise looks like a stretched valuation.

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Calavo Growers Presents A Tricky Growth/Value Trade-Off

Wednesday, October 9, 2013

The Motley Fool: Varian Medical Still The Dominant Player In A Lucrative Market

In some respects, it is a little surprising that Varian Medical (NYSE: VAR  ) is near an all-time high. Revenue and order growth haven't been all that robust lately, rivals like Accuray  (NASDAQ: ARAY  ) and Elekta appear to have some renewed vitality, and reimbursement in the U.S. is still choppy. Then again, we're talking about a company that has more than 50% global installed share in radiation oncology systems, a long record of 20%-plus returns on invested capital, and a well-deserved reputation as a "fast follower" with good technology, strong service, and demonstrated reliability.

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Seeking Alpha: Marlin Business Services Offers Good Growth, But Less Value

Equipment leasing can be a lucrative business, as it allows companies that have access to large pools of attractively-priced of capital to earn strong yields from lessees that lack the same level of access to capital or simply don't wish to deploy it that way. In contrast to large leasing enterprises like General Electric's (GE) GE Capital and CIT Group (CIT) or bank leasing operations like those at Bank of America (BAC) and Wells Fargo (WFC), Marlin Business Services (MRLN) is focused on small-ticket and micro-ticket leasing to smaller businesses on a nationwide business.

Although there are few relevant comps to this business, I argue that Marlin is a pretty well-run leasing company. Returns, margins, and credit metrics have rebounded strongly from the 2008/2009 lows, as have the shares. What's more, I believe the company can benefit from the "reinvestment" of profits into an expanded sales force, consistent low-cost funding from its captive bank, and it's quality service offerings to an underserved market. On the other hand, it is difficult to stretch the expected return models enough to generate a truly attractive fair value at these levels.

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Marlin Business Services Offers Good Growth, But Less Value

Monday, October 7, 2013

Seeking Alpha: Amedisys Still Facing Significant Headwinds

It has been about a year and a half since I last wrote on Amedisys (AMED). In that time, a lot of the bad news I feared (namely ongoing Medicare pressure) materialized, and the company has struggled to offset weak reimbursement and volume with cost cuts. While my bullish call on the stock has technically worked out (the shares are up about 55% since February 7, 2012), the stock really didn't go anywhere before August of this year and I'm not really calling this a successful pick.

Looking ahead, I see Amedisys broadly the same as I did before, only with a higher valuation. I believe the Street still underestimates the long term potential of this business, but that "potential" has to be set against some very real challenges from reimbursement and in executing additional cost cuts. I'm reasonably confident that Amedisys can improve its margins from here, and I think the KKR investment supports that basic idea, but it's hard to really pound the table for a company that has to always stay a step ahead of government price cuts.

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Amedisys Still Facing Significant Headwinds

Seeking Alpha: OM Group An Interesting, Still-Evolving Story

OM Group (OMG) is another one of those "blast from the past" stocks for me. I have owned this own profitably more than once, with multiple opportunities to buy and sell provided largely by the historical volatility in the company's cobalt operations.

Today OM Group is a very different company. The volatile cobalt operations are gone, and the company is focused specialty chemicals and materials company with good global share in specialty batteries and magnets. Better still, OM Group has a clean balance sheet and is still of a size where small strategic acquisitions can make a real difference.

OM Group is not the cheapest stock out there, having risen almost 80% over the past year on Wall Street's enthusiasm for the evolution towards a cobalt-free specialty chemicals/materials company. Although I do believe weakness in Europe (a major market for the magnetic technologies business), electronics, and defense could be challenges for a couple of quarters, and the shares are not cheap enough to be an enthusiastic buy, this is a stock worth some due diligence today and a spot on watch lists.

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OM Group An Interesting, Still-Evolving Story

Seeking Alpha: TriQuint And The Paradox Of #2

No company is ever going to say "we don't want to be #1," but in the weird world of Wall Street, sometimes it's better to invest in the challenger to the throne than the current occupant. To that end, while I like Avago (AVGO) better as a company, TriQuint (TQNT) may yet have better relative upside given the latter's opportunity to gain share in BAW filters as a second-source supplier and improve its much-inferior margin and cash flow production.

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TriQuint And The Paradox Of #2

Seeking Alpha: Cavium Is Great, But So Are The Expectations

The annoying thing about watchlists and "waiting for pullbacks" is that you have to be ready and willing to pull the trigger when they do happen. More often than not, whenever a growth stock pulls back significantly and actually looks like it sports a reasonable valuation, there are numerous analysts out in print harping on whatever bad news drove the stock down in the first place.

