Wednesday, November 27, 2013

Seeking Alpha: Harsco Already Getting Some Benefit Of The Doubt

It has been a rough road for Harsco (HSC) over the last two years. While the stock has rebounded some already (up about one-third from its mid-November 2012 lows) on hopes that better days are ahead, the company's sluggish-to-poor revenue, margin, and free cash flow performance since 2009 reflect the challenges in both the global steel market and infrastructure/construction markets.

I do think better days could be on the way. Steel mill utilization in Europe seems to be past its trough and Harsco has been actively turning its focus toward emerging markets. At the same time, management found a good home for the Infrastructure business and has the opportunity to leverage its Industrial and Rail businesses into larger contributors. I have some concerns that the market has been too quick to assume that Harsco's turnaround plans will work (we've heard it before from this company), but I can't argue that a recovery could ultimately take these shares into the $40s down the line.

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Harsco Already Getting Some Benefit Of The Doubt

Seeking Alpha: Compass Diversified Holdings Looks To Build Value The Old-Fashioned Way

Business Development Companies (BDC's) have gotten quite a bit more attention in recent years, due at least in part to the exposure they offer to smaller companies and the potential for outsized distributions. While Compass Diversified Holdings (CODI) isn't a BDC, it's structured as a trust designed to acquire and manage controlling stakes in private companies, it seems "close enough for jazz" to many investors and analysts and the shares have done well lately.

I do believe this is an interesting company. Although valuation is higher than I'd like, I don't see a lot of risk in the company's portfolio, and I believe management's price and value discipline can serve companies well over the long term. Accounting rules make conventional valuation more challenging, and investors should take careful notice of the company's legal structure as a trust, but this is a name worth due diligence today and a spot on investor watchlists.

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Compass Diversified Holdings Looks To Build Value The Old-Fashioned Way

Seeking Alpha: Natural Grocers Still Looks Like An Unnatural Growth Opportunity

In the five or so months since I wrote about Natural Grocers by Vitamin Cottage (NGVC), and suggested that growth-oriented investors should check out this emerging organic/natural foods retailer, the shares have climbed a solid 25%. That's not bad relative to the approximately 10% gain in the S&P 500, the slightly lower gain in Whole Foods (WFM), or the very disappointing performances of The Fresh Market (TFM) and Sprouts (SFM). What's even better is that Natural Grocers' underlying financial performance continues to validate a call that this is a solid growth stock for investors to consider.

Natural Grocers is only about 6% along its path to a 1,100-store national footprint. What's more, the company is still too small to really benefit from better pricing from distributors and leveraging its own private label brands. Plenty can still go wrong along the path towards being a "next Whole Foods", and this is by no means a safe stock, but the growth potential can support a fair value in the neighborhood of $40 to $45 today.

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Natural Grocers Still Looks Like An Unnatural Growth Opportunity

The Motley Fool: Cutting Costs Won't Solve All of Alpha Natural Resources' Problems

In what has remained a stubbornly miserable market for coal stocks, Alpha Natural Resources (NYSE: ANR  ) stands out, perhaps, as one of the less-bad names this year. While coal companies like Arch Coal, Peabody, Cloud Peak, Walter Energy, and James River have seen double-digit stock price declines in the past year (with the last two down nearly 50%), Alpha Natural has somehow squeaked out a tiny gain as of this writing.

To be sure, Alpha Natural's management deserves praise for the cost cuts that they have already achieved and the benefit of the doubt with respect to additional targeted cost cuts for 2014. The problem, though, is that I don't see how any coal company, and particularly a met-coal company like Alpha Natural, can cost-cut its way back to prosperity.

Unless European and Brazilian steel mills get moving again with respect to product and seaborne thermal-coal prices improve, it seems likely to me that the cost cuts will simply keep Alpha Natural in the game. For the stock to work, you must believe that better coal prices are coming soon, or at least that the Street will believe that, and production guidance doesn't seem to be pointing in that direction.

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Cutting Costs Won't Solve All of Alpha Natural Resources' Problems

Seeking Alpha: Heartland Payment's New Ventures Make Sense, But Mind The Multiples

With the markets up as much as they are over the past two years, it's not so surprising that there are a lot of stories out there along the lines of "it's a good company and they have a good plan, but be careful about the valuation".

