Seeking Alpha: Stryker Continues To Reap The Benefits Of A Strong Model

In a generally lackluster big-cap med-tech market, Stryker (NYSE:SYK) has stood out as a comparatively strong performer. Given the company's broad-based business mix, as well as its willingness to deploy capital into M&A to improve the business, I believe investors can reasonably expect this company to continue to be a solid operational story within the space. Stryker's positive qualities are seldom forgotten, though, and while I wouldn't call the shares overvalued, I don't see them as undervalued either.

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Stryker Continues To Reap The Benefits Of A Strong Model

Seeking Alpha: Can Sunshine Heart Survive To See The Dawn?

The market has turned very hostile toward high-risk small-cap med-tech companies, and Sunshine Heart (NASDAQ:SSH) has long struggled to deliver the sort of progress that would make it easy to argue that the market is being unfair. Although the company has resolved a clinical hold, enrollment rates have been an ongoing long-term disappointment and the company's targets for reimbursed procedures have proven much too optimistic. With that, that company's prospects for finishing its pivotal COUNTER HF trial, let alone advancing a better, fully implantable, version of its technology without exceptionally dilutive/expensive financing has basically vanished.

The company's C-Pulse device does seem to provide benefits and quality of life improvements to the majority of patients who get it, but the ongoing issues with site and patient enrollment would seem to speak to more significant problems at the management and strategic level. At this point, these shares look more like a lottery ticket - there are paths by which these shares could succeed from here (including both buyout and go-it-alone strategies), but between the financing and operational issues, it's also quite possible that further losses are in store for shareholders.

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Can Sunshine Heart Survive To See The Dawn?

Seeking Alpha: Cemex Trying To Rebuild Support

Cemex (NYSE:CX) has been an absolutely lousy stock since the last time I wrote about it, falling more than 40%. That's dramatically worse than the performance of Italy's Buzzi (OTCPK:BZZUY), Vulcan Materials (NYSE:VMC), and Martin Marietta Materials (NYSE:MLM), but actually a bit better than LafargeHolcim (OTCPK:HCMLY) and the shares of Cementos Argos (OTCPK:CMTOY) which were in basically the same performance boat through the end of 2015.

Cemex can tie its poor performance to a number of factors, but most particularly to painful adverse currency moves and worries about the company's volume/market share in key markets like Mexico and Colombia due both to the economic health of those countries and the company's own pricing decisions. Add in weak energy markets and a slow recovery in U.S. construction, and 2015 wasn't the sort of year that anybody was expecting.

Cemex was a pretty popular stock with the sell-side until the fall of 2015 (including appearances on multiple top idea lists), but now it's a "show me" story. The shares have already seen a decent bounce from desperation lows, and they don't look like a "can't miss" on the basis of discounted cash flow. That's a tricky metric for a cyclical commodities company, though, and the shares do look more interesting on the basis of EBITDA and full-cycle ROEs.

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Cemex Trying To Rebuild Support

Seeking Alpha: Louisiana-Pacific Cleared For Take-Off, But The Flight Will Be Bumpy

Slow and steady may win the race, but it doesn't do a lot for stock valuations. The U.S. residential construction market has been improving, but you really wouldn't know that from looking at the performance of housing-related names like Mohawk (NYSE:MHK) and Armstrong (NYSE:AWI). Likewise, building material companies like Louisiana-Pacific (NYSE:LPX), Weyerhaeuser (NYSE:WY), Boise Cascade (NYSE:BCC) and Norbord (OTCPK:NBRXF) have been pretty weak since the middle of 2015.

I think Louisiana-Pacific remains what it has been for some time - a trading vehicle for playing market sentiment about the housing market. Housing starts could approach (or reach) 1.25M this year, and OSB pricing (North Central) has strengthened relative to last year. With no real OSB capacity additions on the way in 2016, industry utilization could move into the high 80%'s and that should be good for the sector. Likewise, LP is gaining traction with its SmartSide siding and views this as a growth opportunity. I have very little confidence in these shares as a long-term holding, but the shares should probably be trading in the high teens and could go into the $20s on more enthusiasm around the space.

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Louisiana-Pacific Cleared For Take-Off, But The Flight Will Be Bumpy

Seeking Alpha: Wabtec Pivoting Away From Freight Weakness, But At A Price

The overall weakness in industrial and machinery markets has undermined a lot of stocks that were once bulletproof (or nearly so), and Wabtec (NYSE:WAB) has gotten caught up in that as well. The shares have lost almost 30% of their value since the last time I profiled the company, as investors have grown more and more concerned about the growing weakness in the North American freight rail sector and the potential margin consequences of the expensive takeover of France's Faiveley (OTC:FVLTY).

I have more than a few concerns about the price Wabtec is paying to acquire a business that has only very rarely posted double-digit FCF margins or returns on capital. I freely allow that financial ratios don't always capture the full picture and value of a business, but overpaying for M&A is a time-tested means of destroying shareholder value.

That said, I understand why Wabtec is pursuing the deal, as larger exposure to the international transit rail market seems like a reasonable move to make today. Wabtec's shares could still merit a fair value in the high $80s if you believe the company will eventually grab significant share of the international freight and transit markets. Keep in mind, though, that that has been the story for a while now, and the company's progress in organic terms hasn't really helped support it all that much.