That brings me to Cavium (CAVM), a very interesting specialty networking processor company. The market gave investors two cracks at this stock below $25 in just the last six months, and while I would not dismiss or ignore competition from Intel (INTC), Broadcom (BRCM), Freescale (FSL) and others, I believe Cavium is well-positioned to deliver some rather remarkable growth in the coming decade. The only problem is that most of the Street things so too now, and even robust growth expectations barely drive a fair value above today's price.

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Cavium Is Great, But So Are The Expectations

Seeking Alpha: Bill Barrett's Transformation Can Fuel Further Gains

Timing is everything in the market; had I written what I'm about to write in February of this year, I'd have come off looking pretty good. Be that as it may, while missing the 60% move in Bill Barrett (BBG) stings a bit, I have confidence that the company can continue to deliver the sort of results that will move the stock even higher in the coming years. More to the point, the company's ongoing transformation from a high-cost producer of natural gas to a competitive producer of oil with a deep drilling inventory makes this a name to watch.

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Bill Barrett's Transformation Can Fuel Further Gains

Seeking Alpha: PCTEL May Have The Right Combination For The Next Leg

I'm perfectly happy recycling past investment ideas, and PCTEL (PCTI) treated me quite well indeed when I owned the stock about a decade ago. Since that time, though, the company has gone through a significant transformation and is really only the same in name only. Different isn't always better, but I do believe that PCTEL now operates a collection of businesses with interesting growth and margin potential. PCTEL does not appear to be tremendously undervalued today on a cash flow basis, but with almost $3 per share in cash on the balance sheet further acquisitions could improve its growth prospects further.

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PCTEL May Have The Right Combination For The Next Leg

Seeking Alpha: CACI Fighting A Rising Tide

Sell-side support may help a stock, but it certainly isn't an absolute requirement for outperformance. Government IT services specialist CACI International (CACI) isn't well-liked by the Street (just one "Buy" rating against 10 "Holds" and three "Sell" ratings), but the shares have more than doubled the return of the S&P 500 over the past year and sit just 3% below their 52-week high.

Throughout the ups and downs of federal budget cycles, CACI has been remarkably consistent at generating free cash flow, and almost equally consistent in leveraging that cash flow (and debt) to acquire businesses and expand its revenue footprint. Certainly times are getting more challenging for the entire government IT sector, as sequestration, the debt ceiling, and now the government shutdown all loom over the business.

While childishness among U.S. political leaders and necessary cutbacks in government spending do threaten the near-term revenue and free cash flow of CACI, I believe the longer-term outlook is still positive on balance. It may be difficult for CACI to outperform against the optics of sub-1.0 book-to-bills, weaker orders, and lower revenue, but value-oriented investors may want to use the time to dig into this one more thoroughly, as even near a high the shares look undervalued on a long-term cash flow basis.

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CACI Fighting A Rising Tide

Friday, October 4, 2013

Seeking Alpha: Is PMC Sierra The Way To Play Storage And Carrier Spending?

On the surface at least, PMC-Sierra (PMCS) is in some of the right markets. Enterprise storage continues to score well in various CIO surveys of spending priorities, while carriers are stepping up their plans for metro/access network spending and wireless backhaul. Not only are the end-markets looking better in many cases, but PMC-Sierra also enjoys good share and growth prospects from WinPath and 6G/12G transitions.

It takes more than a good top-level story to drive a good stock performance, though, and I'm not completely sold on the value proposition for PMC-Sierra. I do believe storage and carrier spending will accelerate, and the possibility certainly remains that the company can outperform current expectations for 2014 and beyond. While these shares could move as much as 20% if PMC-Sierra's 2014 outlook doesn't worsen and the Street goes back to historical multiples for the company's comp group, the core DCF valuation doesn't suggest quite as much upside.

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Is PMC Sierra The Way To Play Storage And Carrier Spending?

Thursday, October 3, 2013

Seeking Alpha: Basic Energy Services Looks Too Cheap

When I was thinking about writing up Basic Energy Services (BAS) for Seeking Alpha, I was surprised to see how little coverage there has been on the name on this platform. Sure, this is not a large energy services company (with a market cap around $500 million and an enterprise value around $1.3 billion), but it is the third-largest company in the well servicing industry and this is a business that could do substantially better when (or if?) demand and pricing improve in major basins like the Permian.