Payment processing service provider Heartland Payments (HPY) definitely fits that description for me. I believe the company's direct sales force and uncommon transparency give it an edge in the processing space. Likewise, I believe the company's forays into newer businesses like payroll and education-related processing can generate worthwhile returns. I just question whether there's a lot of loose change left in the couch for a stock that is up more than 100% over the past two years and trading a little rich relative to its growth.

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Heartland Payment's New Ventures Make Sense, But Mind The Multiples

Sunday, November 24, 2013

Seeking Alpha: Not Exactly Cheap, Post Holdings Still Has Some Appeal

Cheap stocks aren't always (or even necessarily "often") the best performers, and vice versa. I think that's worth remembering when looking at Post Holdings (POST). Whether looking at EV/EBITDA, EV/revenue, ROE/PBV, or a discounted cash flow model, Post just doesn't seem very cheap and the stock has definitely been a strong performer in a sector that has weakened some in recent months.

I won't be surprised, though, if Post continues to stay fairly popular with the Street. Free of Ralcorp (now part of ConAgra (CAG)), Post is emerging from a prolonged period of benign neglect and management has already shown its willingness to leverage the balance sheet to grow and diversify the business. Competition from Kellogg (K), General Mills (GIS), and ConAgra, not to mention private labels, should not be ignored, but I believe that Post is likely to post growth rates on the upper end of the sector range, and I would expect that the Street will show its usual price insensitivity in the pursuit of that growth.

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Not Exactly Cheap, Post Holdings Still Has Some Appeal

Seeking Alpha: Spectrum Brands Has The FCF Juice, But Valuation Is Trickier

Debt-fueled acquisition stories often have unhappy endings, and Spectrum Brands (SPB) has already gotten itself into trouble before. That was then, though, and the company's mix of consumer products (many of which are positioned as leading value brands) has been generating better free cash flow of late. Add in some leverage to the housing recovery through the acquisition of Stanley Black & Decker's (SWK) HHI segment and this is a more interesting story than it was even just a year ago.

It's not a story without some risks. The company has an especially high debt load, and the ownership/intentions of Harbinger Group (HRG) adds an element of uncertainty not present at companies like Jarden (JAH) or Helen of Troy (HELE). Moreover, I wouldn't rule out the risk of Spectrum's brands getting squeezed between consumers still willing (and able) to pay up for the premium brands and those consumers who turn to even cheaper private label or imported brands. Valuation is likewise a tricky matter, as the shares trade above past norms and only look cheap on a cash flow basis if you ignore the large debt load.

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Spectrum Brands Has The FCF Juice, But Valuation Is Trickier

Thursday, November 21, 2013

Seeking Alpha: AerCap Holdings At A Good Cruising Altitude

With commercial aviation demand continuing to grow quite well in developing markets and the funding environment in developed markets getting better with each quarter, this is a pretty good time to be an aircraft leasing company. It's not so surprising, then, that AerCap Holdings (AER) shares are up more than 65% over the past year.

As for the future, I would argue that AerCap is still looking at a multi-year period of strong operating conditions. AerCap's focus on smaller airlines in developing markets is in tune with where the growth is likely to be, and the company's focus on maintaining a younger fleet and demonstrated skill in managing credit/default risk (as well as selling aircraft to maximize portfolio value) should result in significant cash flows in the coming years. Valuation for leasing companies is trickier and more subjective than for many other types of companies, but I nevertheless maintain that AerCap is still about 10% to 15% undervalued today - not the most appealing bargain out there, but still undervalued and with the potential of a dividend in the coming years.

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AerCap Holdings At A Good Cruising Altitude

Wednesday, November 20, 2013

Seeking Alpha: Insteel Survived The Bad Times And Can Look Forward To Better Days

I do not think I need to rehash what the last few years have been like for companies tied to the non-residential construction sector in the United States. Many companies have seen profits plunge and their long-term viability come into question, but Insteel Industries (IIIN) has not been among them. The decline in non-residential construction has indeed created some real challenges for this leading manufacturer of steel wire reinforcing products, but the company's profits and returns on capital have held up better than most.

Early-bird investors have already done well with these shares, as the stock is up more than 300% from its five-year lows and up nearly 60% over the past 12 months. Despite those significant gains in hand, I believe these shares can go even further as construction activity recovers and the company benefits from the leverage of having acquired its primary competitor back in 2010.

