Monday, December 30, 2013

The Motley Fool: Alnylam Offers an Exciting Rare Disease Pipeline, but Expectations Are High

"Biotechs are risky" is a standard boilerplate warning when writing about the sector, but some situations are riskier than others. In the case of Alnylam Pharmaceuticals (NASDAQ: ALNY  ) , the sell-side seems so eager to make a bullish case that uncommonly high approval odds are already being applied to the company's early stage pipeline.

There is also still the prospect of competition from Isis Pharmaceuticals (NASDAQ: ISIS  ) and its partner GlaxoSmithKline (NYSE: GSK  ) , as well as other large players like Sanofi (NYSE: SNY  ) , Novo Nordisk (NYSE: NVO  ) , and Baxter (NYSE: BAX  ) . Against that is the possibility that Alnylam is following a path that could closely resemble that of other rare disease biotechs like Genzyme, Alexion (NASDAQ: ALXN  ) , or BioMarin (NASDAQ: BMRN  ) .

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Alnylam Offers an Exciting Rare Disease Pipeline, but Expectations Are High

Seeking Alpha: Silgan's Great, But The Price Isn't

The way I approach the markets, I want to find not only the right companies, but the right companies trading at the right price. I have no qualms at all that Silgan (SLGN) fits into the first bucket. I also don't dispute the idea that the company can, over time, grow its closures business and build its presence in emerging markets. The dent in the can today is valuation - I just cannot find a reasonable basis by which Silgan shares are cheap today.

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Silgan's Great, But The Price Isn't

Seeking Alpha: Clovis Oncology Has An Exciting Pipeline And A Reasonable Valuation

There aren't many cheap biotechs left out there, at least not among the higher-quality ideas. To be sure, arguing that Clovis Oncology (CLVS) is undervalued after a better than 250% rise over the past year is going to strike some as ridiculous. Even so, I believe the company has multiple exciting pipeline opportunities that make this still a name worth investigating further. Although I'm a little concerned that the Street's expectations for clinical success are ahead of industry norms, early-stage data have been quite encouraging.

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Clovis Oncology Has An Exciting Pipeline And A Reasonable Valuation

Seeking Alpha: GAP's Traffic Improving, But Costs And Shareholder Squabbles Need Watching

If you like businesses with significant economic moats and effectively unscalable barriers to entry, Grupo Aeroportuario del Pacifico (PAC) or "GAP" as it is commonly known, could be up your alley. GAP holds 50-year concessions to operate, maintain, and develop 12 airports in the Pacific and Central regions of Mexico, including Guadalajara, Los Cabos, Puerto Vallarta, and Tijuana. With traffic on the way up and the company exploring more ways to increase revenue from parking, duty-free operators, and other merchandise/service providers, the revenue outlook is pretty solid.

There are clouds in the sky, though. First, the company's traffic and costs haven't always been the best, and the company has lagged other Mexican airport operators in terms of returns on capital. There is also a serious ongoing squabble among its shareholder base, with the loser potentially looking to sell a large amount of shares. I do see some value in these shares, but a lot of growth and margin improvement already seems to be factored in by the market.

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GAP's Traffic Improving, But Costs And Shareholder Squabbles Need Watching

Seeking Alpha: Core-Mark Holding Could Be A Core Holding

Investors who are familiar with distribution stories like Sysco (SYY) and United Natural Foods (UNFI) will see a lot of recognizable features in Core-Mark Holding (CORE). This company is still small in terms of market cap, but it is one of only two convenience store distributors to operate on a national scale. Not only could Core-Mark benefit by acquiring more C-store customers (through competitive gains or distributor acquisitions), but growth in the company's value-added services could offer powerful margin leverage in the coming years.

To be sure, this is a low-margin business and it will always be so. But if Core-Mark can close even just a small part of the gap in free cash flow margins between itself and the likes of Sysco or UNFI, the growth in free cash flow and the stock price could be impressive. These shares have already had a good run this year, but still look more than 30% undervalued to me today.

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Core-Mark Holding Could Be A Core Holding

Seeking Alpha: PPC - African Infrastructure Growth, But Not So Much Value

Africa is not only big, but bigger than most Americans can probably easily imagine. China, the U.S., India, and Western Europe would fit within Africa's borders with some room left to spare. It's also a very underdeveloped area, as the best-ranked country in terms of roads is Namibia at #35 and much of the bottom quartile of the rankings is made up of African countries. As a leading cement producer, this means opportunity for South Africa's PPC Limited (OTCPK:PPCYY).

Poor infrastructure has emerged as a key issue in maximizing the value of Africa's mineral and resource exports, to say nothing of facilitating better food production and trade. It remains to be seen whether African countries will invest the needed resources in infrastructure development, but PPC has big plans to benefit not only from improving conditions in South Africa, but underserved markets throughout Africa.

The only fly in the ointment is valuation. Down more than 10% over the past year and about midway between the 52-week high and low, investors are nervous about the company's ability to withstand increasing supply and low utilization in South Africa and continue to invest in the capex needed to expand into other African countries. The shares are not necessarily overpriced today, but they don't appear to offer that extra margin of safety I prefer in emerging market infrastructure plays.

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PPC - African Infrastructure Growth, But Not So Much Value

Friday, December 27, 2013

The Motley Fool: CareFusion Corporation: A Mid-Cap Med-Tech Leader

A lot of attention has historically been paid to CareFusion Corporation (NYSE: CFN  ) in the context of its place in the infusion pump oligopoly with Baxter (NYSE: BAX  ) and Hospira (NYSE: HSP  ) . There is a lot more to this story, though, as the company is a leader in medication dispensing, pre-op skin prep, and respiratory care. The acquisition of Vital Signs from General Electric will add scale in respiratory care and anesthesia, but leaves the company with enough dry powder to continue making additive deals. CareFusion is not a slam-dunk bargain, and there aren't many of those left in med-tech, but it is a name worth consideration today or at least a spot on investor watchlists.

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CareFusion Corporation: A Mid-Cap Med-Tech Leader

The Motley Fool: Can Anything Stop Illumina?

There aren't many companies that have done what Illumina, (NASDAQ: ILMN  ) has done. Illumina does not have monopoly share, but it also doesn't have much to worry about today in terms of competition. I have my doubts as to whether Thermo Fisher Scientific (NYSE: TMO  ) is truly prepared to invest the sort of sums into R&D that it will take to make Life Technologies Corp.  (NASDAQ: LIFE  ) a true neck-and-neck long-term rival, and Oxford Nanopore has struggled to deliver its systems to market on time.

The biggest problem with Illumina is the price. I realize growth investors are famously ambivalent about valuation, but it looks to me as though the market is pricing in over 20% long-term free cash flow growth for Illumina. At that pace, the company would have well over $5 billion in revenue in 2022 and the sort of free cash flow margins that even the best med-tech, pharmaceutical, diagnostics, and life sciences companies struggle to match.

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Can Anything Stop Illumina?