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Wabtec Pivoting Away From Freight Weakness, But At A Price

Seeking Alpha: Oshkosh In A Value/Value Trap Puzzle

Oshkosh (NYSE:OSK) is a frustrating company/stock for me in many respects. The valuation on the shares and the potential of a better-run business keeps it on my watch list, but I continue to be concerned about what I see as an overlooked erosion in the company's core Access Equipment business. Winning the JLTV contract should bring in a long run of profits and cash flow, but the benefits won't kick in for a while.

Oshkosh remains what it has long been to me - a potentially undervalued stock attached to an underperforming company. I can see how Oshkosh shares should trade above $40, but I simply don't have confidence in the business at this point and I have real questions about the prospects for long-term valuation creation.

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Oshkosh In A Value/Value Trap Puzzle

Seeking Alpha: Geely Automobile On A Better Road

Following Geely Automobile (OTCPK:GELYY) (0175.HK) is an interesting experience, as the volatility gives you a lot of opportunities to make buy/sell calls. Back in June of 2015, I thought that Geely's shares could approach $12/ADR as the company started delivering the results of its restructuring and new product launches. The shares did come close to that level before year-end - before concerns about sales momentum, subsidies, the health of the Chinese consumer, and assorted other issues led to a nasty decline.

From an operational standpoint, I think Geely is in better shape than the market valuation suggests. At a minimum, I wouldn't overlook the fact that Geely has shown it can develop new models that are competitive with foreign/JV models. There are definitely valid concerns here, including the corporate structure, the heavy influence of government subsidies, the health of the Chinese economy, and the healthy of the export business, but the shares seem to more than reflect those concerns. If you have an elevated appetite for risk, this could be a name to consider.

While the ADRs do trade from time to time, I would recommend investors consider the far more liquid Hong Kong-listed shares.

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Geely Automobile On A Better Road

Seeking Alpha: Cummins And The Cyclical Overcorrection Conundrum

We all knew that Cummins (NYSE:CMI) was a cyclical stock (unless you're new to investing and this was your first stock … in which case, 'surprise!'), but one of the trickiest parts of evaluating cyclical stocks is correctly estimating/guessing the length and depth of those cycles. The sell-side has dutifully taken its whacking stick to its fair value estimate for this truck engine and components manufacturer, with the average target price down from $155 last spring to around $98 today, but that strikes me as overdoing it.

To be sure, Cummins is definitely at risk of share loss in its core truck engine market, and likewise at risk of finding its components business misaligned with the market trends. Moreover, it's entirely reasonable for a fair value to decline when the near-term prospects worsen and those revenues and profits are pushed out into future years. Still, if Cummins can manage to average just 3.5% revenue growth over the next decade and move its FCF margin closer to 8%, a fair value of around $120 seems fair today.

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Cummins And The Cyclical Overcorrection Conundrum

Seeking Alpha: Dana Holding Finding It Hard To Hold Onto Growth

It's been a rough 12 months for the vehicle components space, as investors have started worrying about whether passenger vehicle growth will prove sustainable in North America and the EU, while commercial vehicle demand rolls over and off-highway vehicle demand remains moribund. Of the companies I pay the most attention to, Dana (NYSE:DAN) has been among the weakest performers as the company has significant exposure to the weakening/weak commercial and off-highway markets and additional market share concerns as well.

When it comes to the valuation, Dana is probably undervalued today but it is difficult to defend a company with a track record of more earnings misses than beats, heavy exposure to weak markets and geographies, and relatively weak prospects for leveraging unique technology into significant margin or return outperformance. If Dana can boost its long-term free cash flow margins above 4%, it takes less than 3% annual revenue growth to support a $14.50 fair value. That said, sentiment is pretty sour here (only Cummins (NYSE:CMI) appears worse in the group I follow closely), so a run of outperformance, however unlikely that may be, would be a powerful driver for the shares provided it is enough to convince the doubters to get more bullish.

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Dana Holding Finding It Hard To Hold Onto Growth

Seeking Alpha: Tenneco Zigging When Others Zag

When gas prices were high and Class 8 truck orders were rolling in, Tenneco (NYSE:TEN) didn't look as strong as other vehicle part and component suppliers like Allison Transmission (NYSE:ALSN), BorgWarner (NYSE:BWA), and Cummins (NYSE:CMI). While the ABCs are now suffering from concerns about the health of the truck market, the impact of lower gas prices, and the future of the internal combustion engine (or ICE) powertrain, Tenneco seems better-placed for today's circumstances.

Relative to Cummins, I think Tenneco's emissions control business is well-positioned given its exposure to passenger and off-highway vehicles, and I think the company's also in a good position to take advantage of stronger near-term demand for bigger passenger vehicles. The long-term future of ICE powertrains in the passenger segment is a point to consider, but I believe Tenneco is still undervalued if it can generate 3% to 4% long-term revenue growth with a modest improvement in free cash flow generation.

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Tenneco Zigging When Others Zag

Seeking Alpha: Lost Credibility And Shifting Priorities Hammer BorgWarner

Wall Street shows no mercy when its favorites don't live up to their multiples, and BorgWarner (NYSE:BWA) is a case in point. This powertrain specialist has not only delivered a series of disappointing earnings and guidance reports, but the company has seen a sharp contraction in its backlog and its content share growth. Now concerns are building that BorgWarner's focus on internal combustion engine (or ICE) technologies are going to leave it outside of the industry's sweet spot as companies like Volkswagen (OTCPK:VLKAY) accelerate their development of hybrid and electric vehicles.