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Insteel Survived The Bad Times And Can Look Forward To Better Days

Seeking Alpha: If Steel Prices Improve, Material Sciences Should Get A Better Multiple

Just how well Material Sciences (MASC) has been doing depends a lot on where you start looking. The stock is up more than 18 times its near-death lows in March of 2009, but the performance is not nearly so impressive over comparisons that stretch back six years or more. Most recently, the stock seems to have stalled out in the face of weak sales growth, minimal sell-side support, and slower uptake of its products than bulls had hoped.

Although I'm not a table-pounding bull on Material Sciences today, it's hard not to want to take a closer look at a stock where more than one-third of the share price can be netted out against cash on the balance sheet, and where despite the challenges in the business the company is still posting positive free cash flow and returns on capital. Should management find the keys for unlocking broader acceptance of its acoustical composites and stainless steel substitutes like ElectroBrite, ViviColor, and Deco Steel, these shares could do well indeed.

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If Steel Prices Improve, Material Sciences Should Get A Better Multiple

Thursday, November 14, 2013

Seeking Alpha: Senomyx Is Getting A Second Wind On Commercialization Potential

I can't stand casinos, so I suppose I use investments like Senomyx (SNMX) to scratch that speculative itch. That's not to say that I don't do the same level of due diligence before, but I go in with open eyes about the likelihood of the story working out. For most of the past three years, it didn't look like this story was going to have a happy ending, as the Street's frustration with an apparent lack of progress in the company's research efforts and licensing relationships took the stock from over $7 to below $2.

Now it looks like the story is heading in the other direction. Although licensing relationships with companies like Nestle (OTC:NSRGY) and Ajinomoto really haven't delivered much and the company is pursuing an uncertain path of commercializing its own compounds, management believes that its key asset (S617) may get FDA approval in the first quarter of 2014 and start appearing in PepsiCo (PEP) products next year.

With management issuing bold guidance for profitability in 2015, these shares may still have room to run and reward those shareholders who've had the patience to hang on this long. In fact, if Pepsi beverages containing S617 can get 20% of the U.S. diet soda market and Senomyx's own commercialization strategies can deliver 5% share in markets like sugar reduction and savory enhancement, upside of more than 80% is possible from here.

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Senomyx Is Getting A Second Wind On Commercialization Potential

Seeking Alpha: With "Progress" Like Lexicon's, Who Needs Failure?

Another quarter is in the books and the biggest (and some might say "only") question around Lexicon Pharmaceuticals (LXRX) remains unanswered. While it has been almost a year and a half since the company first reported Phase II data on its experimental diabetes drug LX4211 ('4211), the company has yet to finalize and announce the partnering agreement that will be key to advancing the drug into pivotal studies. While there is still meaningful potential value in this drug (including the possibility of a differentiated efficacy and safety profile that could significantly boost its peak sales), time and patience are getting shorter.

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With "Progress" Like Lexicon's, Who Needs Failure?

Tuesday, November 12, 2013

Seeking Alpha: November Brings A Cold Gust Of Reality To Hologic

Diagnostics and healthcare imaging specialist Hologic (HOLX) has been an odd duck within my coverage list for some time. The company has a pretty mixed record of creating shareholder value, with a pronounced tendency to overpay for M&A deals and then under-develop the technology it acquires. And yet, investors and analysts have generally stuck by the company, likely afraid to turn their backs on the potential of 3D mammography and molecular diagnostics.

With fiscal fourth quarter results in hand and disappointing guidance for fiscal 2014 laid out in black and white, investors sold the shares off sharply on Tuesday. Even with the reset in expectations and valuation I struggle to see a major mispricing in these shares as there seems to be a piece of bad news to offset almost all of the bullish points. I am not really expecting this latest disappointment to puncture the optimism bubble around Hologic, but I can't get all that excited about a company that appears to need a lot of work to get back to fighting (i.e., "growth") trim.

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November Brings A Cold Gust Of Reality To Hologic

Seeking Alpha: Delays And Soft Guidance Dent HudBay, But There's Still Value Here

I wrote about HudBay (HBM) as an Alpha-Rich investment candidate back in July of this year, and with the stock up more than 20% (against 8% for the S&P 500), it has been a decent call. To be fair, though, picking a beaten-down mining stock in the summer of this year was a good move in general and investors in companies like Teck (TCK), Freeport McMoRan (FCX), and Rio Tinto (RIO) have also done pretty well over that same period.