The Motley Fool: Waters Corporation: Picks And Shovels Don't Always Sell Cheap

Life science tools companies like Waters Corporation (NYSE: WAT  ) , Thermo Fisher Scientific (NYSE: TMO  ) , Agilent (NYSE: A  ) , and Danaher (NYSE: DHR  ) are often described as "picks and shovels" plays on pharmaceuticals, biotech, and specialty chemicals, as these companies sell to a wide range of companies in those industries and have far less of the development risk or regulatory burden. True as that may be, these companies don't often trade cheaply and Waters is no exception.

Even though the Street has grown concerned about Waters' organic growth, these shares continue to trade at a double-digit EV/EBITDA multiple, a 50% premium to the company's expected growth over the next few years. Waters should see improving demand from the pharmaceutical space as clients work through R&D restructuring programs and Waters is well-positioned in emerging markets. There is also the possibility that a change in management (the company is searching for a new CEO) could bring with it a new approach to acquisitions. Even with that, though, it would seem that investors are not likely to see double-digit appreciation from today's price level.

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Waters Corporation: Picks And Shovels Don't Always Sell Cheap

Seeking Alpha: With Geely Auto, Opportunity Comes Ugly

Sometimes there are good reasons that a stock looks undervalued. In the case of Geely Automobile Holdings (OTCPK:GELYY), you can take you pick as to why analysts or investors may not like the company. The company has a reputation as a low-end manufacturer of cheap cars with dodgy quality, its tie-up with Volvo doesn't really offer much brand value in China, and its earnings quality is definitely lacking.

All of those are, I believe, fair points to flag. What is just as important is to look at what could go right. The company has been investing considerable resources into R&D and has not only closed the quality gap on its domestic peers, it's closing in on foreign JVs. The company is also actively working to refurbish and refresh its line, with a move toward higher-end brands and models. Geely is also the second-largest exporter of cars from Europe and it is my belief that China is not far removed from following in the footsteps of Japanese and Korean car manufacturers in terms of entering Western European and U.S. markets.

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With Geely Auto, Opportunity Comes Ugly

Seeking Alpha: Another "Wait 'Til Next Year" Year For Key Energy Services

Between weak rig counts and rampant competition in some parts of the well servicing business, 2013 has been a big disappointment. Things have been turning up recently, though, as E&P spending budgets for 2014 are looking promising and investors are counting on pent-up demand leading to better results. Given the demands of horizontal wells, Key Energy Services (KEG) has reason to expect better days.

I was bullish on Basic Energy Services (BAS) back in October, and the stock is up more than 20% since then. At this point, I feel like BAS versus KEG is more of a "pick 'em". I think Key Energy is a better company, but it seems that the Street thinks so too and the valuation is a little higher on these shares. Although Key Energy shares appear to be priced to generate a decent return on moderate expectations for 2014, investors have to be willing to accept the risk that 2014 is another disappointing year in the oilfields of the U.S. and Mexico.

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Another "Wait 'Til Next Year" Year For Key Energy Services

Seeking Alpha: 2014 Looking Like A Big Year For Nektar

Long-term investors in Nektar Therapeutic (NKTR) have had a roller coaster ride over the years, as these shares have traded up and down on for particular products like inhaled insulin and Nektar's PEGylation licensing royalty streams in general. Over the last few years, though, the company has been focusing on not only increasing its share of value in its partnered programs, but using the cash generated by them to support its own proprietary development portfolio.

The next year is looking like a big one for the company, as it should have considerably more clarity about the future of its opioid-induced constipation drug and its metastatic breast cancer drug. Together these drugs encompass about half of the value I see in the shares. While Nektar must deal with the same risks and uncertainties as any biotech, I think the Street may be underpricing these shares. Even with what I think are relatively conservatives estimates for many of the lead programs, I think the shares may be almost 30% undervalued and Nektar does offer a deep pipeline of potential drug candidates.

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2014 Looking Like A Big Year For Nektar

Seeking Alpha: Solid Costs And Expansion Potential For Fortuna Silver

The closest thing to a safe hiding place that investors in precious metal miners can find today is a company with a clean balance sheet and a competitive cost structure. Fortuna Silver (FSM) seems to fit the bill, as the company's cash production costs are on the correct side of industry-wide averages and the company has a net cash position with no particularly demanding capital requirements in the near term.

Even though Fortuna Silver has a better cost position than Pan American Silver (PAAS) and Coeur Mining (CDE), the all-in sustaining cost of more than $20/oz is a little higher than the current spot price of silver. What that suggests to me is that cash flow is likely to get tight if silver prices don't recover, as I am not convinced that the company has the scope to significantly curtail costs from here. I do believe that the stock is trading at an attractive price relative to its NAV, but investors should note that Fortuna's current price would seem to be forecasting silver prices at least 10% lower than today's level.

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Solid Costs And Expansion Potential For Fortuna Silver

Thursday, December 26, 2013

The Motley Fool: WellPoint - Can New Leadership And A Big Acquisition Turn This Laggard Around?

The uncertainties created by the Affordable Care Act (the ACA or "Obamacare") have affected all of the players in the space, leading to a drive toward consolidation and scale through acquisitions for Aetna Inc.  (NYSE: AET  ) , Cigna Corporation (NYSE: CI  ) , and WellPoint, (NYSE: WLP  ) . But not all of WellPoint's problems can be blamed on the ACA. WellPoint struggled operationally under the tenure of now-former CEO Angela Braly and finds itself in need of self-repair at a time when others like UnitedHealth Group (NYSE: UNH  ) can use their cash flow to fund acquisitions outside of the U.S. regulated managed care space.

While WellPoint has been the laggard of the "big four" over the past two and five years, it is not as though the company's performance has been disastrous. UnitedHealth is up about 45% over the last two years and Aetna is up about 55%, while WellPoint's shares have risen about 35%. WellPoint still has meaningful scope to tighten up its operations and drive synergies from its large acquisition of Amerigroup, and while the ACA has added a lot of unknowns to the model, the company's conservatism in these early days is likely to mitigate that risk. I don't see quite the same potential in WellPoint shares as I do from UnitedHealth, but there's still enough here to be worth some consideration.

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The Motley Fool: Baxter International - The Street Is Too Negative On A Proven Champ

Even though it is a large med-tech company with a market cap over $37 billion, Baxter International (NYSE: BAX  ) just doesn't seem to garner all that much investor interest, or at least not as much as peers/rivals like Biogen Idec (NASDAQ: BIIB  ) , Novo Nordisk (NYSE: NVO  ) , CareFusion (NYSE: CFN  ) , and Hospira (NYSE: HSP  ) . Institutions pay attention, though, and investors may be in a good position to benefit from their skepticism. While the Street is wrapped up in trying to guess just how much business Baxter will lose in its hemophilia and specialty pharmaceuticals businesses to competition, it looks as though the market may be missing the forest for the trees.

