Wednesday, February 18, 2015

Further bad news

I'm sorry to report that my wife's condition has continued to worsen, with extensive metastases to the liver and lungs. While neither she nor the oncologists are giving up, and she will be starting a new chemo regimen very soon, there is not a lot of cause for optimism.

I will probably write on a here-and-there basis, as it can be a welcome respite from this and relaxing in its own way, but I can't imagine I'll be writing on a reliable/consistent basis.

Seeking Alpha: Headwaters Sending Better Results Downstream

Still not all that widely followed, Headwaters (NYSE:HW) has strung together an impressive series of better than expected quarterly results. This has come despite the failure of new residential or commercial construction to really accelerate into the full-blown dramatic recovery that many have been expecting. With leverage to improving construction and growing market share for its products, not to mention ample financial leverage, Headwaters should still be looking at several years of above-average growth.

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Headwaters Sending Better Results Downstream

Thursday, February 12, 2015

Seeking Alpha: Advanced Energy Industries Powering Up

About nine months ago, I thought that Advanced Energy Industries (NASDAQ:AEIS) had been sold down to an interesting value level as the potential of the company's precision power supply business was being overshadowed by growing worries about the solar inverter business. Since then, AEIS has seen significant management turnover and improving demand from semi customers and announced its intention to find new options for the inverter business; all of which has helped fuel a roughly 60% rise in the shares.

Valuation on AEIS shares isn't so compelling now, though there is near-term upside potential from front-end semiconductor equipment demand (particularly for advanced architectures) and longer-term potential from the company's diversification into adjacent end markets and product markets like high-voltage. Finding an honorable exit from the inverter business would be an incremental positive as well.

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Advanced Energy Industries Powering Up

Wednesday, February 11, 2015

Seeking Alpha: Natural Grocers' Comps Recovering, But Can It Last?

Natural Grocers By Vitamin Cottage (NYSE:NGVC) ("Natural Grocers") had a rough time of it in 2014 as competition, particularly from Trader Joe's, had a very real impact on same-store growth and investors' previously boundless enthusiasm for natural/organic finally found some boundaries.

The underlying story at Natural Grocers hasn't changed all that much, though, and the company has still penetrated less than 10% of its theoretical footprint. Investors can rightly question whether shoppers will continue to flock to stores like Natural Grocers, Whole Foods (NASDAQ:WFM), and Sprouts (NASDAQ:SFM), particularly as conventional grocery stores/supermarkets increase their organic/natural product selections, but the same can be said for many aspirational/luxury goods (nobody *needs* a Coach bag or Starbucks latte). If Natural Grocers can continue to create a shopping experience that resonates with its core target market, I don't see the shares as unreasonably expensive.

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Natural Grocers' Comps Recovering, But Can It Last?

Seeking Alpha: Check Point Software Still On Point

I've liked Check Point Software (NASDAQ:CHKP) as a good risk-reward play on the IT security space for some time and the stock worked reasonably well since my last article. The roughly 20% appreciation since then absolutely pales next to the performances of other security firms like Palo Alto (NYSE:PANW) and Imperva (NYSE:IMPV) (which have more than doubled), as well as Fortinet (NASDAQ:FTNT) and FireEye (NASDAQ:FEYE), but relative to old school tech stocks like EMC (NYSE:EMC), Cisco (NASDAQ:CSCO), and Oracle (NYSE:ORCL), the comparison is more favorable to Check Point.

I continue to like Check Point as a Goldilocks tech stock, but I don't think it is significantly undervalued today. Mid-single digit long-term growth supports a fair value close to $80, but Check Point doesn't seem structured to generate the sort of absolute revenue growth or relative share growth that would support major reratings.

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Check Point Software Still On Point

Seeking Alpha: Carpenter Technology Feeling The Pain Before The Gain

Specialty alloy producers haven't had a great run over the last year, with Carpenter Technology (NYSE:CRS) down about 30%, Universal Stainless & Alloy (NASDAQ:USAP) and Precision Castparts (NYSE:PCP) down more than 20%, and Allegheny Technologies (NYSE:ATI) up 3% (but still lagging the S&P 500). Inventory destocking of higher-value components has played a role, but so have concerns about the near-term future of oil/gas spending and nickel prices.