I continue to believe that HudBay is a well-run and substantially undervalued mining company with high-value assets like Constancia (CP) and Lalor Lake (Lalor) likely to significantly increase production, revenue, and profits in the coming years. Unfortunately, while the stock has worked reasonably well, the company has seen some of the construction and development setbacks that are common to the industry. Higher costs at Lalor, cost overruns at CP, and some shuffling around of capex priorities do lead me to trim my NAV estimate for the stock, but I still believe this is a significantly undervalued stock.

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Delays And Soft Guidance Dent HudBay, But There's Still Value Here

Seeking Alpha: The Amira Nature Foods Story Is Coming Along Nicely

My January 7 call to buy Amira Nature Foods (ANFI) didn't work right away (the shares did dip back below $7 a few times), but patience has paid off as the shares are up more than 90% on a year-to-date basis. I'm sure there will be those investors and readers who will continue to avoid Amira due to the working capital-intensive business model that the company's operations require, but I take the position that the growing share of basmati rice in the world's rice consumption, as well as the company's efforts to push branded sales through sizable retail channels like Costco (COST) in the U.S. and Morrisons (OTC:MRWSY) in the U.K., more than compensate for those concerns.

All of that said, while I'm happy to take a victory lap on a successful call, I'm not necessarily eager to double-down on that pick. Even mid-teens revenue growth and a free cash flow margin in the mid-single digits only gets me to around $15 per share in fair value (up from about $10.50 when I wrote back in January). While I may be too harsh with my discount rate (a 1% reduction would push the fair value to $17.50), this is still a business with commodity, currency, and political risk, to say nothing of execution risk when it comes to the company's up-market retailing plans.

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The Amira Nature Foods Story Is Coming Along Nicely

Seeking Alpha: LHC Group Appears Undervalued, But Times Are Getting Tougher

Having recently written about the significant headwinds pushing against Amedisys (AMED), I now turn to its smaller but more profitable rival LHC Group (LHCG). Like Amedisys, LHC Group is looking at an operating environment dominated by further cuts in Medicare reimbursement. Unlike Amedisys, though, I believe LHC Group may be able to leverage its strong network of hospital joint ventures and benefit from its exposure to rural locations and growing hospice revenue to offset this pressure.

Make no mistake, the next few years will not be easy ones for LHC Group. Although I believe that LHCG is likely to do better than most in terms of admissions and margins, the next couple of years could be quite challenging. I do also believe, though, that LHC Group is in a good position to take advantage of increasing stresses upon this industry and grow faster than many of its peers. These shares do appear to be undervalued today, but investors buying into the story need to appreciate that, outside of a takeover or go-private transaction, this one could take some time to work.

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LHC Group Appears Undervalued, But Times Are Getting Tougher

Seeking Alpha: AtriCure Finally Getting Its Due

It has taken a little longer than I might have liked, but my bullish call on AtriCure (ATRC) has been working out pretty well this year, with the shares up more than 100% over the past year and on a year-to-date basis. I believe the Street has been responding to a strong uptick in the company's growth rate, but I also believe that significant management turnover over the past year or so (including a new CEO, SVP, and VPs of marketing and R&D) has rebuilt confidence that AtriCure may at last have a winning strategy.

With the shares having doubled, "now what?" seems like a fair question. I am hesitant to chase off current shareholders, as though the stock is certainly not as cheap as it once was, expectations still don't appear to incorporate major share gains/positions for AtriCure. These shares do not look all that cheap by DCF or EV/revenue standards, but as investors have seen in cases like Spectranetics (SPNC) and Cardiovascular Systems (CSII), a renewed faith in a small med-tech's growth can take the shares a long way.

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AtriCure Finally Getting Its Due

The Motley Fool: Salix Scores Santarus in a Savvy Deal

Salix Pharmaceuticals (NASDAQ: SLXP  ) has long been a solid, if volatile, specialty pharmaceutical company. Salix has long relied upon its rifamycin-based drug Xifaxan for a significant percentage of its revenue (almost two-thirds as of the most recent quarter), while hoping that other approved products like Apriso and Solesta and pipeline drugs like Relistor (for opiod-induced constipation) could add both growth and diversity.