To me, a lot of this sounds like the familiar Wall Street whipsawing between "can do no wrong" and "can't do anything right" when analysts have to shift from justifying high relative valuations to explaining why those prior justifications are no longer relevant. I do think BorgWarner has some serious growth and credibility challenges to address in the short term, but I think ICE-powered passenger vehicles are going to be around for a while, and I wouldn't count out BorgWarner as a player on the electrical side.

These shares could be undervalued by 50% or more, but the company must return to reliable average-growth with improved free cash flow margins. I still like the long-term prospects for the company, but the stock may have a tougher go in the short term.

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Lost Credibility And Shifting Priorities Hammer BorgWarner

What A Week...

I have to apologize once again for being so late in cross-posting my articles here. Last week was pretty much a maelstrom after Wednesday, and not in a good way.

As some (many?) of you reading this will know, my wife is battling cancer and that battle has not been going particularly well. We got a very negative update on this past Wednesday - the scans show that the cancer has spread extensively into her bones and lungs and she has a tumor in her liver large enough to impact her breathing (by pushing on the diaphragm). There may also be brain mets, but it's hard to tell (there will be a follow-up scan).

At this point, all that's left is to try to get her into a clinical trial. There's a promising adaptive T-cell therapy study at the NIH and that's what we're shooting for. If she's selected (and that's still a big if) she'll have to go through surgery and then survive a three-month wait to truly begin the therapy (it takes that long to culture the cells). We would assume that they would not enroll her in the study if she was unlikely to live to that three-month point, so we could be in for a pretty sobering dose of reality if we hear soon that they won't take her into the study.

We're not past the point of hope, but we're realistic about where things stand. We're now in that phase where you have to think "Well ... I'm out of bullets. Time to throw the gun".

Once again, my apologies for not being reliable/consistent with getting my articles linked on here. Unfortunately, this is probably going to continue (consistently inconsistent).

Seeking Alpha: Allison Transmission Hoping To Steer Around Declining Truck Orders

About the only nice thing I can say about Allison Transmission's (NYSE:ALSN) performance since my last article on the company is that the shares haven't done as poorly as many other vehicle parts and components companies. Weak energy and commodity-related markets have definitely done some damage to Allison's business in the short term, and the company's progress with share growth in areas like Class 8 metro and non-U.S. On-highway trucking has been sluggish. Add into that the appearance of the North American trucking market rolling over (including very weak Class 8 performance and shrinking bus demand), and I can understand why investors have sold out and moved on.

This is a tough time to consider buying Allison shares. I think the company is well run, and I think the company's technology fits with a growing focus on commercial vehicle powertrains as a source of improved performance, as well as a growing difficulty in finding good commercial drivers/operators familiar with manual transmissions. The catch is that the Class 8 market is just starting a downturn, there aren't any real signs of life in commodity-related businesses, and weak economic performance in 2016 could start dragging down medium-duty truck performance. I believe the long-term opportunities still support an above-average revenue growth rate of around 4% and a share price in or near the $30s, but there is definitely still risk that the 2016-2018 outlook deteriorates and takes the shares down with it.

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Allison Transmission Hoping To Steer Around Declining Truck Orders

Seeking Alpha: HollySys Executing Well, But Process Automation Is A Rough Neighborhood

I still believe that there will be substantial adoption of discrete and process automation in the coming years, and that key markets like China will increasingly look to substitute products sold by ABB (NYSE:ABB), Fanuc (OTCPK:FANUY), and Honeywell (NYSE:HON) with "home-grown" solutions. The problem for companies like HollySys (NASDAQ:HOLI) (also sometimes spelled "Hollysys") is that by no means precludes some pretty scary stretches of end-market weakness along the way.

Process automation is a pretty rough place to operate right now; Honeywell did fine in the fourth quarter, but ABB and Emerson (NYSE:EMR) were both in the range of double-digit revenue declines due to ongoing weakness in markets like oil/gas, chemicals, and metals. That doesn't help HollySys right now, particularly as the company is trying to diversify into chemicals, but the company does at least have a growing rail business to help it along.

I continue to believe that HollySys is an interesting, albeit risky, play on the growth of domestic automation companies in China. I'm still looking for long-term growth in the high single-digits, with a fair value of around $23 stemming from that. Given the surplus of cheap, relatively safer plays right now, though, I can understand that HollySys likely won't feature very high on most investors' buy lists.


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HollySys Executing Well, But Process Automation Is A Rough Neighborhood

Seeking Alpha: PAX Global Technology Looking To Swipe U.S. Market Share

PAX Global Technology (0327.HK) (OTC:PXGYF) ("PAX") has had a rough go of it since May of 2015 when I last wrote about the company. While the company has more or less kept to its plan of driving growth in China and emerging markets like Brazil and prepping for a major entry into the U.S., the stock has been hit by worries about those emerging markets, weakness in Chinese/Hong Kong stocks in general, and some company-specific competitive and performance worries.