Carpenter has committed some unforced errors along the way, including unplanned outages and higher than expected costs at the new Athens facility, and those have been exacerbated by what sometimes feels like "death by a thousand papercuts" serial downward guidance revisions. On a more positive note, the Athens facility still holds the potential to significantly improve the company's premium alloy capacity and its peak margins and aircraft/aircraft engine manufacturers ought to be busy for many years delivering on their orders books.

The extent to which Carpenter looks like a good investment idea today really rests with your conviction that the company will start participating in the commercial aerospace ramp over the next few years and that this process will restore the company's margins and asset efficiency to prior levels. I'm more bullish on Universal Stainless, but I think stocks like Carpenter Technology and Alcoa (NYSE:AA) will be higher in a few years' time on the back of commercial aviation and an eventual oil/gas recovery.

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Carpenter Technology Feeling The Pain Before The Gain

Tuesday, February 10, 2015

Seeking Alpha: ABB Facing Power Outages In Multiple End Markets

The conditions for ABB (NYSE:ABB) today are different than those for other industrial conglomerates like Eaton (NYSE:ETN), Honeywell (NYSE:HON), 3M (NYSE:MMM) and Emerson (NYSE:EMR). On the negative side, ABB has sizable exposure to markets with weak (or very weak) near-term outlooks, including oil/gas, mining, and utilities and the company's Power operations still need work. On the positive side, ABB has more balance sheet flexibility than most peers, leverage to long-term growth in industrial automation, and at least the potential to improve its margins in the coming years.

There are still risks that ABB's expectations are too high and the company will be forced to guide down (both for the short term and long term) in 2015. Likewise, many companies talk about improving their cost structure, but many also fail to do so. All that said, ABB shares seem to be excessively discounted today and while I think there may be less near-term risk with Eaton or Honeywell, I still like these shares as an aggressive/risky long-term growth recovery play.

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ABB Facing Power Outages In Multiple End Markets

Seeking Alpha: Multi-Color Showing Better Margins With Improving Growth

Making labels for consumer products like dish detergent, food, and beverages is not exactly a sexy business, but Multi-Color (NASDAQ:LABL) continues to operate its plan to good effect. Although Multi-Color isn't widely followed on the Street and doesn't have huge liquidity, investors in this combo story of steady organic growth, serial acquisitions, and margin leverage have done well over the past year.

Better still, organic growth seems to be picking up and margins continue to develop nicely and the company is just starting to tap into incremental growth opportunities like healthcare labels. I don't think these shares are particularly cheap at this point, but I'm not in any hurry to sell out of a position where the underlying story appears to be getting better.

Read the full article here:
Multi-Color Showing Better Margins With Improving Growth

Seeking Alpha: Alaska Air Thriving In More Crowded Skies

Alaska Air Group (NYSE:ALK) was supposed to get walloped in 2014, as Delta Air Lines (NYSE:DAL) aggressively expanded its Seattle-based operations, pressuring revenue and margins for the smaller regional carrier that relies upon Seattle as a major hub. As it happened, though, Alaska Air had a pretty good year from a revenue, margin, and stock performance perspective as careful cost management, revenue enhancement, and competitive efforts paid off.

It's tough for me to call Alaska Air a great bargain today. I think it is an exceptionally well-run airline and I like the prospects for higher payouts as the company returns surplus cash to shareholders. While the shares do seem undervalued on the basis of next year's projected EBITDAR, it takes an averaged double-digit FCF margin over the next decade to support a low-to-mid $70's fair value by discounted cash flow and that's more aggressive than I'm comfortable with from an airline. That said, investors don't seem to often buy or sell airlines on the basis of long-term cash flow, so more aggressive investors may still find a good trading opportunity here.

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Alaska Air Thriving In More Crowded Skies

Seeking Alpha: The Wait Drags On With Ultratech

If FinFET-related annealing orders eventually do appear in 2015 and the 3D advanced packaging opportunity develops as management hopes, Ultratech (NASDAQ:UTEK) will likely look like a study on the rewards of patience. If the trends seen throughout 2014 continue, it's going to be an experience in death by hundreds of papercuts.

Ultratech still isn't seeing the orders for its LSA systems that it needs to generate attractive margin leverage and get Wall Street enthusiastic about the shares. 2015 is shaping up as a make-or-break year, but then 2014 was supposed to be that way and leading chip producers like Taiwan Semiconductor (NYSE:TSM), Intel (NASDAQ:INTC), and Samsung delayed orders in response to FinFET yield issues. While a strong LSA cycle and growing interest in the company's advanced packaging and metrology products could eventually support a much higher share price, the high teens to low $20's is probably as good as it gets until/unless those orders start to show up in the company's books.