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The Motley Fool: Thermo Fisher Scientific May Be Hard Pressed To Outperform

To be clear from the outset, I'm a fan of Thermo Fisher Scientific Inc. (NYSE: TMO  ) , and I believe the company's impending acquisition of Life Technologies Corp. (NASDAQ: LIFE  ) will be a transformative deal for a company with a long history of strong M&A moves. With this deal, Thermo Fisher will operate on a scale that the likes of VWR, Merck KGaA, Agilent, and Waters cannot match, and the company will have the resources to challenge companies like Illumina (NASDAQ: ILMN  ) , Becton Dickinson, and Danaher in their growth markets to the extent management wishes to invest.

The question is price. This has been a good year for anything "bio", but Themo Fisher has outperformed almost everybody else in the sector with a 70% jump in the last twelve months. Even with a double-digit multiple to EBITDA and/or strong long-term mid-single digit free cash flow growth, it is hard to call these shares a bargain. Thermo Fisher has a good history of drawing more value than expected from its M&A transactions, but that seems to be the base case assumption here rather than the upside.

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Seeking Alpha: A Cleaner, Tighter Abraxas Petroleum Ready For 2014

Some investors get nervous when they see E&P companies selling acreage, but I suspect that may be due to a basic misunderstanding of how oil and gas companies create value. Acreage and reserves are definitely a critical part of long-term production and profit growth, but "acreage at any cost" has to be tempered with profitability and liquidity. I think Abraxas Petroleum (AXAS) has been making a lot of good decisions in 2013, shoring up a once-stretched balance sheet by selling off non-operating acreage in non-core areas and focusing its attention on its Bakken and Eagle Ford properties where the company has been seeing surprisingly good results given the previously assumed quality of the acreage.

Looking into 2014, Abraxas has a cleaner balance sheet and a tighter operating focus. Large acreage positions in areas like the Niobrara and Duvernay give some optionality to long-term development (or sale) plans, while a focused drilling program for 2014 should support the solid execution that the company has been displaying recently. Valuation has me a little cool on this name right now, but I'd definitely keep an eye on it and reconsider if the stock were to pull back to the $3 area.

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A Cleaner, Tighter Abraxas Petroleum Ready For 2014

Seeking Alpha: Weighing Out The Seattle Genetics Barbell

Looking at Seattle Genetics' (SGEN) value makes me think of a barbell, as the valuation is split between the near-term potential of the approved oncology drug Adcetris in maintenance and salvage indications in Hodgkins, anaplastic large cell, and cutaneous T cell lymphomas, and the longer-term potential of extending Adcetris into front-line therapy and the company's pipeline. As is, I think there's enough value in the existing Adcetris business to support a price in the mid-$20's, but it is clear that the real value lies in the longer-term opportunities.

I think Seattle Genetics deserves to trade in the mid-$40's today, but this could well be a frustrating stock to own. With most of the company's pipeline in early stages of development and partnered programs offering only modest royalties, I suspect investors may get impatient with the years-long wait for data from the front-line ECHELON trials and the Street's fixation on the quarter-to-quarter wobbles in Adcetris sales.

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Weighing Out The Seattle Genetics Barbell

Seeking Alpha: Tekmira's Transition Worth Watching

RNA interference (RNAi) went through a painful stretch of doubt a few years back, but two of the sector's leaders, Alnylam (ALNY) and Isis Pharmaceuticals (ISIS) have come roaring back on the strength of both solid clinical data and a "risk on" bullish biotech market. Tekmira (TKMR), too, has come back into its own as a settlement with Alnylam has cleared away some legal and IP uncertainties and the company repositions itself as a product-focused biotech.

It's difficult to call any RNAi biotech cheap at this point, and I can't help but note that a great deal of valuation is being pinned to early-stage clinical programs, which history shows is often a very dangerous move. Even so, if investors consider what Tekmira could be in line to receive in the form of royalties and from its own pipeline, this shares could still offer some relative value.

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Tekmira's Transition Worth Watching

Seeking Alpha: Is There A Gulf In Gulfmark's Valuation?

Activity in the North Sea and Gulf of Mexico is heating up, and that's a good thing for Gulfmark Offshore (GLF) as it gets about 85% of its revenue from those regions. Gulfmark may not be the biggest fish in the marine vessel sea, but it has a solid position in the high-spec market for vessels in the North Sea and Gulf of Mexico, where utilization and dayrates have been picking up and where expectations call for several years of double-digit growth in rigs.

Gulfmark has outpaced Tidewater (TDW) in the stock market over the last year, but may yet still offer more upside with its newbuild and upgrade programs. I'm giving Gulfmark some premium to its historical multiple, as I believe those newbuilds are going to add value and Southeast Asian operations have bottomed, and doing so suggests double-digit undervaluation for the year to come.

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Is There A Gulf In Gulfmark's Valuation?

Tuesday, December 24, 2013

Seeking Alpha: Down For The Year, Baytex Energy Not Exactly Cheap Yet

This has been an interesting year for Baytex Energy (BTE). This Canadian heavy oil specialist has been doing well with production and drilling, and the company's capital spending guidance for 2014 suggests more profitable growth on the way. At the same time, differentials have been fairly benign and could get better, while increasing use of rail offers a good hedge.

The only real issue is one of valuation. Baytex's qualities are well-known, from its above-average dividend payout (a legacy of its days as a CanRoy) to its high-quality Peace River asset. Even though the shares are down about 10% year-to-date, the shares still aren't all that cheap on an EV/EBITDA basis. Looking at a long-term NAV, though, I think the investment case is stronger for Baytex and that suggests to me that patient investors may yet want to consider this name.

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Down For The Year, Baytex Energy Not Exactly Cheap Yet

Seeking Alpha: Weak Prices, Operational Uncertainties Pressuring Royal Gold

As a primarily precious metals royalty company, Royal Gold (RGLD) would have more than enough trouble just from the freefall in gold prices over the last fifteen months. Making matters worse, a significant percentage of Royal Gold's value and future revenue streams are tied to projects like Thompson Creek's (TC) Mt. Milligan and Barrick Gold's (ABX) Pascua-Lama that are facing some real stress and uncertainty.

With that, Royal Gold is another precious metals stock that is trading well below past valuation norms, currently trading around $45 per share. There is definitely potential downside in these shares, as my estimates of NAV would slide below $40/share at $1,000 gold and below $30 at gold prices of $750/ounce. I'm well aware that metal prices frequently overshoot on both the high and low points of the curve, but the global cost curve of gold production would suggest that a large percentage of supply would disappear below $1,000 and that should be supportive of long-term prices. Although I don't disagree that the challenges at Thompson Creek and Barrick do merit some discount to past multiples (likewise for the current price of gold), I'm starting to think the re-rating on these shares might have gone far enough.

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Weak Prices, Operational Uncertainties Pressuring Royal Gold

Seeking Alpha: Receptos Coming Along Nicely

In making Receptos (RCPT) an Alpha-Rich pick on August 13, I certainly had bullish expectations for the company and the stock. I was attracted by the company's S1P1 modulator technology and the prospects of the lead drug RPC1063 in both multiple sclerosis and ulcerative colitis. Combined with an earlier-stage drug for eosinophilic esophagitis (for which there are no pharmaceutical treatments) and a preclinical oral GLP-1 program, I thought it likely that Receptos would see a higher share price as the MS program matured and the probability of partnership or acquisition grew.