By no means is this a safe stock, but I believe it is an undervalued growth opportunity that is going to start seeing meaningful growth in the large U.S. point of sale (or POS) terminal market in 2016. While I don't think PAX will unseat VeriFone (NYSE:PAY) or Ingenico (OTCPK:INGIY) in the U.S. or Western Europe, I believe the company has established a strong beachhead in faster-growing markets like Brazil and China. These shares seem to react to every hint of news about competitive product introductions, but I believe the shares are more than 25% undervalued on the basis of long-term high-teens annualized FCF growth.

While there is an ADR listing in the U.S., the volume is pretty much non-existent. Many of the better brokers now handle international trades (and at reasonable commissions), and I would strongly recommend going with the Hong Kong shares if that is an option.

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PAX Global Technology Looking To Swipe U.S. Market Share

Seeking Alpha: Roche's Deep Pipeline And Strong R&D Platform Make For A Long-Term Winner

You're not going to often hear me say that earnings don't matter, but I don't believe that Roche's (OTCQX:RHHBY) reported financials are going to be the driving factor behind the share price performance in 2016 and 2017. I am expecting that investors will, instead, put more emphasis on the company's clinical trial performance, as data read-outs over the next two years will go a long way toward shaping the future of Perjeta, Gazyva, and atezolizumab.

My basic view of Roche remains that the company is well-placed to play a major role in the evolving field of immuno-oncology and that recent clinical successes in hemophilia, asthma, and multiple sclerosis give it a little more of a balanced mix. I'm looking for Roche to generate around 5% long-term revenue growth, largely on the back of oncology, with additional cash flow leverage pushing the FCF growth rate into the high single-digits. Discounted back, that supports a fair value just shy of $36 today.

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Roche's Deep Pipeline And Strong R&D Platform Make For A Long-Term Winner

Seeking Alpha: Semiconductor Spending Looms Large For FEI

A lot of the "yeah, but's" that I mentioned in my last piece on electron microscopy company FEI Company (NASDAQ:FEIC) have come to pass. Spending on semiconductor equipment has disappointed as major fabs like TSMC (NYSE:TSM), Intel (NASDAQ:INTC), and Samsung (OTC:SSNLF) revise their plans, oil/gas demand has dried up, life science demand has been consistently inconsistent, and the company lowered its long-term revenue growth guidance during its midyear analyst day.

None of these really surprised me, particularly the guidance revision, so the impact to my valuation wasn't too extreme. There's still ongoing risk to the quarterly results given the uncertainty in semiconductor industry spending, but the valuation is pretty interesting for a market leader with multiple growth drivers. There's still a risk that the company's margin targets prove too ambitious, but at around 15% below my fair value, it's worth a closer look.

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Semiconductor Spending Looms Large For FEI

Seeking Alpha: Cascade Microtech Being Reformed

It's been a while since I've written about either Cascade Microtech (NASDAQ:CSCD) or FormFactor (NASDAQ:FORM), but until very recently, these companies and stocks were performing more or less how I expected. Cascade has continued to leverage its strong position in R&D-driven engineering probe stations and cards, while also benefiting from RF chip volume growth in its production probe business. FormFactor hasn't been as impressive, as the company has struggled to find gross margin leverage despite its strong share in system-on-chip (or SoC) and DRAM probe cards.

The future of these two companies is now even more intertwined, as the companies announced an agreement on February 4 that will see FormFactor acquire Cascade in a cash and stock deal that was worth a little more than $21 at the time of the deal (and about $1 less now). While I don't want to underplay the integration and execution risks that will accompany this deal, not to mention the regular volatility of chip production/demand, FormFactor shares seem undervalued on the combined potential of the two businesses.

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Cascade Microtech Being Reformed

Seeking Alpha: Steady Progress Still Elusive For Ultratech

The past year wasn't a great one for the semiconductor equipment industry, and in fact Ultratech's (NASDAQ:UTEK) 2% rise over the last twelve months puts it on pretty high ground compared to rivals like Mattson (NASDAQ:MTSN) (down 30%), Rudolph (NYSE:RTEC) (down 7%), and Screen Holdings (OTC:DINRY) (down 2%), as well as other industry bellwethers like Applied Materials (NASDAQ:AMAT) and ASML (NASDAQ:ASML). That comes despite a disappointing run of performance that saw a 1% drop in full year-over-year revenue and two straight top line misses to end the year.

This remains what it has been for some time - an increasingly speculative story predicated on improving orders for the company's advanced packaging, laser processing, and wafer inspection tools. While Ultratech clearly dropped the ball with respect to laser processing at sub-20nm nodes (or perhaps it is more fair to say that Mattson stripped it away), there may be some early signs of improvement, as well as the opportunity to leverage follow-on orders at 28nm and above.

If Ultratech can build on its three core businesses in 2016 and start outperforming, the shares could certainly move into the mid-to-high $20s, but investors have to at least consider the risk that companies like Rudolph and SUSS MicroTec (SMHN.XE) will do to Ultratech in advanced packaging what Mattson did in thermal processing and that the company fails to regain momentum with its laser processing business.

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Steady Progress Still Elusive For Ultratech

Seeking Alpha: Chubb Ltd - Bigger And Better In A Soft Market

Insurance companies have a problem right now with what to do with their capital. Years of relatively benign losses and good premiums have built up their capital positions, but the options to deploy that capital are limited. Underwriting more business at soft rates is an option, but one that risks future underwriting profits. Investing in securities is an option, but rates are unimpressive, and returning cash to shareholders doesn't build the business. That leaves M&A, but even here there's a problem as insurance industry valuations haven't really been in bargain territory for most of the past year or so.