Now the company has taken a significant step forward in diversifying its revenue base and leveraging its balance sheet. Last week, Salix announced an agreement to acquire Santarus (NASDAQ: SNTS  ) for $2.6 billion in cash. The deal may look expensive at more than seven times estimated 2013 sales, but the collection of assets that Salix is acquiring should deliver above-average growth with strong synergies with Salix's existing business.

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Salix Scores Santarus in a Savvy Deal

Monday, November 11, 2013

Seeking Alpha: Can Core Ops Take Ensign Group Much Higher?

Skilled nursing facility operator Ensign Group (ENSG) is a good example of a good property in what can be a rough neighborhood. Almost any healthcare service provider that has to rely upon Medicare and/or Medicaid will find itself faced with significant challenges from time to time, as the government tries to contain healthcare spending while healthcare costs continue to rise. Through acquisitions and a differentiated decentralized management approach, though, Ensign has been able to show better growth and profitability relative to many other skilled nursing service providers.

Now the question would seem to be whether management can keep up the momentum. The announced separation of Ensign into two new companies (one focused on the skilled nursing/assisted living operations, the other a REIT that will own the facilities) could unlock some value, but it's a one-time opportunity and Ensign will still be dealing with the challenges of rising costs and stingy reimbursement in an environment where demand ought to be growing in the coming years. With that, the shares don't look like the greatest bargain anymore.

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Can Core Ops Take Ensign Group Much Higher?

Friday, November 8, 2013

Seeking Alpha: Microsemi Continues The "Two Steps Forward, One And A Half Back" Dance

Given the industry circumstances, it's hard to get too worked up about yet another iffy-to-weak earnings and guidance report from a semiconductor company this quarter. Even so, Microsemi (MSCC) seems to be a on a slower path to the revenue growth and margin improvements that management has been projecting for some time, and the Street is punishing the stock for its weak guide for the December quarter.

Amidst the disappointment, I think Microsemi's non-defense businesses look pretty solid and I like the acquisition of Symmetricom (SYMM) over the long term. While I seem to get more flack for liking and recommending Microsemi than almost any other stock in my portfolio, I continue to believe that Microsemi is a good investment opportunity for patient investors looking to own a GARP-type story with room to run.

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Microsemi Continues The "Two Steps Forward, One And A Half Back" Dance

Seeking Alpha: Accuray's Orders Continue To Stoke Optimism

Things are definitely not perfect for Accuray (ARAY) yet, but the story continues to improve on a quarter by quarter basis. Assuming that the company can successfully convert orders to installations and revenue, the company is gaining share from Varian (VAR) and Elekta (EKTAY) and rebuilding credibility that this can once again become a med-tech growth story.

Many things can still go wrong, as the company's order level is still below where it needs to be to be a viable business and the long-term margin structure is a significant unknown. This is also still a volatile stock, as investors have seen these shares trade down recently on worries about reimbursement in the radiation oncology market. These shares are up slightly since my last update, but still up more than 60% from the midyear lows. My base-case scenario estimates see these shares about 20% undervalued today, but total upside in the bullish scenario could still be on the order of 50%.

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Accuray's Orders Continue To Stoke Optimism

Thursday, November 7, 2013

Seeking Alpha: PRA Is Great, But Expectations May Be Greater Still

I don't like talking smack about the stock of good companies, and I like it even less when it's a stock that has been exceptionally strong for me as an investor. Even so, while I have relatively few worries about the quality of Portfolio Recovery Associates' (PRAA) business, I'm a little more concerned that sell-side analysts and investors are getting too eager to bid up PRA's potential.

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PRA Is Great, But Expectations May Be Greater Still

Seeking Alpha: Multi-Color Showing Hints Of Stronger Operating Leverage

In the slow-growing label business, operating scale and efficiency is the name of the game and Multi-Color (LABL) showed some encouraging progress in that regard in the company's fiscal second quarter. I've written multiple times on this under-followed small-cap (here, here, and here), and the stock is up a solid 74% over the past year. Although I do believe there is significant room for Multi-Color and rival CCL Industries (CCDBF) to further consolidate the industry and drive better operating margins, expectations have definitely changed. I'm not in a rush to sell today, and I can see a path to a fair value in the low $40s, but this is definitely a situation where I'm starting to think about using protective stops or option-writing strategies to protect my gains.