I didn't expect the pace or magnitude of the move that was to come. Receptos shot up almost 100% in just two months. While at least some of that action was likely due to rumors of multiple bidders for the company and the shares did ease off, Receptos still stands about 60% higher today than it did when I first wrote about it. What's more, incremental data from the RADIANCE multiple sclerosis trial will be pushing the drug forward into a Phase III study. Expectations are definitely higher for these shares now, but given the revenue potential of Receptos' pipeline and the possibility of incremental data points over the next year or two, I can see these shares continuing to move higher.

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Receptos Coming Along Nicely

Monday, December 23, 2013

The Motley Fool: Bayer Looks to Nuke Cancer

Cancer patients have seen a wide range of new therapies hit the market in the last few years. From Seattle Genetics antibody drug conjugate approach to immunotherapies from Bristol-Myers, to advanced hormone therapies from Johnson & Johnson (NYSE: JNJ  ) and Medivation (NASDAQ: MDVN  ) . Overall, investors, companies, and patients have seen some major advances in the oncology space. Now Bayer (NASDAQOTH: BAYRY  ) is stepping up to take full control over a potential new blockbuster in prostate cancer, and a new way of attacking cancer altogether.

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Bayer Looks to Nuke Cancer

The Motley Fool: Bristol Myers Squibb and AstraZeneca: A Big Break-Up in the Diabetes Space

Breaking up is supposed to be hard to do, but it happens often enough in the diabetes space. After a disappointing run with multiple drugs and rising FDA demands for new drugs, Bristol-Myers Squibb (NYSE: BMY  ) and AstraZeneca (NYSE: AZN  ) have reached an agreement to end their diabetes joint venture, with AstraZeneca buying out Bristol-Myers' stake. Although there are ways in which this deal can work out positively for AstraZeneca, competition from the likes of Novo Nordisk (NYSE: NVO  ) and Eli Lilly (NYSE: LLY  ) makes this a risky move for AstraZeneca and likely a savvy deal for Bristol-Myers.

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Bristol Myers Squibb and AstraZeneca: A Big Break-Up in the Diabetes Space

Seeking Alpha: Improving Costs, Clean Balance Sheet Not Sparing Pan American Silver

If you mine anything, 2013 was probably a painful year and if you mine precious metals, it was a horror show. The Market Vectors Gold Miners ETF (GDX) is down more than 50% over the past year, the Junior Gold Miners ETF (GDXJ) is down more than 60%, and the Global X Silver Miners ETF (SIL) is down about as much as the GDX (52%). It's not hard to figure out why, as falling prices, rising costs, and debt-laden balance sheets have all contributed to a mass exodus from the space.

In the rush to the door, I think Pan American Silver (PAAS) may have been unfairly trampled. It is absolutely true that PAAS is going to be hard-pressed to attract investor interest if silver prices keep falling, but there is at least the downside protection of an improving cost structure, lower capex, and a clean balance sheet. Trading just under its net asset value, I believe Pan American may be a good place to look for those investors who still want to own a silver miner.

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Improving Costs, Clean Balance Sheet Not Sparing Pan American Silver

Seeking Alpha: Ultra Petroleum And Weighing The Short Versus The Long

Sometimes it's just not enough to have low-cost assets when you're an exploration and production (E&P) company. Although Ultra Petroleum (UPL) has long boasted some of the most economical natural gas assets in the continental United States, the prolonged stretch of sub-$4/mmBtu natural gas prices has made it difficult for the company to get ahead. Comparing Ultra Petroleum's share price performance over the last two years to oil-heavy E&P companies like Oasis (OAS) and Whiting (WLL) or more balanced operators like Noble (NBL) tells the tale - Ultra shares are down 33% while the worst of those three others is still up almost 30%.

Even though gas prices have recently spiked over $4, nobody seems to be willing to assume yet that these prices will persist. That makes assessing the value of Ultra Petroleum an interesting time-dependent exercise. Even with the recent addition of oil-producing Uinta acreage, Ultra's 2014 EBITDA likely won't be high enough to justify buying today, but if you look instead at a long-term NAV based on natural gas prices of $3.50 or higher, a different conclusion presents itself.

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Ultra Petroleum And Weighing The Short Versus The Long

Seeking Alpha: The Inexact Art Of Valuing Exact Sciences's Opportunity

In the year or so since I last looked at Exact Sciences (EXAS), quite a bit has changed and most of it for the better. While top-line data from the company's pivotal study of Cologuard didn't live up to the most bullish hopes, I believe it was more than enough for approval and commercial adoption. The company has also decided to keep its tests in-house (meaning it doesn't have to share profits with testing companies) and laid out a logical marketing strategy to target the most probable high-volume users. Last and not least, the company should have a Medicare coverage decision in hand not too long after approval and in time for the commercial launch.

Even with all of these ostensibly positive developments, the shares have lagged the market over the past year (up about 12%). Some of this can be tied to excessive optimism and some of the normal pessimism that tends to hit med-tech stocks as commercialization looms larger on the horizon. Some can also be tied to concerns about reimbursement and whether the Cologuard data was good enough for real commercial uptake. I'm bullish on Exact Sciences at these levels, though I expect a great deal of debate about the ultimate level of reimbursement and market share for the company.

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The Inexact Art Of Valuing Exact Sciences's Opportunity

Seeking Alpha: A Tough Mix For Kinross Gold Investors

The best thing I think I can say about Kinross Gold (KGC) is that this senior gold miner may be one of the better picks in 2014 for investors who believe gold prices will rebound. For those not so bullish on gold, the combination of high cash costs, limited production growth potential, and elevated political risk may well outweigh the benefits of substantially lower capex spending needs in the next year or two. Although these shares look undervalued today, I don't see enough undervaluation to want to be a buyer with my own money.

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A Tough Mix For Kinross Gold Investors

Seeking Alpha: Alacer Gold Looks Like A Low-Cost Miner That Nobody Wants To Love

The history of Alacer Gold (OTCPK:ALIAF) (ASR.TO) hasn't been a conventional one. Once a junior gold company focused solely on Turkey and known as Anatolia Minerals, Alacer came out of a merger of Anatolia and Avoca Resources in 2011 that added assets in Australia. Recently the company sold its Australian assets and has essentially become Anatolia all over again - a company with a very low-cost producing gold mine in Turkey, but one with very limited conventional production life left.

Alacer does have some worthwhile exploration assets in Turkey (which it owns through a 50/50 joint venture), as well as follow-on expansion potential at the core Copler mine. The real key, though, is moving forward with a plan to process sulfides - a move that would unlock more than 60% of the company's measured and indicated resources. With declining gold prices making investors and analysts exceptionally nervous in general, and an uncertain path forward with the sulfide process making them specifically nervous about Alacer, there could be some real value here.