I do not believe that ACE Ltd.'s (NYSE:ACE) acquisition of Chubb, now known as Chubb Ltd. (NYSE:CB), was a case of having no better options for capital. Instead, I believe this is a merger that creates real opportunities for long-term synergy, as the companies combine ACE's strong broker-based business with Chubb's strong agency business and ACE's strong international business with Chubb's U.S. middle-market commercial and high net worth businesses.

In terms of what is likely to be achieved in cash earnings growth over the next five years, Chubb is probably not that cheap today. Over the longer term, though, I think there are meaningful high-quality opportunities to grow this business and I think fair value lies in the low to mid $120s.

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Chubb Ltd - Bigger And Better In A Soft Market

Seeking Alpha: Danaher Remaking Itself Once Again

If you're going to pay up for a stock, you should at least get what you think you're paying for - I believe 3M (NYSE:MMM) fits that bill given its strong record of innovation and returns on capital, and I think there's an argument to be made that Danaher (NYSE:DHR) fits on the growth side of the ledger. There are going to be readers who take issue with Danaher's continuous M&A and the resulting high level of goodwill and intangibles on the balance sheet. Likewise, some investors have been alienated by the high multiples the company paid for Nobel Biocare and Pall.

The company also deserves a lot of credit for its Danaher Business System. I have no problem turning my high ambient level of cynicism against all manner of corporate-speak nonsense, but Danaher has acquired more than a couple of companies that I followed in my sell-side days, and hearing back from my contacts, acquaintances, and friends in those companies leads me to believe that DHR really does have a strong set of policies aimed at driving ongoing customer-focused revenue growth and margin improvement.

I still value Danaher on a pre-split basis, and I don't see the shares as especially cheap on the assumption on mid-single-digit revenue growth and high-single-digit free cash flow growth. As a strong competitor with ample non-cyclical exposure, it's not the worst place to wait out this industrial recession.

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Danaher Remaking Itself Once Again

Seeking Alpha: Universal Stainless & Alloy Products Stuck Between The Hammer And The Anvil

Credit where due to fellow Seeking Alpha contributor Doyle Publishing; it has been consistently more pessimistic about Universal Stainless & Alloy Products (NASDAQ:USAP) than I have been, and that has definitely been the right call. USAP has been hurt by the same weakness in the energy end markets and inventory destocking in aerospace that has hurt Carpenter Technology (NYSE:CRS), and the company has also been hit harder by a mismatch between sales surcharges and material costs and a slower rate of progress in adding high-value VIM-remelt products to the sales mix.

Has USAP seen the point of maximum pain? Commercial aerospace orders are supposed to pick up as 2016 goes on and the destocking process should be close to the end, but "supposed to" and "should" are dangerous words to invest by. It's likewise dangerous to stake a lot on commodity price expectations - nickel prices may stabilize now that some capacity is being curtailed, but around two-thirds of the industry is still apparently willing to produce at a loss.

The problem with modeling is that you can model whatever scenario you like, but reality can be far, far different. I can model over $20 million in EBITDA for 2016 on mid-single-digit revenue growth and a low-teens gross margin, but Boeing (NYSE:BA) could cut delivery expectations further, suppliers could opt to go with bare-bones inventory levels, and commodity prices could further compromise the business. I'm not expecting the fourth quarter's low-single-digit adjusted gross margin to persist, but if it does, the questions around USAP could quickly shift to whether it stays solvent long enough to see whatever recovery there will be in aviation and energy.

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Universal Stainless & Alloy Products Stuck Between The Hammer And The Anvil

Seeking Alpha: 3M: Just Sit Tight

Although I haven't finished detailed reviews of all the major industrial earnings reports for the December quarter, it is looking as though Honeywell International (NYSE:HON) and 3M Co. (NYSE:MMM) have managed to stay on track. In the case of 3M, the company's broad end-market diversity seems to be serving it well, but I wouldn't ignore the weakness in the company's Industrial and Electronics/Energy businesses, nor the weak results in the U.S.

Relative to Honeywell, 3M doesn't have quite the same attractive end-market exposures, but then aerospace and non-residential construction aren't looking quite as good now as they were a little while ago, and 3M's sizable healthcare exposure is looking like a solid plus in its favor. 3M isn't cheap, and Honeywell does look like a better relative value, but I'm in no rush to kick this stock out of my portfolio, particularly when the overall industrial outlook is pointing more towards a bunker mentality.

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3M: Just Sit Tight

Seeking Alpha: Emerson Skidding On The Oil Spill

There's not a lot more left to say about the state of multi-market industrial conglomerates that I haven't already said. Companies that have outsized exposure to commodity/resource markets and emerging markets, and that definitely includes Emerson (NYSE:EMR), are getting hit hard and there isn't much relief in sight. Although Emerson's CEO believes that orders will bottom in the spring of this year, that's well outside of the norm of what most peer company CEOs are saying and the company's lack of exposure to relatively healthier markets like aerospace, auto, food/bev is a drawback.

