Sunday, March 29, 2015

Seeking Alpha: Norcraft Executing Its Model To Good Effect

Even though the new housing market has yet to rebound as strongly as many have hoped, the remodeling market has been stronger. That, coupled with strong discipline to drive an improved mix and walk away from low-margin business, has helped Norcraft (NYSE:NCFT) post solid revenue growth and margin improvement in recent quarters.

Better sales and margins have also been good for the stock, which has risen about 38% since my last piece on this cabinet maker in May of 2014. To be sure, it hasn't been that hard to make money in stocks tied to remodel/renovation, as direct competitors like Fortune Brands Home & Security (NYSE:FBHS), Masco (NYSE:MAS), and American Woodmark (NASDAQ:AMWD) have risen 14%, 26%, and 101% respectively, and other plays on the space like Mohawk (NYSE:MHK), Headwaters (NYSE:HW) (a building materials company), and Armstrong World Industries (NYSE:AWI) have rise 33%, 41%, and 5% respectively over that same period of time.

There's still a lot to like about Norcraft, and next week's (March 30th) earnings report could be another opportunity for management to deliver further improvements in mix and margins. These shares don't look so cheap these days, though another beat-and-raise quarter will at least kick the argument about valuation down the road a little further.

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Norcraft Executing Its Model To Good Effect

Wednesday, March 25, 2015

Seeking Alpha: Core-Mark's Attractive Opportunity Reflected In The Share Price

I've liked Core-Mark Holding (NASDAQ:CORE) as an under-the-radar name in the consumer/retail sector and I still like the company's prospects. There are still a lot of independent convenience stores (or "C-stores") that could benefit from better distribution/delivery, a better assortment of fresh foods, and improved data-driven decision making. Better still, Core-Mark isn't limited to the C-store market, as the company's relationship with Rite Aid (NYSE:RAD) and there are a lot of potential sales channels outside of the C-store market for the company to target.

All of that said, the shares have done pretty well already. The stock has climbed about 70% from my initial write-up and more than 40% from my June 2014 update. While still not a household name from the perspective of sell-side coverage, a double-digit forward EV/EBITDA multiple does make it harder to argue that the shares are still notably undervalued.

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Core-Mark's Attractive Opportunity Reflected In The Share Price

Seeking Alpha: Stage Stores Taking A More Realistic Approach

Amidst a challenging retail environment, Stage Stores (NYSE:SSI) has been an interesting story to follow as the company has been challenged by internal execution issues and a changing retail industry. Stage still has some real issues with sales productivity and margins, but management seems willing and able to address these issues more directly instead of trying to grow its way past them.

I've run hot-and-cold on the shares (or rather bullish and "hold/wait") over the past couple of years as the shares have oscillated between the mid-to-high teens and mid-to-high $20's. I was bullish on the stock as of my last article and while the stock is up more than 20% since then, the shares spent the following six months trending down about 15% before a rally late in 2014. I'd also note that investors would have done much better with Kohl's (NYSE:KSS) and a little better with Dillard's (NYSE:DDS).

This is a challenging stock for me right now. On one hand, I do still see the potential for the company to meaningfully grow its footprint and improve its internal sales productivity by adding more cosmetics and home goods and refurbishing its store base. On the other hand, the company has become more dependent on credit-related income and there is a real risk that the retailing landscape has fundamentally shifted. I don't think these shares are necessarily expensive today, but further upside really is tied to real progress with comp growth and margins more than the Street regaining its enthusiasm for the name.

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Stage Stores Taking A More Realistic Approach

Seeking Alpha: Ahead Of Major Launches, GenMark Diagnostics Still Has Some Value

This is shaping up to be a very big year for GenMark Diagnostics (NASDAQ:GNMK) as this molecular diagnostics company looks forward to the launch of its new ePlex multiplex molecular diagnostics system. With over 5,000 potential hospital and lab customers and over $2 billion in addressable annual market revenue, adoption of the ePlex could turn GenMark into a legitimate multi-year growth story.