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Alacer Gold Looks Like A Low-Cost Miner That Nobody Wants To Love

Seeking Alpha: Very Little Seems Expected Of Lianhua Supermarket

How to value publicly-traded companies is a question where you will get multiple answers. I am generally a big fan of discounted cash flow models, while others prefer to look at EBITDA, book value, or PE ratios. I mention this because I think how you approach the valuation question will go a long way toward determining whether you see opportunity in China's Lianhua Supermarket (0980.HK) (OTC:LHUAY).

I don't think anybody will argue that Lianhua is a particularly outstanding retailer, particularly as the market reacted quite favorably to some recent changes in the company's management. I'm not sold on the franchise model for supermarkets over the long run, and the company is going to have to deal with quite a lot of competition in its core markets of Shanghai, Zhejiang, and Jiangsu. If you value Lianhua by its earnings per share, I can agree that there wouldn't seem to be much potential here, but if you look at the cash flow the picture changes quite significantly and Lianhua could yet be undervalued.

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Very Little Seems Expected Of Lianhua Supermarket

Friday, December 20, 2013

Seeking Alpha: High Costs And Leverage Make Yanzhou Coal A Risky Play On Chinese Coal

One way to sum up the general sentiment towards Yanzhou Coal (YZC) is to observe that the shares are down more than 15% over the past month while coal prices in China have increased by around 20%. There are reasons for more optimism about coal prices going into 2014, but Yanzhou's high production costs and high leverage make this a risky and volatile play on higher prices relative to peers like China Shenhua (OTCPK:CSUAY) or China Coal (OTCPK:CCOZY).

I can understand if Yanzhou jumps out as a contrarian play on coal given that generally negative sentiment on the stock. While I won't rule out the possibility that a rising tide of coal prices will lift this boat, I don't see enough undervaluation to compensate for the risks, nor the company's history of taking not-so-shareholder friendly actions.

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High Costs And Leverage Make Yanzhou Coal A Risky Play On Chinese Coal

Seeking Alpha: Could Natural Resource Partners Be Seeing A Bottoming Out In Coal?

Investors in the coal sector have been waiting for a light at the end of the tunnel for some time now, but so far any new lights have just been another oncoming train. Natural Resource Partners (NRP) has held better than most though, as the company's strategy of operating as a royalty-collecting lessor helps mitigate some of the operating issues that miners like Arch Coal (ACI), Cloud Peak (CLD), and Alpha Natural Resources (ANR) have faced. It also has done the stock no harm to see management move in a similar direction to Penn Virginia Resource Partners (PVR) and prioritize diversification away from coal.

Even with diversification, coal royalties are still two-thirds of the revenue base and a key driver of the company's cash flow and distributions. With that, I do wonder if we have seen the worst of times in the U.S. thermal coal and global met coal markets. There are certainly stocks out there with more leverage to higher coal prices (Arch Coal and Cloud Peak certainly among them), but Natural Resource Partners' large distribution and apparent undervaluation do make this a name worth checking out today.

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Could Natural Resource Partners Be Seeing A Bottoming Out In Coal?

Seeking Alpha: TIBCO's Return To License Growth Frustratingly Inconsistent

Wanting to like a stock can be dangerous, as TIBCO (TIBX) is showing once again. TIBCO is a solid player in business optimization and process management, offering companies platforms to integrate and analyze operational data, but the company has been having a difficult time with sales execution and the willingness of larger rivals to compete on price. While the company had done a good job of rallying the troops and getting investors and analysts to buy into a growth recovery story, the company's fourth quarter results and first quarter guidance are a setback.

For better or worse, what the stock needs is consistent license revenue growth in the high single digits or low double digits (growth above the underlying market); margins and cash flow may matter more in the long run, but software stocks trade on revenue growth in the short term. I am optimistic about the company's ability to improve sales execution and shift customer perceptions toward a view that it is a strategic infrastructure, optimization, and management technology company, but the path has been frustratingly inconsistent. I believe these shares are undervalued to a meaningful extent, but I won't pretend that valuation is more important than growth in 2014.

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TIBCO's Return To License Growth Frustratingly Inconsistent

Thursday, December 19, 2013

The Motley Fool: UnitedHealth Ready for the Storm -- and Long-Term Success

There's little doubt that the next couple of years will be "interesting" for UnitedHealth (NYSE: UNH  ) . This giant health insurance, benefits, and health technology company has built its way to the top of the heap through strong management, ongoing M&A, and substantial reinvestment in the business, but the arrival of the Patient Protection and Affordable Care Act (commonly referred to as "Obamacare") is going to significantly change the way health insurance markets operate for UnitedHealth and large peers like WellPoint (NYSE: WLP  ) , Aetna (NYSE: AET  ) , and Cigna (NYSE: CI  ) . While most of the panic has worn off, investors may yet have a worthwhile long-term opportunity in this health care giant.

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UnitedHealth Ready for the Storm -- and Long-Term Success

The Motley Fool: A Pain Specialist Buys a Technology Call Option

Endo Health Solutions (NASDAQ: ENDP  ) has not been shy about using M&A to rebuild its growth prospects in the wake of losing patent coverage on Lidoderm and Opana ER. While prior management didn't do well with its M&A, new management has already made some smart (albeit not necessarily cheap) deals for Paladin Labs and Boca Pharmaceutical. Now management is going for for a different sort of deal -- the acquisition of NuPathe (NASDAQ: PATH  ) is hardly a slam dunk value-adding deal, but the upfront consideration of $105 million excluding deal costs is not a terribly high price to pay for taking a chance.

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A Pain Specialist Buys a Technology Call Option

Seeking Alpha: Bad Weather And Delayed Sales Have Pummeled S&W Seed Company

The market has pretty thoroughly scrubbed out the excess enthusiasm that took S&W Seed Company (SANW) up from less than $5 in August of 2012 to over $11 earlier this year. Not only is S&W some ways away from become the "Monsanto (MON)/DuPont (DD) of alfalfa", but I suspect the rise and fall in the shares can also be tied to the idea of S&W as a stevia play.

S&W certainly disappointed the Street with its fiscal first quarter results, but I think it's worth noting that most of went wrong was outside of the company's control. More to the point, I think there's still a very valid story here revolving around improved margins, better pricing, and the introduction of varieties that will capture more of the potential global alfalfa market. It's going to take longer for that story to unfold, but a revised fair value around $9 still makes this a name worth consideration from aggressive risk-tolerant investors.

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Bad Weather And Delayed Sales Have Pummeled S&W Seed Company

Seeking Alpha: Riverbed Underrated, Or Perpetually Underperforming?

Management at Riverbed Technology (RVBD) has definitely put forth the effort to try to rally the troops and get the sell-side to take a more positive view of the company's growth potential. Given real issues in WAN optimization demand, not to mention a history of blaming "sales execution" for weak quarters and a disappointingly slow integration of Opnet, I can understand why the Street is responding with a "show me" valuation on these shares.