Emerson has been going through tough times longer than its peer group and management seems more realistic about the need for capacity curtailments. Even so, I think the company could find it hard to get full value for its Network Power business and the Industrial Automation assets it has targeted for sale. Emerson scores well for its margins and returns on capital, but it's hard for me to see how the company generates enough revenue growth to really drive an attractive fair value from here.

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Emerson Skidding On The Oil Spill

Seeking Alpha: Carpenter Technology Hammered On Slow Aero And Vanishing Energy

Carpenter Technology (NYSE:CRS) may operate in a specialized niche of the metals and alloys sector, but that hasn't shielded it from serious pressures across its business. With distributors like Wesco Aircraft (NYSE:WAIR) and KLX (NASDAQ:KLXI) trying to operate with leaner inventories and the energy equipment market in freefall, Carpenter has seen ongoing operating erosion for over a year now, and the shares are down close to 40% over the last year.

Energy will bottom out at some point, and the combination of increasing aircraft builds and an eventual completion of those distribution inventory adjustments will improve sales to the aero end market. What's more, the company has shown that it can generate good margins and strong operating leverage when volumes are strong. The question is how much risk an investor wants to take on by holding the shares ahead of that recovery, particularly when this is really more of a trade than a long-term holding.

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Carpenter Technology Hammered On Slow Aero And Vanishing Energy

Seeking Alpha: Keep Calm And Rock(Well) On

Cynical and sarcastic as I am, I'm nevertheless surprised when Wall Street collectively punts on a story they once dearly loved . I can understand worries that Rockwell Automation's (NYSE:ROK) margins in Architecture & Software are going to slide with weak revenue, but I can't quite fathom where the surprise about that comes from. Be that as it may, it looks like sell-side analysts are diving toward the bottom of the guidance range and taking a much more cautious approach.

It doesn't help that Rockwell management seemed more conservative on the outlook for its end-markets than the likes of ABB (NYSE:ABB) or Emerson (NYSE:EMR). Going back to that "cynical and sarcastic", I'll just mention here that the two worst-performing companies in the sector are more optimistic about the near-term outlook and the better performers (Emerson and Honeywell (NYSE:HON)) seem a little more cautious to me.

What Rockwell is hasn't changed - it's still an excellent player in industrial/process automation, with a strong presence in PLCs and strong mid-teens-to-20% share in the North American automation market. Buying Rockwell now certainly involves the risk that the automation market gets worse before it gets better, but I still think there's a compelling long-term argument here.

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Keep Calm And Rock(Well) On

Seeking Alpha: ABB Underrated, But Has Work To Do

For a doom-and-gloom quarter, ABB (NYSE:ABB) did a pretty decent job. A lot of analysts and investors are down on ABB due to its outsized exposure to emerging markets and industries like oil/gas, power, and mining, but ABB did about as well as the most-loved industrials this quarter.

ABB's work is far from done, as the declines in the order book and relative margins would suggest. 

The company is doing better with its power businesses, though, and taking a serious swing at structural operating costs. While a willingness to do M&A is a mixed blessing, the company's increasing chatter about increasing its service and software contributions is welcome. All told, I still think these shares are worth around $23 and that this is one of the better combinations of valuation and quality available today.

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ABB Underrated, But Has Work To Do

Seeking Alpha: Lundbeck's Results Easing A Lot Of Anxiety

Denmark's H. Lundbeck A/S (or "Lundbeck") (OTCPK:HLUYY) (LUN.KO) continues to do a commendable job of restructuring and repositioning itself to come back from significant patent cliffs. Not only has the company launched two potential, albeit uncertain, blockbusters in the last two years, the company's cost restructuring effort seems ahead of plan. With the company now offering a credible trajectory toward 20%-plus free cash flow margins and respectable revenue growth, a fair value of DKK247/$37.25 seems reasonable today.

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Lundbeck's Results Easing A Lot Of Anxiety

Seeking Alpha: Headwaters Doing Better Than Its Stock

The general idea of investing, at least for the value/GARP crowd, is to find those stocks where the underlying performance of the company is better than the performance of the share price and avoid those where the opposite is true. I thought Headwaters (NYSE:HW) was getting a little expensive back in September, but the roughly 25% drop in the share price since then has me thinking that the market may have flipped on it to a point where the business is being underrated and undervalued.

Although the shares still don't quite work for me on a DCF basis (my fair value is closer to $15), I am willing at times to go with other valuation approaches like EV/EBITDA, and particularly when I think there are meaningful tailwinds that can help a business. I like Headwaters' leverage to what should be an improving construction market in 2016 and this may be a good time to start taking a closer look at this consolidator in building materials.

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Headwaters Doing Better Than Its Stock

Seeking Alpha: Has A Window Opened To Acquire A Great Acquirer In Global Payments?

For the most part, the only thing I really haven't liked about the merchant acquirer/card processing space is that a lot of the leading independent players like Global Payments (NYSE:GPN), Heartland Payment (NYSE:HPY), and Vantiv (NYSE:VNTV) sported pretty eye-watering valuations and established rivals like JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), and Bank of America (NYSE:BAC) have all been quite keen on generating more growth from this lucrative non-banking operations.