It's looking like 2013 is going to finish on a fairly sour note, as competition among service firms continues to keep a lid on prices and profits. The next year should be better, though, and even at relatively modest EBITDA multiples this stock looks undervalued. While I still presently prefer to own Cameron (CAM) and Weatherford (WFT), it's not by a wide margin and Basic would be high on my list if I wanted to go more overweight towards service companies.

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Basic Energy Services Looks Too Cheap

Seeking Alpha: Not Much Hope Left For Homex

In the steel cage match between hope and despair in the Mexican home building industry, hope got in a headbutt in back in the middle of April, but despair has pretty much had the industry in a figure four leglock ever since. None of the major publicly-traded builders - Homex (HXM), GEO (CVGFY.PK), Urbi (URBDY.PK) or Ara (CNRFF.PK) - are doing well, and the middle two (GEO and Urbi) have been halted since midsummer after postponing their second quarter releases indefinitely.

There are a range of issues impacting this industry. Not unlike what happened in the U.S., many Mexican homebuilders took on debt thinking the building boom could only continue, but housing starts have plunged over the last five years on a combination of economic concerns and policy changes. More recently, proposed tax changes threaten to shrink the new housing market even further, while government policy appears to clearly favor urban development over the suburban developments the homebuilders have preferred.

While Ara is the largest (by market cap) and healthiest of the big four, Homex is the more familiar and liquid stock in the U.S., and that is the focus of my attention. I do believe that Homex, as a company, will survive, but at this point it seems like equity investors will need a minor miracle for this stock to work out as an investment.

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Not Much Hope Left For Homex

Wednesday, October 2, 2013

Seeking Alpha: Can PowerSecure's Odd Mix Generate Real Cash Flow?

Just on the surface level, PowerSecure (POWR) looks like it should be in some businesses with attractive long-term prospects. The company's distributed generation operations address the dual realities that not as many commercial/industrial sites have backup power as you might imagine and that there are savings to be gained from using on-site generation for peak shaving/demand response. Elsewhere, LED lighting and energy efficiency are almost perennial hot topics, and though utility infrastructure is not necessarily a growth market on its own, transmission & distribution (T&D) work has been lagging long-term demand and PowerSecure is building off of a low base.

Clearly the Street is feeling more cheerful about the name. The shares are up more than 170% over the past year and roughly 300% from the mid-2012 lows, and a small cadre of well-known institutions own worthwhile chunks of the stock (though some of that is for ETFs). While I'm actually more bullish with my numbers than management's own presentation, I'm not quite as bullish as the sell-side at this point - I do believe these shares remain undervalued, but a price target in the $20s might be a bit much right now.

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Can PowerSecure's Odd Mix Generate Real Cash Flow?

Seeking Alpha: A Clean Quarter Does Wonders For Global Payments

It's been a challenging year for Global Payments (GPN) shareholders, as the stock has chopped around between $42 and $50 on a series of "yes, but..." quarters and uncertainties regarding the company's ability to overcome a past security breach, evolving dynamics in the payment industry, and growth challenges overseas.

Maybe this fiscal first quarter will bring closure to some of those questions. Certainly the stock has been on a good run from around the start of September, and the Street seems to be happy with the accelerated share repurchase that was announced with this earnings report. I continue to be more bullish than average on Global Payments, and believe there could still be upside into the mid-$60's on ongoing growth in international markets.

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A Clean Quarter Does Wonders For Global Payments

Seeking Alpha: TearLab Builds Its Bench

The ups and downs of life as a small-cap med-tech company go on for TearLab (TEAR). There's still plenty of controversy regarding this name, not the least of which is a mixed bag of clinical papers on the company's osmolarity system, but strong system bookings certainly haven't done the stock any harm.

Most recently, though, the company announced the appointment of Seph Jensen, a long-time Alcon (part of Novartis (NVS)) veteran, as the company's new President and COO. Not only can Jensen bring experience on the device side of ophthalmology to the company and help the company appropriately build its sales/marketing efforts, but the addition of an industry veteran from a well-known company helps the image of TearLab as well.

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TearLab Builds Its Bench

Seeking Alpha: Tower Group Using Reinsurance For Assurance

When I wrote about the "almost unbelievable" situation at Tower Group (TWGP) on September 18, little did I know the story was about to get even more volatile. Not only did the stock plunge significantly on that day (down almost 30%), but the following days saw the stock fall another 30% before rebounding a bit.