I have my doubts about both the quality of management at Riverbed and the company's overall business plan. While demand for performance optimization and management is not going away, I do have my doubts about how Riverbed will fare against the likes of Cisco (CSCO), F5 (FFIV), and Citrix (CTXS) as the market evolves. If you believe that Riverbed can do what it says it will and deliver high single-digit free cash flow growth, though, these shares do look undervalued enough today to be worth a close look.

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Riverbed Underrated, Or Perpetually Underperforming?

Seeking Alpha: Poor Yields Sap SLC Agricola

Three out of four will have to do. My Alpha-Rich calls to buy South American ag companies Adecoagro (AGRO) and Cresud (CRESY) have both worked out well, with performance well ahead of the S&P 500, and my relative bearishness on BrasilAgro (LND) has likewise worked out with a share price decline of 10%. SLC Agricola (OTCPK:SLCJY) is the exception and the stock that has not performed as I had thought it should. While the 8% return from my call has basically matched the performance of the Bovespa, it lags the performance of the S&P 500 and the performance of the Brazilian-listed shares (SLCE3.SA), which have risen about 18%.

Blaming currency moves and/or skittishness about land values in Brazil is fine to a point, and I do think that the disappointing cotton harvest played a significant role. Management isn't really changing much about their operating philosophy, though the company's decision to lease land instead of buy it does give some reason for pause. I do believe that SLC Agricola remains one of the best-run ag companies in the market and I continue to believe that the shares are undervalued at these levels.

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Poor Yields Sap SLC Agricola

Seeking Alpha: Better Times, Worse Times For Cresud

I'm pretty happy with the calls I made on South American agriculture companies back in July of this year. As I discussed yesterday, Adecoagro (AGRO) is up nearly 20% from my Alpha-Rich call, while BrasilAgro (LND), my least favorite of the four, is down more than 10%. SLC Agricola (OTCPK:SLCJY) has been something of a disappointment, up only about 5%, but my high-risk/high-reward call Cresud (CRESY) laps the field with a better than 40% return from my initial recommendation.

Cresud is in a tricky spot. On one hand, the end may well be in sight for the Kirchner brand of Peronism and that should be good for Argentina's economy. On the other hand, Argentina's economic history generally suggests that a change in government is more of a distinction without a difference. Elsewhere, I believe Cresud's land values are likely understated and that the company is unlikely to see the same bad weather that has hurt yields in recent yields, but farming is inherently unpredictable and the problems in Argentina are restricting the company's growth and value-creation potential.

On balance, Cresud is still undervalued. Its undervaluation is roughly on par with that of Adecoagro, and choosing between the two seems to me to be more a matter of whether you prefer larger upside or smaller downside.

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Better Times, Worse Times For Cresud

Wednesday, December 18, 2013

The Motley Fool: A Sleeping Giant About To Awaken

The going has gotten tough in the orthopedic sector, and many of the major players have responded by getting going. Johnson & Johnson (NYSE: JNJ  ) acquired Synthes to become the largest in trauma and the second-largest in spine, while Stryker (NYSE: SYK  ) acquired MAKO Surgical with an eye toward getting ahead of the evolution of the hip and knee markets. Smith & Nephew has diversified into wound care and arthroscopy, while Biomet is reportedly weighing its options, including a possible IPO. That leaves Zimmer Holdings (NYSE: ZMH  ) as the next major player to move.

Zimmer has already done what many of its rivals have found hard to do -- deliver real growth in a tough major joint recon market. Zimmer's knee sales were up 7% in the latest quarter, while hips were up 2%, and recent introductions like the Persona line have helped extend the company's lead in major joint reconstruction, with more than one-quarter market share (Johnson & Johnson is a few points behind, and Stryker is even further back). With a relatively clean balance sheet and some obvious areas to improve, though, Zimmer could have a trick up its sleeve to invigorate growth.

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Seeking Alpha: China Dongxiang - A Sportswear Company That Doesn't Want To Make Sportswear

When you look overseas you often find some unusual, if not outright strange, stories. China Dongxiang Group (OTC:CDGXY) (3818.HK) may just take the cake, as this sportswear company apparently isn't very interested in being in the sportswear business.

Although China Dongxiang owns a relatively popular sportswear brand in China (Kappa), management no longer seems committed to building the brand. Instead, management likes to take the company's cash and invest in other companies and investment funds, most having little or nothing to do with sportswear. Apart from a small stake in Alibaba, management has shown no particular skill with these investments and it seems unlikely that they are going to pay out the surplus cash as a dividend or reinvest it into the business.

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China Dongxiang - A Sportswear Company That Doesn't Want To Make Sportswear

Seeking Alpha: VeriFone's New Management Says The Right Things, But Execution Is Key

Say what you like about sell-side research, it can at least tell you which way the wind is blowing about a particular stock. When it comes to VeriFone (PAY), analysts seem eager to forgive-and-forget and buy into the story of a strong turnaround in the making. Given how the stock has been performing, I'd say that investors are taking a similar viewpoint.

I still have my doubts. I like the hire the company made for the CEO position, and I've liked what I've heard from him so far in terms of strategy, but two troubling facts remain. First, mobile payment options are changing the electronic payments world. Second, Ingenico (OTCPK:INGIY) as capitalized on VeriFone's missteps to gain share, and has no plans to let up. I've substantially upgraded my growth expectations in light of the new CEO, but even with that I don't see these shares as a must-own on a GARP basis.

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VeriFone's New Management Says The Right Things, But Execution Is Key

Seeking Alpha: Adecoagro's Discount Remains Stubbornly In Place

All things considered, I'm happy with how Adecoagro (AGRO) has done since I made this stock an Alpha-Rich pick back in July. The shares are up about 19% since then, well ahead of the 8% rise in the S&P 500, the nearly 12% rise in the Bovespa, and the 6% rise in the iShares Brazil Index ETF (EWZ). This appreciation has come despite a drought-induced disappointing crop yield for 2012/13 and a sharp slowdown in the rate of appraised land value accretion, as improvements in sugar and ethanol have certainly helped.

Even with a double-digit improvement in Adecoagro's share price, I'm still pegging this stock as a market-beater from here. The nature of growing crops is inherently risky, and the steep price for Argentine CDS shows that there are definitely good reasons to discount the value of Adecoagro's Argentine farmland. Despite that, I believe this company's farmland is still undervalued, I believe the company will continue to grow its profitable sugar and ethanol business, and I'm willing to bet that droughts are not going to occur every year. With that, I believe these shares are still at least 30% undervalued.

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Adecoagro's Discount Remains Stubbornly In Place

Seeking Alpha: Medical Action Coming Along

When I last wrote on Medical Action Industries (MDCI) in April, I thought the shares looked like an interesting idea given management's intention to pare away less profitable products and really focus on improving margins. Since then the shares are up more than 40% and the company has followed through on their stated plan of self-improvement. Between ongoing margin improvement and a debt refinancing that created valuable breathing room, I believe these shares are worth more now and still have around 20% upside.