Since last writing on Global Payments (and Heartland, for that matter), the company has delivered a few more solid quarters of constant currency growth and pretty respectable cash operating margins. Global Payments also reached a deal to acquire Heartland, and I believe investors have blanched at the steep premium that Global Payments is paying, as well as the risk that integration will be trickier than advertised. Since the time of the deal announcement, the shares have lost about one-quarter of their value.

I'm probably crazy for saying this, but I actually think this sell-off has created a window of opportunity to acquire what will become the sixth-largest merchant acquirer in the U.S. and a growing player abroad. There are most definitely real risks in integrating Global Payments and Heartland, and sector valuations are not a positive in this market environment, but I believe the combined entity should be worth closer to $57/GPN share today.

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Has A Window Opened To Acquire A Great Acquirer In Global Payments?

Seeking Alpha: Circling Back, Honeywell Still Looks Too Cheap

After a pretty typically Honeywell (NYSE:HON) quarter, I'm a little surprised that the shares are as reasonably-priced as they are. Although the market is pretty lousy right now, Honeywell is the kind of stock that I'm accustomed to seeing trade above, if not well above, fair value due in large part to its (rightly) perceived quality. And yet, the shares still look around 5% to 15% undervalued.

Although Honeywell is not likely to be a dramatic outperformer, I think this is a pretty good price to acquire shares of a company that is more than just "pretty good" and could be a cornerstone holding for patient investors.

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Circling Back, Honeywell Still Looks Too Cheap

Seeking Alpha: First Cash Or 'First Peso' Financial?

The tough times continue for First Cash Financial (NASDAQ:FCFS). While the stock has recovered much of its post-earnings freak-out, the fact remains that estimates are now about 17% lower for 2016 and 12% lower for 2017 and the company continues to struggle with adverse currency movements and weak core demand in its U.S. operations. What's worse, there's not a lot of obvious steps for the company to take to combat these issues.

Given the likelihood of a weaker-for-longer U.S. operation and ongoing currency pressures, I've trimmed back my expectation for the next three years. That has pushed my fair value down to about $42, and that is still predicated on low double-digit long-term annualized free cash flow growth. While the currency situation could reverse and provide a much-needed boost, it's going to take a while for First Cash to regain its footing.

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First Cash Or 'First Peso' Financial?

Seeking Alpha: W.R. Berkley Continues To Navigate Tricky Waters

I can't say that I feel like I've missed out on much since thinking W.R. Berkley (NYSE:WRB) didn't look like a terrific bargain back in May of 2015. While the shares did rise close to 20% from that article at one point on takeover speculation, the net movement of 3% is more in keeping with what I'd expected given the challenging conditions in the commercial P&C market and W.R. Berkley's already-healthy valuation.

My basic sentiment on W.R. Berkley today is "same as it ever was." The company has done a very good job of finding growth in a challenging market, helped by niche/specialty market focus, good underwriting, and its investment portfolio. I still believe that W.R. Berkley can generate good earnings growth over the next five years, but the stock looks like it is already priced for that sort of performance.

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W.R. Berkley Continues To Navigate Tricky Waters

Seeking Alpha: ON Semiconductor Still Floundering

Even in a rough tape for semiconductors as a group, ON Semiconductor's (NASDAQ:ON) performance has been noticeably worse. The shares basically tracked the PHLX Semiconductor Index for most of the past year, but weak results in the third quarter led to a deeper plunge that has the shares down more than a third over the last year, and the brief rally in the wake of the bid for Fairchild (NASDAQ:FCS) proved fleeting.

I'm of two minds on ON Semiconductor at this point. The shares look cheap by the metrics I use, but this is starting to remind me more than a little bit of Atmel (NASDAQ:ATML) - a company with good technology and potential, but where management has never really been able to deliver on any sort of consistent basis. While I see Fairchild as potentially a very positive acquisition, ON management's abject failure with the Sanyo deal cannot, and should not, be forgotten.

I know a lot of readers want those of us who write for Seeking Alpha to give them clear "buy/sell" calls, but I really can't do that with ON Semiconductor. I believe the company should and can produce better results than it has, but that does not mean that it will. Investors aren't being asked to pay a lot to find out if they can do better, but if I were to buy, I'd at least go in aware of the risk that this is a serial underperformer that could disappoint for a while.

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ON Semiconductor Still Floundering

Seeking Alpha: Varian Medical Needs Room To Grow

While being successful enough to dominate your market is normally a good thing, it does create some valid questions about how Varian (NYSE:VAR) will continue to generate impressive FCF growth when it already has about 60% share of a market that is expected to grow less than 5% a year in the future. Faster-growing emerging markets like China can help, as can the growth of emerging product categories like proton beam therapy, but strong market share, good margins, and reimbursement pressure do create some concerns.

Varian's shares look slightly undervalued to me today and that's not a common experience in the many years I've followed the stock. While I own the much riskier and more undervalued Accuray (NASDAQ:ARAY), I'm not quite as keen on Varian as I don't think the 5% to 10% upside is sufficient reward for the risks of a further slowing of the radiotherapy market and a Wall Street overreaction to that slowdown.

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Varian Medical Needs Room To Grow

Seeking Alpha: Elekta Looking To Get Back On Track

The radiotherapy space has long been a duopoly, but it would seem as though Elekta (OTCPK:EKTAY) is doing all it can to create opportunities for Varian (NYSE:VAR), Accuray (NASDAQ:ARAY), and other players to chip away at its roughly 30% market share. From overly aggressive sales practices to over-reliance on the Gamma Knife, to serious volatility in reported results, not much has gone right over the last three years or so.