GenMark Diagnostics has done okay since my last article, rising 26% as the company has come through on instrument placements, consumables pull-through, and (most importantly) the development timeline for its new ePlex system. To put that performance in context, though, investors should note that Cepheid (NASDAQ:CPHD) is up close to 50% over that same time, and Fluidigm (NASDAQ:FLDM) is up more than 70% (while BioMerieux (OTCPK:BMXMF) is up about 16% and Luminex (NASDAQ:LMNX) is down) - so it's not as though molecular diagnostics stocks haven't been doing alright.

Although these shares don't appear all that cheap on a discounted cash flow basis, the Street has shown over and over again that it will pay up for growing med-tech stories - sometimes to the tune of 8x or higher forward revenue multiples. While GenMark has its work cut out to prove that it can grow from roughly $30 million a year in revenue to a number almost seven times that over the next five years, success would support a fair value today in the high teens.

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Ahead Of Major Launches, GenMark Diagnostics Still Has Some Value

Tuesday, March 24, 2015

Seeking Alpha: Pacific Biosciences Still Trying To Claw Out Its Own Niche

When it comes to sequencing, it's still pretty much Illumina (NASDAQ:ILMN) and then everybody else. Illumina has earned this place of prominence through consistent R&D productivity and opportunistic M&A, and it makes life difficult for would-be challengers to the throne like Pacific Biosciences (NASDAQ:PACB). That said, PacBio has continued to make solid progress, with the shares up more than 100% from when I first wrote on them as a Top Idea and up about 20% from my last update.

The challenge for PacBio remains what it has been for some time - build upon what is currently the best available technology for long DNA sequences and make it faster, cheaper, and easier to use. Wrapped within that, the company needs to continue to develop new systems and new technologies, as well as develop opportunities in areas like plant genomics, clinical diagnostics, and epigenetics where its technology can really stand out.

As a stock, PacBio remains highly speculative. It's partner Roche (OTCQX:RHHBY) has continued to pursue its own alternatives in sequencing (while remaining at least outwardly committed to its PacBio partnership) and major rivals like Illumina, Thermo Fisher (NYSE:TMO), Oxford Nanopore, and 10X Genomics continue to work on technologies and systems that could ultimately capture some or all of PacBio's targeted markets. Still, 10% of the sequencing market and success with its Roche partnership could still support close to $1 billion in revenue well down the road and an $8 fair value today.

Continue here:
Pacific Biosciences Still Trying To Claw Out Its Own Niche

Seeking Alpha: More Of The Same From Microsemi ... And That's Just Fine

As chip companies go, Microsemi (NASDAQ:MSCC) generally flies under the radar while executing on a fairly predictable list of corporate priorities. Between last week's analyst day and the not-so-surprising announcement of another acquisition, management has showed yet again that it's sticking with a script that has served the company relatively well.

I believe that the arrow is still pointing up for this company and this stock. Management spoke of improving backlogs in defense, communications, and satellites and reiterated its goal of 60% gross margin and 30% operating margin by the end of fiscal 2016. Adding in the contributions of Vitesse (NASDAQ:VTSS), the shares are still modestly undervalued and if management is able to drive better synergy from this deal (particularly in terms of product development/growth), addition upside is still in play.

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More Of The Same From Microsemi ... And That's Just Fine

Sunday, March 22, 2015

Seeking Alpha: These Are Tougher Times For Brazil, But BRF Still Offers A Bright Future

BRF (NYSE:BRFS) is certainly not the only quality Brazilian company to see its ADRs trading well below its highs, but I continue to believe this is a good stock for investors looking for long-term exposure to emerging market consumers. BRF is looking at more challenging domestic conditions this year, but the company continues to pursue a vision of gradual transition from its reliance on commodity proteins and becoming a global packaged/branded food company.