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Medical Action Coming Along

Seeking Alpha: Taseko Hoping To Offer Its Own Copper Growth Story

One of the reasons I like First Quantum (OTCPK:FQVLF) is that I believe that company is poised to deliver excellent low-cost/high-value growth from its copper mines both already operating and on the drawing board. The same could apply to Taseko (TGB), as this BC-based Canadian miner has an existing mine with expansion capacity and a potential new mining project that could offer excellent cash costs.

Of course there is a "but", and with Taseko it's a triple-but. The first "but" is that a lot of copper mining projects are on the books now and it is going to take a real recovery in global demand to maintain prices in the face of that supply. The second "but" is that the company's current copper mine is on the high end of cash costs. The final "but" is that the company's biggest near-term expansion possibility may be derailed by wrangling over environmental and cultural issues.

Even though Taseko is in solid financial shape, the stock has gotten pummeled like most other mining companies. With that, I see significant potential opportunity here. I believe Taseko could rise 30% just on the basis of its existing mine if copper prices stay at $3/lb, and the upside could be into the $4 range (100%-plus potential) if the expansion, cost, and pricing scenarios all work out.

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Taseko Hoping To Offer Its Own Copper Growth Story

Tuesday, December 17, 2013

The Motley Fool: A Long-Proven Winner Is Being Underestimated

Strong sector performance has led to a lack of quality insurance companies trading at any meaningful discount to fair value. Property catastrophe reinsurance maven RenaissanceRe (NYSE: RNR  ) , or RenRe, looks like a bit of an exception. Of course, exceptions elicit the question, "What's different here?" In the case of RenRe, it looks like investors are concerned about the acknowledged weakness in catastrophe premiums next year, as well as the possibility that the favorable reserve development well has started running dry.

Next year will almost certainly be a down year for catastrophe reinsurance premiums, but I think investors may be acting a little hastily in assuming that RenRe's growth in specialty and Lloyd's can't cushion the blow. Moreover, I think RenRe, along with Arch Capital (NASDAQ: ACGL  ) and Axis Capital (NYSE: AXS  ) , is in on the very highest level in terms of management quality and underwriting skill. Perhaps it's smarter to wait for the insurance sector as a whole to pull back, but RenRe's relative underperformance makes it more interesting to me these days.

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A Long-Proven Winner Is Being Underestimated

Seeking Alpha: Weak Prices Have Lynas Fighting An Undertow

Continuing a theme here of late, Australia's Lynas (OTCQX:LYSDY) is yet another mining company that has been laid low by significant price declines in their core addressed markets. As falling copper, iron, and uranium prices have brought the long-term value of First Quantum (OTCPK:FQVLF), Fortescue (OTCQX:FSUGY), and Paladin Energy (OTCPK:PALAY) into question, the dramatic fall in rare earth oxide prices has likewise crushed Lynas and brought the very viability of the model into question.

A huge (and likely unnecessary) supply squeeze a couple of years ago sent REO prices rocketing, and while investors responded by throwing money at REO mining companies, customers responded equally predictably by increasing recycling and finding alternative materials. Matters are not helped by the fact that the REO market is the murkiest, least transparent segment of metal mining, nor by Lynas's various glitches with production. The significant spread in bear/bull outlooks for Lynas tells me that there could be huge upside to these shares if prices firm and management stays on course, but it also tells me that there's a real risk that Lynas fades away and ultimately sees its assets bought for pennies on the dollar.

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Weak Prices Have Lynas Fighting An Undertow

Seeking Alpha: Can A White Knight Rescue Paladin Energy?

It feels as though every time investors get excited about the possibility of a renaissance for nuclear power and uranium, something happens to undermine that thesis. That has made it difficult for uranium producers like Cameco (CCJ), Denison (DNN), and Paladin Energy (OTCPK:PALAY) (PDN.TO) (PDN.AX).

The Fukushima Daiichi accident has had some profound effects on the nuclear power and uranium industries, prompting several European countries to swear off nuclear power, forcing a re-examination of nuclear power in Japan and the U.S., and sending uranium spot prices plunging from over $70 to $34 a pound. Few uranium producers can operate profitably at these levels, and it has sapped the energy from what was supposed to be a great production growth story for Paladin.

I do believe that Paladin Energy will survive. The company has made progress on cost-cutting and it sounds as though the sale of a minority interest in the Langer Heinrich mine could generate some much-needed cash. The trouble I have, though, is divining the difference between surviving and thriving. While I think logic favors the construction of more nuclear plants, the arguments about nuclear power are never just about logic. What's more, Paladin doesn't have an unlimited amount of time to wait for the market to improve. Uranium/nuclear power bulls may be looking at a bargain here, but that undervaluation carries a lot of risk with it that is beyond management's control.

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Can A White Knight Rescue Paladin Energy?

Seeking Alpha: Vedanta Undervalued, But For Some Valid Reasons

Many investors spend a great deal of time and energy trying to figure out if a stock is cheap, but maybe not always enough time asking why that stock is cheap. Vedanta Resources (OTCPK:VDNRF) (VED.L) is a good case in point. This natural resources company is not only quite diversified, along the same lines as BHP Billiton (BHP) and Rio Tinto (RIO), but it is also focused on one of the major emerging market economies (India). Unfortunately, that focus and reliance upon India has not always been to the company's advantage, and investors have likewise been put off by the company's capital structure, group structure, and the general bearishness hitting the materials/resources sector.

I'm inclined to argue that the discount is a little too extreme. I don't believe India is as great of an opportunity as some, but I do believe common sense will dictate an improving operating environment for the company. Additionally, I believe that Vedanta has made good progress on simplifying its confusing group structure. With a fair value in the neighborhood of GBP 10.00 to 11.00 and a solid dividend, I think this is a name at least worthy of consideration for investors looking to gain exposure to a rebound in the resources sector.

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Vedanta Undervalued, But For Some Valid Reasons

Monday, December 16, 2013

The Motley Fool: New Ideas Offer Hope for Both Heart Failure Patients and Investors

Steep valuations and uncertainty about adoption have created a lot of volatility in the shares of HeartWare International (NASDAQ: HTWR  ) and Thoratec (NASDAQ: THOR  ) , the leading developers of ventricular assist devices or VADs that help seriously ill heart failure patients live longer, better lives. While these companies serve a patient population that is desperately in need of better therapy and can support over $1 billion in revenue, there has always been a bigger market in less seriously ill heart failure patients. Sunshine Heart (NASDAQ: SSH  ) has advanced a very interesting approach for these patients into a pivotal U.S. study, while HeartWare has just recently acquired its own pathway into what could be a multibillion dollar opportunity.