On Tuesday night, the company announced a series of reinsurance agreements that should bring some stability to the situation. While two of the agreements will help the company manage and contain additional losses from its workers comp and multi-peril liability businesses, the others will help ease the company's capital needs for the remainder of the year and also give the company a little more time to work through its loss estimate and reserving issues.

I don't want to jump to the immediate conclusion that these transactions "save the company". There are still serious issues and questions regarding the quality of Tower Group's management and their ability to correctly estimate and price risk. If they do not correct those deficits, all they have done is buy some time. What's more, it's still very difficult to value this company appropriately until the expected earnings report next week, when the company will hopefully provide updated information about the changes to its reserves, its book value position, and its near-term earnings guidance.

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Tower Group Using Reinsurance For Assurance

Tuesday, October 1, 2013

Seeking Alpha: Even With The Debt, WESCO Is Interesting

I'm well aware that not everyone uses discounted cash flow to analyze and value stocks, and that's perfectly fine. Not only is there no such thing as "one right way", but using different methods in tandem can tell you some interesting things about a stock. Along those lines, WESCO (WCC) looks like a pretty interesting value if you compare its EV/EBITDA multiple to other distributors and perhaps even cheap if you go with a PEG-based approach.

The problem I have with earnings/PE approaches, though, is that I happen to think that debt matters. And WESCO has a lot of that. So I'm torn - WESCO has more than enough cash flow and operating income to cover its interest expense and debt service, and the company's debt load is not likely to undermine its leverage to a rebound in commercial construction or utility spending. Given that Wall Street often just ignores debt when there is revenue growth and margin leverage to focus on, I'm not going to rule out the possibility of further gains in WESCO's share price, even though netting out the debt would normally generate an uninspiring fair value target.

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Even With The Debt, WESCO Is Interesting

Seeking Alpha: Will More Good Data From Lexicon Finally Bring In A Partner?

I've owned quite a few biotechs over the years, but Lexicon Pharmaceuticals (LXRX) is maybe one of the most frustrating I've owned. Forget about the company's prior business model of selling gene knockout data to drug developers and its near-death experience about five years ago - the simple fact that the company has some very interesting clinical candidates but can't get much love or attention from prospective partners is plenty frustrating in its own right.

Well, here we go again. Lexicon announced very encouraging data on its lead compound for diabetes ('4211), with the company's proprietary SGLT 1/2 inhibitor showing solid glucose control in diabetes patients with significant renal impairment. I don't really think this study is surprising to Lexicon bulls, but the Street is clearly cheered by the news and I suspect part of that enthusiasm is the hope/expectation that the last real obstacle to a partnership agreement may now be in the past.

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Will More Good Data From Lexicon Finally Bring In A Partner?

Seeking Alpha: Can Dana Do What So Few Parts Companies Can?

It hasn't exactly been difficult to find winning auto parts/components stocks over the past year, but Dana (DAN) has nevertheless enjoyed a good run - up more than 80% and within a hair's breadth of its 52-week high as of this writing. There are definitely a lot of things to like about Dana - it has a pretty good balance sheet (for a parts/components company), it has a good recent history of margin improvements, and a very diverse and balanced business.

The question is whether the good times can continue. There are certainly some near-term headwinds. Expectations for light vehicle (LV), commercial vehicle (CV), and off-highway vehicle volume growth in Europe have come down significantly, and growth in key markets like Brazil is still erratic (recently LVs have been weak, while CVs have been strong). What's more, while Dana appears to be on a good path today, the track record of companies in this industry with respect to sustained long-term free cash flow generation is not at all good. Although I do believe Dana still scores well for quality and relative value, the probable free cash flow path is a little less convincing.

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Can Dana Do What So Few Parts Companies Can?

Seeking Alpha: Allison Transmission A Stand-Out In Multiple Ways

In a vehicle parts/components sector that has seen many stocks rocket up over the past year, Allison Transmission (ALSN) doesn't look so appealing with its stock "only" up about 25% over the past year. That comes in spite of Allison owning exceedingly rare market share in its end markets and still having significant global under-penetration to fuel future revenue growth.

While it is true that Allison's cash flow is complicated by net operating losses carried forward and intangible asset amortization, the base operating margin and cash flow generation are still quite good for the sector. Although Allison is not a huge value today, and the EV/EBTIDA looks expensive without adjustments, upside from energy and on-highway markets could lead to higher expectations and the relative valuation (not to mention quality) makes Allison a name worth following.

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Allison Transmission A Stand-Out In Multiple Ways