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Multi-Color Showing Hints Of Stronger Operating Leverage

Seeking Alpha: Ongoing Skepticism Toward Lundbeck Still Leaves An Opportunity

Danish mid-cap CNS drug specialist H Lundbeck (or "Lundbeck") (OTC:HLUYY) (LUN.CO) doesn't get all that much attention in the U.S., even though drugs like Lexapro, Namenda, and Abilify Maintena may be a little more familiar to many readers. What is also familiar here is Lundbeck's story over the next few years - one where revenue and profits will come under serious pressure from branded drugs going generic, and where investors have to look to a relatively narrow list of drugs/drug candidates to offset the losses.

As it stands now, I believe the Street is overestimating the profit pressures that Lundbeck will experience and underestimating the extent to which management can cut costs to compensate. While pipeline risks are real, I believe these shares are still undervalued. These shares are up 40% from my earlier recommendation, but I believe there could be another 20% to go, as well potential positive drivers from better-than-expected pipeline and business developments.

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Ongoing Skepticism Toward Lundbeck Still Leaves An Opportunity

Seeking Alpha: Commercial Vehicle Group's Turnaround Is Slow And Wobbly

Investors in turnaround stories need to have patience, but Commercial Vehicle Group (CVGI) is certainly testing the patience of its shareholders. The company's new CEO needs to be given enough time to let his turnaround plan bear fruit (he's been on the job for less than six months), but it's frustrating as heck to see CVGI go nowhere this year while Cummins (CMI), PACCAR (PCAR), and Allison (ALSN) are all up about 20% and Modine (MOD) and Navistar (NAV) are up more than 60%.

CVGI is currently sitting in the middle of some uncomfortable trends. While Class 8 truck orders have improved, build rates still aren't all that strong and the industry-wide shift away from sleeper cabs is not a positive for the company. Likewise, the company's diversification efforts into end-markets like construction and agriculture is running smack into sluggish trends in those markets as well. I still believe that Commercial Vehicle Group remains undervalued relative to its future prospects, but this is not a stock for investors lacking in patience or those who cannot afford to be wrong about a speculative turnaround pick.

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Commercial Vehicle Group's Turnaround Is Slow And Wobbly

Seeking Alpha: Endo Health Scores A Huge Win

It really is a new Endo Health (ENDP).

I've gone on at length about how past management did their best to try to ruin a once-strong specialty pharmaceutical business, but the announcement of a deal to acquire Paladin Labs (OTC:PLDLF) is a true transformational deal in all of the right ways. Endo still has challenges to deal with, including generic competition for two major products and surgical mesh litigation, but the company seems to be handling the generic issue pretty well and the acquisition of Paladin will significantly expand the company's specialty pharma business and generate substantial tax savings by redomiciling in Ireland.

The only "but" is valuation. While I do believe that Endo Health's guidance on synergies are pretty conservative, the nearly 30% move in the shares is a pretty solid recognition of the value this deal will create. It's tough to buy a stock at an all-time high after such a big move, but the post-deal valuation doesn't seem unreasonable and Endo will still have the financial flexibility to do additional deals to rebuild the pipeline and patented product portfolio.

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Endo Health Scores A Huge Win

Tuesday, November 5, 2013

Seeking Alpha: Endurance Delivers A Solid Result, But There's Plenty Still To Do

Endurance Specialty Holdings (ENH) has long been a pretty solid mid-tier insurance company, with operations split across both insurance and reinsurance operations. The company has had to deal with the same premium, catastrophe, and portfolio investment challenges as everybody else (to the detriment of returns), but has largely avoided the big mistakes.

Even so, the board was not content to just leave well enough alone and the addition of a new CEO earlier this year seems as though it will lead to some extensive changes for Endurance. On the basis of what I believe to be relatively conservative expectations Endurance still looks undervalued, and I think that makes it at least a name worth watching.

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Endurance Delivers A Solid Result, But There's Plenty Still To Do

Seeking Alpha: Can Argo Group Self-Improve Enough?

I try to spend most of my investment research time on companies that I believe are well-run, or at least run better than the Street believes, but I can't deny that there can be significant rewards from investing in inferior companies in the process of getting better. That brings me to Argo Group (AGII). Argo has just not been a particularly good specialty insurance company, as its combined ratio and underwriting profitability have lagged its peer group for most of the past decade.