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New Ideas Offer Hope for Both Heart Failure Patients and Investors

Seeking Alpha: Macquarie Infrastructure Once Again Thinking About Growth

Like so many other asset plays underpinned by debt, Macquarie Infrastructure (MIC) ("Macquarie") had a near-death experience in 2009 as the combination of suddenly weaker economic activity and the meltdown of the credit markets choked off both its cash flow and its access to liquidity. The company survived, if by the skin of its teeth, and seems to have emerged as a wiser, or at least more conservative operator. Now the company is once again thinking from a growth point of view, and positioning the company to benefit from a stronger economic recovery.

Certainly there are no guarantees that management's new revised vision will work out. The aviation operations are quite cyclical and the shares have already over 40 times from their crisis lows. Even so, the company is investing in businesses where it looks to have leverageable scale and the valuation does not seem all that demanding. That makes this a worthwhile name to consider, particularly for investors looking for income-oriented plays with the means of offsetting an environment of rising rates.

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Macquarie Infrastructure Once Again Thinking About Growth

Seeking Alpha: Valeant Adds Solta Medical To Its Dermatology Franchise

While it's better to be right, experienced investors know better than to throw away a lucky break. My Alpha-Rich call to buy Solta Medical (SLTM) around $2.30 is not going to go down as one of my favorite picks. While I discussed at some length the risks that ongoing execution issues would keep Solta from reaching its potential, I thought management was close to turning the corner. As it turns out, management found still more corners and this was an exceedingly "meh" pick (down about 8%).

Then along came Valeant (VRX) to save the day.

Valeant and Solta Medical announced on Monday that they had reached an agreement whereby Valeant will acquire the company for $2.92 a share in cash, or a total deal value of $250 million. With this deal, Valeant adds dermatology and aesthetics assets that I believe are better than they appear, while Solta's board gives shareholders an exit strategy with some modicum of grace. Assuming investors who bought around $2.30 sell out at the stated price, they'll get an absolute return of almost 27% and an annualized return of close to 59% - not so bad for a story that was not really developing as I'd hoped.

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Valeant Adds Solta Medical To Its Dermatology Franchise.

Seeking Alpha: Sirocco Isn't The Deal Canada Lithium Investors Want

Tis the season of tougher times for many mining companies. Thompson Creek (TC) is groaning under the threat of not being able to raise enough cash to complete its expansion plans, Mercator Minerals (OTC:MLKKF) sold itself at a fraction of NAV due to severe funding/cash issues, and even the major players like BHP Billiton (BHP) and Rio Tinto (RIO) are pulling back on their capex and exploration budgets. In that regard, then, there's nothing so particularly strange about Canada Lithium (OTCQX:CLQMF) (CLQ.TO) agreeing to a deal with Sirocco Mining (SIM.TO) that buys them time, breathing room, and cash.

Although arguably necessary, this isn't the deal that investors in Canada Lithium are hoping to see. With a hard rock lithium mining asset in Quebec that could produce over 10% of the world's lithium carbonate, the hope here is that a major lithium producer like Rockwood (ROC), FMC (FMC), or Socieded Quimica y Minera (SQM) steps up and acquires Canada Lithium as a means of diversifying its lithium assets. I believe that's still a viable expectation, and although this is a speculative, high-risk opportunity, the de-risking of Canada Lithium's balance sheet and the prospects for profitable near-term production make this a name worth watching.

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Sirocco Isn't The Deal Canada Lithium Investors Want

Seeking Alpha: Execution And Commodity Risks Have First Quantum At An Appealing Price

Mining stocks have generally been varying shades of horrible this year, with major producers like BHP Billiton (BHP), Rio Tinto (RIO), Vale (VALE), Glencore Xstrata, and Vedanta all in the red for the last 12 months. The reasons aren't all that hard to uncover, as commodity prices have softened on weaker Chinese demand and new projects adding supply to the market. So too with First Quantum (OTCPK:FQVLF) (FM.TO), as this growing copper miner has seen its shares retreat as copper prices have fallen more than 10% in the past year.

It's not just falling copper prices hurting First Quantum. The company is looking to deliver copper production growth greater than any other major miner over the next four years, but investors are rightly concerned about the prospect of the company taking on billions more in debt to fund the development of its crown jewel Cobre Panama project. I believe that the market is undervaluing First Quantum's demonstrated ability to deliver on mining projects, and while I cannot and will not wave off the risk of further copper price erosion, I believe investors are getting enough compensation in the stock's valuation today.

For those investors looking to investigate First Quantum more thoroughly, I'd suggest doing so under the Canadian and British tickers (FM.TO and FQM.L, respectively), as the company's U.S. ADRs are of the dreaded "F" variety.

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Execution And Commodity Risks Have First Quantum At An Appealing Price

Seeking Alpha: Mercator Minerals Gets An Early Christmas

It was looking bleak for Mercator Minerals (OTC:MLKKF). Cash production costs for the company's Mineral Park mine in Arizona had been running at double the former estimates and Mercator was not only struggling to find the funds to develop the El Pilar mine, it was losing the struggle to stay in business. While the shares had been trading at a steep discount to the theoretical net asset value of the mine properties, it looked as though the company was going to end up conducting a fire sale of the El Pilar mine (or the company itself) or see the assets ultimately pass to creditors.

And then a funny thing happened. Intergeo MMC, a mining company owned by ONEXIM, the holding company owned by Russian billionaire Mikhail Prokhorov, stepped up to the plate and offered to acquire the company. While Mercator investors are not getting full value for their shares, they're getting a better deal than almost anybody thought was possible, and investors now have an interesting way to play both the public listing of a well-known billionaire's mining company as well as a company with an existing mine that can be improved, a promising mine that is close to "shovel ready", and a third mine that could be a significant source of value down the line.

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Mercator Minerals Gets An Early Christmas

Friday, December 13, 2013

The Motley Fool: Mood-Altering News From the Pharma Space

As a longtime critic of Eli Lilly's (NYSE: LLY  ) R&D and clinical trial management, I can't say I was surprised to see the news that yet another phase 3 drug candidate failed -- this time it was edivoxetine in depression. That stings all the more with recent late-stage failures for drugs targeted at breast cancer, Alzheimer's, and schizophrenia. It also serves to highlight that the depression market is a challenging one, making the recent launch of a new and different depression drug from H. Lundbeck (NASDAQOTH: HLUYY  ) all the more interesting.

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Mood-Altering News From the Pharma Space

Seeking Alpha: Rockwood Is Lean And Mean, But Not Overlooked

After a series of deals, Rockwood Holdings (ROC) management now has the business it says it wanted. In agreeing to sell the ceramics, clay-based additives, and pigments businesses, Rockwood is not only about to be flush with cash, but a company highly focused on and committed to its lithium and surface treatment businesses.

That's perfectly fine with me, as I think there are solid reasons to expect good growth in lithium demand and I believe Rockwood can put surplus capital to work expanding the surface treatment operations through select/precision acquisitions. What's not so fine with me is the valuation. I get that many investors are enamored of what electric vehicle adoption could mean for future lithium demand, but I'm not as excited about an opportunity where I have to pay more than 10x EBITDA just to get today's valuation on the shares.

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Rockwood Is Lean And Mean, But Not Overlooked