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The Wait Drags On With Ultratech

Monday, February 9, 2015

Seeking Alpha: Although Undervalued, Lundbeck Likely Stuck Until New Drugs Start Ramping

H. Lundbeck A/S (OTCPK:HLUYY) (or "Lundbeck") is running out of time to convince investors that its new drug launches will meaningfully offset sales erosion due to patent expirations and competitive product category launches. I continue to believe that the potential is here for Lundbeck to be a much more interesting company (and a better-performing stock), but absent better execution that potential is all but worthless.

This will likely be a year defined by how well management addresses the challenges with Brintellix, Abilify Maintena and Northera. The data are there to support differentiation and sizable sales potential, but FDA cooperation and sales execution is critical. The company's choice of new CEO will also be telling and represents another opportunity to demonstrate an attractive long-term vision for the company. While I believe the shares are more than 20% below fair value today, a better sales trajectory is the real driver for these shares.

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Although Undervalued, Lundbeck Likely Stuck Until New Drugs Start Ramping

Seeking Alpha: Weatherford Fixing Its Credibility Gap, But Now Market Conditions Weigh Heavily

Things were going pretty well for Weatherford (NYSE:WFT) six months ago. Management was making real progress with its efforts to streamline the business and reduce costs and talk of substantial free cash flow generation was just what Wall Street wanted to hear.

And then it all went south. Management communication issues over its free cash flow guidance brought back bad memories for a lot of investors and the steep fall in oil prices has gutted E&P budgets for 2015 and expectations for earnings in the oil services sector.

I continue to believe that Weatherford is a legitimate self-improvement story. While the sharp decline in oil prices will lengthen the timeline to meaningful cash flow, management has continued to make good decisions with respect to the company's cost base and business mix.

Please read the full article here:
Weatherford Fixing Its Credibility Gap, But Now Market Conditions Weigh Heavily

Seeking Alpha: Has All The Bad News Been Baked Into RPC's Price?

Superior quality can help a company through hard times, and energy services provider RPC (NYSE:RES) has held up better than companies like Basic Energy (NYSE:BAS), Key Energy (NYSE:KEG), and C&J Energy Services (NYSE:CJES), but a 40% drop in six months is still harsh. What's more, I think it's anybody's guess as to whether estimates have gone low enough to accurately reflect this downturn in the cycle - even RPC's management doesn't believe it has much visibility as to the depth or duration of the downturn.

I expect that RPC will emerge from this downturn in good condition and maintain its reputation as one of the highest-quality small cap service providers. While RPC shares should do better if/when the market believes it has overcorrected (and/or if the company's Permian-centric pressure pumping business holds up better than expected), but I don't expect RPC to offer the same sort of leverage to improving sentiment as Basic Energy or Key Energy would. On the other hand, I am confident in RPC's ability to withstand a prolonged downturn while its more debt-laden peers may not.

Continue here for the full article:
Has All The Bad News Been Baked Into RPC's Price?

Seeking Alpha: Realistic Expectations And Improving Performance At Eaton

Based on fourth quarter results, I would argue that Eaton (NYSE:ETN) belongs on that list of diversified industrials that are doing pretty well given the circumstances (a list that includes 3M (NYSE:MMM), Honeywell (NYSE:HON), and arguably Parker-Hannifin (NYSE:PH)). The company's exposure to off-road vehicles and oil/gas will be liabilities in 2015, but exposure to aerospace and vehicles should offset it and Eaton's leverage to construction should also be a net positive.

I don't expect to find large, well-covered stocks like Eaton trading at major discounts to fair value and I don't believe that is the case here. That said, I like Eaton's prospects for "self-help" through margin leverage and asset leverage and I think these shares are slightly undervalued today.

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Realistic Expectations And Improving Performance At Eaton

Friday, February 6, 2015

A Personal Life Update

I'm sorry to say that the news is not good. My wife is experiencing further metastases, suggesting (albeit not proving) that her initial chemotherapy did little or nothing to stop her disease. She's not giving up and she is in generally good health, but a whole new round of treatments is around the corner.

I'll be working/writing as circumstances allow.