Management is trying to fix the situation, and with three straight quarters of underwriting profitability there may be some reasons for hope. The Street certainly thinks so, as the shares are up more than 30% over the past year. I do have my doubts as to whether management can hit the goal of 10% returns on equity, but the shares don't really seem overpriced today and there should be further upside if these self-improvement efforts bear more fruit.

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Can Argo Group Self-Improve Enough?

Seeking Alpha: Can A More Realistic Volcano Perform Better?

Following Volcano (VOLC) has been a frustrating exercise for many years. Despite strong clinical data supporting the company's core IVUS and FFR platforms, the company has struggled to live up to its own growth expectations and management has stubbornly thrown good money after bad with M&A and R&D spending on projects with unclear (at best) paths to management's growth expectations.

Maybe this is the turn. Missing top-line expectations for the sixth time in seven quarters isn't exactly good news, and neither is the present state of stent procedure volume. On the other hand, abandoning the OCT, FL-ICE, FL-IVUS boosts the probability that management is now looking at its real business prospects in a more rational way and may become more disciplined with its spending priorities. Unfortunately, while I do not ignore the possibility that Volcano could still attract a bid, I don't see a lot of internal value in these shares.

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Can A More Realistic Volcano Perform Better?

Seeking Alpha: Amidst A Mess, Wright Medical's Extremity Business Is Strong

Orthopedic extremities specialist Wright Medical Group (WMGI) is going through one of those stretches where everything looks like a mess. The company is still navigating through the Augment FDA rejection, while also selling its major joint reconstruction business and trying to improve the sales and efficiency of the extremities operation.

For all of the noise, though, this is a company with growing share in a fast-growing niche of the orthopedics market and one with ongoing improvements in profitability as well. These shares may not pop out immediately as being particularly undervalued, but between the growth, profit improvement, and M&A possibilities, I continue to believe that Wright Medical shares can head higher from here.

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Amidst A Mess, Wright Medical's Extremity Business Is Strong

Monday, November 4, 2013

Seeking Alpha: Euronet's Strong Move Underlines The Business Improvements

By no means is Euronet (EEFT) an unnoticed or unappreciated improvement story. With all three of the company's business segments looking stronger, shares of this financial services company have more than doubled in the past year. There are still several attractive avenues for growth in this company, but investors probably ought to moderate their expectations for further appreciation given the big move and the current valuation.

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Euronet's Strong Move Underlines The Business Improvements

Seeking Alpha: How Long Will Investors Have To Wait For NVE?

While a good idea can be the starting point for a good investment candidate, investors who lose sight of the importance of execution and market development can set themselves up for a nasty shock down the line. NVE (NVEC) would seem to be on to something potentially big with its spintronics technology, but the company's product sales have gone nowhere fast for the last five years and the stock has been largely stuck between $40 and $60 since May of 2009.

There are certainly intriguing applications and potential markets for spintronics - electronic devices are getting ever-smaller and that process requires more and more advanced technologies (and/or materials). NVE's technology could certainly find key positions in markets like factory automation, healthcare, automobiles, and telecom, but the markets have been frustratingly slow to develop. NVE doesn't look notably cheap today unless you are willing to make some bullish estimates that the spintronics market will accelerate notably (and relatively quickly), but NVE is a cash-rich, high-margin company with almost a decade of free cash flow generation behind it. NVE may end up as a company with a great future in its past, but today's shareholders aren't exactly suffering while the company tries to develop a commercial market for this technology.

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How Long Will Investors Have To Wait For NVE?

Seeking Alpha: Salix Still Offers Both Potential Reward And Risk

When I last wrote on Salix Pharmaceuticals (SLXP) in the fall of 2012, I thought the shares of this specialty pharmaceutical company held solid potential for those investors who could accept the risks that went with the story. Since then, the shares are up about 60% - a pretty solid return even when considering the bull market in healthcare names.

I don't believe that these shares have hit their ceiling yet. Management has shown its ability to identify, develop, and/or acquire promising products in the gastrointestinal field. Investors can also look forward to upcoming data on Xifaxan in the treatment of IBS-D and an FDA panel meeting tied to the company's appeal of a complete response letter for a subcutaneous form of Relistor to treat opiod-induced constipation. I consider both of these events to be high-risk/high-reward situations, but I believe there's still a case to be made for Salix delivering long-term cash flow growth of 20%-plus, and I believe these shares remain undervalued on that basis.

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Salix Still Offers Both Potential Reward And Risk