When I last wrote about BRF, I thought the shares had gotten a little pricey and that investors could wait for what I thought was an inevitable pullback in Brazilian stocks. That pullback has happened, taking the ADRs down more than 20%. It seems early to blow the "all clear" on Brazil, but I do think investors can start to think about initiating positions in this well-run food company.

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These Are Tougher Times For Brazil, But BRF Still Offers A Bright Future

Thursday, March 19, 2015

Seeking Alpha: AGT Food And Ingredients Is An Underappreciated New Growth Story

I've liked AGT Food and Ingredients (previously known as Alliance Grain Traders) (OTCPK:AGXXF)(AGT.TO) for a while now, but I didn't expect to see the 40%-plus move in the stock since my last article in May of 2014. Since that article, though, management has taken some noteworthy steps to further the company's ambitions in value-added processing, food, and ingredients - all of which does improve the company's future growth prospects and current fair value.

There are still some fundamental truths about AGT that some investors won't like - the ADRs aren't very liquid (and even the Canadian shares aren't highly liquid), this is still a competitive commodity-like business with thin margins, and issues like weather, international trade policy, and logistics can all influence results. All of that said, I think this is an underfollowed and undervalued story in the food space and I think the new direction of the company can lead to worthwhile returns for more aggressive investors for years to come.

Read the full article here:
AGT Food And Ingredients Is An Underappreciated New Growth Story

Wednesday, March 18, 2015

Seeking Alpha: Old Dominion's Performance Argues For Paying Up For Quality

It has been a while since Old Dominion (NASDAQ:ODFL) has looked cheap by conventional valuation standards, but then the company has logged a strong stretch of better-than-average performance. Almost a year ago, I thought that Old Dominion was a good stock to consider despite its valuation and the company's strong operating performance has led to better than 30% appreciation since then - well ahead of other trucking peers like Con-way (NYSE:CNW), ArcBest (NASDAQ:ARCB), YRC Worldwide (NASDAQ:YRCW), and Saia (NASDAQ:SAIA).

Old Dominion remains what it has been for some time - an exceptionally well-run trucking company that still has the opportunity to take share from less efficient rivals. The same is true on the valuation side, as this is a stock that is more challenging to argue is undervalued. Paying a low teens multiple to EBITDA doesn't seem unreasonable if expectations of mid-teens EBITDA growth prove accurate, but I can understand why some investors may hesitate to pay a premium for a company that is in a competitive, regulated, and cyclical industry.

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Old Dominion's Performance Argues For Paying Up For Quality

Sunday, March 15, 2015

Seeking Alpha: Can NuVasive 2.0 Take The Shares To New Highs?

The market for implants and tools used in spinal surgery hasn't been immune to some of the challenges that have beset other large orthopedic markets, but NuVasive (NASDAQ:NUVA) has continued to reap the benefits from its leverage to faster-growing minimally invasive procedures. Up more than 25% from my last article, NuVasive has been not only outgrowing the spine market but also showing at least some of the long-awaited operating margin leverage that management had promised.

NuVasive hasn't always (or even often) looked cheap by the more conservative DCF valuation approach, but the shares could still trade higher if management continues to deliver margin improvement and above-average growth and the market rewards the shares with a valuation more in line with its revenue growth and margin potential. Although there are better bargains in small and mid-cap health care, NuVasive has a stronger market share position than most and a clearer runway to market share, revenue, profit, and cash flow growth.

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Can NuVasive 2.0 Take The Shares To New Highs?

Thursday, March 12, 2015

Seeking Alpha: ON Semiconductor Talking The Talk, But Still Has To Walk The Walk

Near a 52-week high, things have been going fairly well for the shares of ON Semiconductor (NASDAQ:ONNN). Like so many other semiconductor companies, ON Semiconductor is looking to lean more heavily on the auto and industrial markets to generate above-average growth with more stability. Like so many others, ON is also looking to higher utilization, an improved mix, and internal efficiencies to generate the operating margin leverage that semiconductor analysts (and investors) prize so highly).