Thursday, February 5, 2015

Seeking Alpha: Lenovo's Strong Operating Results Likely Won't Quiet The Doubters Yet

I expect that for any sufficiently large company, there will inevitably be analysts and investors who are negative on the stock. In the case of Lenovo (OTCPK:LNVGY), though, I continue to be surprised at the conviction expressed by the bears that Lenovo will fail to successfully integrate and improve the x86 server business it acquired from IBM (NYSE:IBM) and the Motorola phone operations it acquired from Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and somehow lose its touch in the PC business along the way.

Skepticism is fine; healthy, even. In the case of Lenovo, I think it also points to an ongoing opportunity for the shares to perform. I believe that Lenovo can continue to leverage its leading position in PCs and use its extensive operating leverage to reduce costs in the IBM server business. I'm less certain that Lenovo can break out from the pack and become a #3 smartphone player with enough leverage to seriously threaten Samsung (OTC:SSNLF) or Apple (NASDAQ:AAPL), but I nevertheless do believe that the company's mobile operations are a long-term growth opportunity.

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Lenovo's Strong Operating Results Likely Won't Quiet The Doubters Yet

Seeking Alpha: Universal Stainless & Alloy Products Looking To Ride An Improving Mix And Strong Aerospace

I thought Universal Stainless & Alloy Products (NASDAQ:USAP) shares looked pricey in April of 2014. While the shares have lost about a quarter of their value since then, the truth is that virtually every specialty alloy producer this side of Outokumpu saw a big decline over that stretch.

While the shares were selling off the company was making progress. Full-year revenue rose 14% for 2014 and gross margin more than doubled. USAP still has work to do in growing the high-ASP vacuum induction melted (or VIM) product business, but even after adjusting for the slower VIM ramp and the potential impact of lower oil prices and weaker off-highway vehicle demand, these shares are looking quite a bit more interesting at today's price.

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Universal Stainless & Alloy Products Looking To Ride An Improving Mix And Strong Aerospace

Wednesday, February 4, 2015

Seeking Alpha: Steel Dynamics May Have Underappreciated Growth Qualities

It remains a bad time to be a steel stock, as most of the major North American and global names are within 10% or so of their 52-week lows. The global market remains oversupplied in most types of steel, with sluggish non-residential construction demand leading the way, while lower input costs have allowed non-integrated mills to continue churning out product.

Like Nucor (NYSE:NUE), Steel Dynamics (NASDAQ:STLD) can only do so much to stand apart from its peers. Steel Dynamics has an enviable record of generating well above-average EBITDA per ton and is well positioned to take advantage of growth opportunities, but concerns about steel prices, end market demand, and import competition linger. The shares do seem undervalued, particularly taking into account improvements in mix and cost structure, but calling any steel (or any commodity) company a "bargain" has to come with the warning that estimates could easily head lower and take notions of "fair value" with them.

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Steel Dynamics May Have Underappreciated Growth Qualities

Seeking Alpha: New Headwinds For Nucor, But Still Some Value

Steel continues to be a tough place to make money as an investor on the long side, as well-run producers like Nucor (NYSE:NUE), Steel Dynamics (NASDAQ:STLD), and ArcelorMittal (NYSE:MT) have seen share price movements of -9%, +4%, and -41% over the past year. While input cost inflation has eased, the supply/demand balance has kept a lid on price realizations as major markets like non-residential construction and autos can't absorb enough steel to push up capacity utilization.

In some respects, conditions are arguably more challenging for Nucor now than six months ago. In addition to weak oil prices reducing demand in the energy end market, foreign currency markets now make the U.S. market an even more attractive destination for imports. I do like Nucor's leverage to the improving non-residential construction market, as well as the company's internal margin improvement initiatives. I think Nucor's shares are trading below what would normally be fair value for this point in the cycle, but experienced commodity company investors know that these stocks can stay weak for extended periods and trade with above-average volatility.

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New Headwinds For Nucor, But Still Some Value

Seeking Alpha: This Atlas Doesn't Shrug, But Atlas Copco Still Not Cheap

Like 3M (NYSE:MMM), Atlas Copco (OTCPK:ATLKY) is one of my favorite industrial companies and one where valuation is a real concern to me. Atlas Copco has a fantastic compressor business and good leverage to construction and auto markets, as well as leverage to a mining business that is currently bumping along the bottom. I like the prospects for Atlas Copco to continue generate mid-single digit organic revenue growth, and being one of the strongest organic revenue growers in the diversified conglomerate space, but even with mid-to-high single-digit FCF growth it is hard to get comfortable with today's price.

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This Atlas Doesn't Shrug, But Atlas Copco Still Not Cheap

Seeking Alpha: Will 2015 Be A Real Growth Year For PCTEL?

PCTEL (NASDAQ:PCTI) has been a frustrating stock for some time now. While the company has refocused around businesses with credible addressable markets and growth potential in antennas and test equipment, the stock has gone nowhere fast over the last three years (though to be fair, equipment/component supplier JDSU (NASDAQ:JDSU) has done even worse).

Will 2015 be a different, better, year for PCTEL's shareholders? China Mobile's (NYSE:CHL) more aggressive roll-out of TD-LTE is a real opportunity for the company, given its relationship selling scanning receivers used to test LTE deployments. A strong contribution from this higher-margin business would indeed be welcome, but PCTEL really needs to see markets like WLAN, smart grid, fleet management, and so on pick up (and use their antennas) to maintain that momentum. If PCTEL can leverage these opportunities, a share price above $10 seems reasonable in the near-term.

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Will 2015 Be A Real Growth Year For PCTEL?

Monday, February 2, 2015

Seeking Alpha: Cameron's Parting Shot Before The Deluge

"There's a storm comin'; You'd better run." Richard Hawley, There's A Storm a Comin'
Maybe the nicest thing to be said by oil/gas equipment company Cameron (NYSE:CAM) is that it has finally managed to get its house in order … right as a hurricane bears down on the sector. If investors are worried about the exposure of companies like Dover (NYSE:DOV) and Honeywell (NYSE:HON) to oil and gas production companies, you can probably imagine the concern for the equipment manufacturers like Cameron, National Oilwell Varco (NYSE:NOV), and FMC Technologies (NYSE:FTI).

Cameron serves customers across a range of markets and their exposures to oil/gas prices are not all the same. With that, the company is going to be delivering revenue out of its backlog in 2015 and likely doing so at decent margins. Offsetting that is the risk that the cycle could drop even further before reaching bottom and could take away Cameron's ability to grow earnings for two or more years. It's probably too early to start dumpster-diving (unless you expect a significant turnaround in oil prices over the next six to twelve months), but if you've held on to Cameron shares at this point, the best strategy may be to ride it out as the company has been gaining share in unconventional drilling and can still drive meaningful long-term value out of its OneSubsea JV with Schlumberger (NYSE:SLB).

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Cameron's Parting Shot Before The Deluge

Sunday, February 1, 2015

Seeking Alpha: Broadcom Staying On-Script And Still Undervalued

Broadcom (NASDAQ:BRCM) is certainly better loved by the Street now that it put its money-losing baseband efforts in the past, publicly declaimed "growth for growth's sake" M&A, and refocused on sustainable profitability. Now the question is whether management can strike that tricky balance between profit margins and revenue growth that it will take to maintain investor enthusiasm.

I continue to like the company's prospects in this regard. I don't expect the connectivity business to fall off as fast as feared, and I think the company's offerings in PON, DSL, and set-top boxes have more to offer than some seem to believe. Network virtualization should contribute to good growth prospects in the infrastructure business and opportunities like Internet-of-Things (or IOT), wireless charging, and auto networking should offer some upside.

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Broadcom Staying On-Script And Still Undervalued

Seeking Alpha: Patience With EMC Has Yet To Pay Off

Buying large-cap tech can be tricky, as investors are unforgiving in their demands for growth. I have long liked EMC (NYSE:EMC) and regarded it as a long-term play on the evolving enterprise IT world, but owning these shares has offered no particular boost to my portfolio returns.

I continue to believe that EMC is undervalued and that growth-oriented businesses like NSX, Pivotal, XtremeIO, and Airwatch offer good potential. I also think that ownership/control of VMware (NYSE:VMW) is an asset and not a drawback as some believe. That said, there are real questions as to whether the changes in traditional storage markets will take away growth faster than these new ventures can add it back. An acquisition offer from another enterprise player like Hewlett-Packard (NYSE:HPQ), Cisco (NASDAQ:CSCO), or Oracle (NYSE:ORCL) would be an easy exit opportunity, but I suspect that EMC's decision to stick to its guns regarding its outlook/prospects will make a deal too hard to reach and force investors to continue to exercise patience to see this stock deliver adequate returns.

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Patience With EMC Has Yet To Pay Off