I can't say that I'm disappointed with how ON Semiconductor has been performing. The shares are up more than 40% from my last article and about 70% from when I wrote about the shares as a Top Idea. Relative to peers/rivals like Fairchild (NASDAQ:FCS) (up 42%), STMicroelectronics (NYSE:STM) (up 7%), and Diodes (NASDAQ:DIOD) (up 5%), that's not too bad, and it also stacks up well against stocks like Texas Instruments (NASDAQ:TXN) and Linear Technology (NASDAQ:LLTC).

Even with those positives, I'm not quite as bullish about ON as I have been in the past. The Sanyo deal is a lemon and management has its work cut out to prove that the Aptina deal will be better. Likewise for the company's bold projections for 2017 margins when past projections have proven too ambitious. Although the company's margins can support a EV/revenue multiple that would generate a $15 fair value, my blended fair value (EV/revenue and DCF) is closer to $13.50; making the shares a decent hold but maybe not such a compelling buy unless you are really confident in the potential for above-average growth and strong margin leverage.

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ON Semiconductor Talking The Talk, But Still Has To Walk The Walk

Wednesday, March 11, 2015

A little good news

I'm happy to report that my wife's condition has improved.

She is responding well to this new round of chemotherapy, and it is definitely shrinking the tumors. With that, her liver enzymes have improved (though they're still too high), her pain has pretty much gone away, and she's back to a more normal life.

This is all good news. The bad news is that this regimen is notorious for having a relatively short window of efficacy (six months or so) before the cancer develops a resistance to it. What's worse, after resistance the cancer tends to grow even more aggressively than before. We'll worry about that later, though and there are still other therapies to try.

Seeking Alpha: Atmel Still Needs To Execute Better

Atmel (NASDAQ:ATML) still looks to me like a "couda, wouda, shouda" story. There are a lot of good and/or attractive things about this company - its leadership in MCU, its potential in the Internet of Things (or IoT) market, its margin self-improvement potential. Unfortunately, there are also legacy issues like strategic/execution missteps (xSense, for one), past failures to identify/execute good deals, disappointments relative to prior margin improvement goals, and ample competition.

I'm not sure why I want to like Atmel (maybe it's because Atmel was one of the first stocks I ever bought), but I still do. Certainly the NXP Semiconductors (NASDAQ:NXPI)-Freescale (NYSE:FSL) deal and the relative scarcity of good MCU assets helps the valuation proposition, but Atmel doesn't jump out to me as an obviously cheap opportunity. There is definitely self-improvement potential here (and the possibility for better revenue/margins to drive a higher value), but Atmel has frustrated investors with its unrealized potential in the past and I'm not sure management has earned the benefit of the doubt it takes to be really excited about the shares at this level.

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Atmel Still Needs To Execute Better

Seeking Alpha: IoT Continues To Support The Silicon Labs Story

Almost a year ago, I thought Silicon Labs (NASDAQ:SLAB) looked like an interesting, albeit not completely compelling, pick in the semiconductor space due to its position in microcontrollers, tuners, sensors, timers, and RF. Since then, the shares have done alright relative to comps like STMicroelectronics (NYSE:STM) and Atmel (NASDAQ:ATML), but not so well relative to the likes of NXP Semiconductors (NASDAQ:NXPI), Broadcom (NASDAQ:BRCM), or Texas Instruments (NASDAQ:TXN).

My primary issues with Silicon Labs continue to be competition, the pace of market growth, and valuation. I like the company, and I think its capabilities in MCU, RF, and sensors give it a good chance of gaining/holding share in the growing Internet of Things (or IoT) market. The "but" is that competing with companies like the aforementioned NXP, Broadcom, and Texas Instruments is no picnic, there is still valid uncertainty as to the real size of the IoT opportunity, and the valuation doesn't seem all that low to me.

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IoT Continues To Support The Silicon Labs Story