On the positive side, Elekta has had a lot of problems but still has that 30% market share and isn't seriously threatened by Accuray at present. What's more, the Atlantic MRI linac combo device could be a big step forward and an opportunity to dominate a market that could be worth about half the company's trailing revenue base. On the negative side, both Varian and Accuray have been picking away at the business, the company has no near-term leverage to the proton beam market, and a lot of credibility and investor goodwill has been chewed up by the company's struggles.

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Elekta Looking To Get Back On Track

Seeking Alpha: Slow Progress Not Enough To Convince Accuray Skeptics

It's bad enough that this is a risk-averse market that is quick to punt on any small-cap company that doesn't post near-perfect results, but Accuray's (NASDAQ:ARAY) own slow pace of progress makes it harder to aggressively defend the company and argue that investors need to reconsider these shares.

I continue to believe that Accuray is undervalued on the basis of its long-term potential, but I don't think there has been enough progress in the company's sales/marketing efforts or order growth to argue that a long-term revenue growth rate roughly double the linac market growth rate is "conservative." What's more, future performance is hardly guaranteed when you consider that the company's two chief rivals outspend the company on R&D by roughly 4x and 2x.

Despite that bleak summary, I'm hanging on. I believe Accuray is making progress and I think the company has more of a future in radiotherapy than today's price reflects.

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Slow Progress Not Enough To Convince Accuray Skeptics

Seeking Alpha: Microsemi Bigger And Better, But Has Work To Do

Microsemi (NASDAQ:MSCC) won the bidding competition for PMC-Sierra in 2015 and closed the deal early in January. Now the hard work really starts. While PMC-Sierra brings attractive diversification, growth potential, and expense synergies, it falls to Microsemi management to prove that they can not only successfully integrate the deal (something they have a lot of experience with), but fully leverage the growth opportunities that PMC-Sierra was building towards before the deal.

I believe that Microsemi will get the job done and emerge a better, stronger, faster-growing company after this deal. This deal pushes my modeled fair value on Microsemi into the low $40's, and I think investors will pleased to see the company leverage growth opportunities in defense, aerospace, and communications while many chip companies try to navigate through a weaker smartphone and industrial environment.

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Microsemi Bigger And Better, But Has Work To Do

Seeking Alpha: Summer Infant's Slow Road Back

Progress in Summer Infant's (NASDAQ:SUMR) turnaround remains slow, but there have at least been signs of progress. Revenue growth has been disappointing, but the company's core revenue continues to grow despite price reductions in the monitor line and an ongoing restructuring of the company's core product line. Likewise, the company has made meaningful progress working off obsolete inventories and reducing its working capital.

Having a bigger presence in Europe may improve Summer Infant's long-term revenue growth prospects, but it will cost money to support. Moreover, Summer Infant is still a small player in a market that includes huge retailers like Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and the Toys/Babies R Us chains and large competitors like Mattel (NASDAQ:MAT), Newell Rubbermaid (NYSE:NWL), and Dorel (OTCPK:DIIBF). While there would seem to be 25% to 50% upside from here on the basis of mid-single-digit, long-term revenue growth and low-to-mid single-digit FCF margins, the execution risk here is very high and management really needs to deliver better revenue and gross margin numbers over the next few quarters.

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Summer Infant's Slow Road Back

Seeking Alpha: AEIS Starts Its New Life

With the wind-down of the solar inverter business now complete, Advanced Energy Industries (NASDAQ:AEIS) is free to refocus itself around its expertise in power conversion and control systems. That's a pretty good business in its own right, and one capable of supporting operating margins in the mid-20%'s, but the real deciding factor for this company and stock will likely be the extent to which management succeeds in branching out from its historical reliance on the semiconductor industry.

What happens next in the semiconductor capital equipment space is anybody's guess, as major fab operators like Taiwan Semiconductor (NYSE:TSM), Intel (NASDAQ:INTC), and Samsung have generally been spending less than expected (or maybe "hoped") during this transition to next-gen architectures. While the cyclicality of its core semiconductor market will create volatility in reported results, I believe that mid-single digit growth can nevertheless support a fair value in the neighborhood of $29 to $30 per share for this stock.

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AEIS Starts Its New Life

Seeking Alpha: Miller Industries Is No Wreck

Although I thought the valuation of Miller Industries (NYSE:MLR) was getting a little stretched in the spring of 2015, I'm still a little surprised that the shares have fallen close to 20% despite a generally decent performance. Perhaps that's the price of toiling in obscurity (as Miller is uncovered) or maybe investors were spooked by the surprisingly weak gross margin in the first quarter and the generally unimpressive margin trajectory seen this year. After all, if Miller can't generate good margins when volumes are high and input costs like steel and aluminum are low, isn't that a problem?

I am inclined to think that things are fine at Miller. Given that the Tennessee plant is running two 10-hour shifts a day, I don't think lack of demand is the problem, and the eventual smoothing out of plant construction and reorganization should help. I think Miller is undervalued, but I'm also looking for levels of cash flow production in the future that have been difficult for the company to maintain in the past. Investors should also note that the liquidity and float are too low here for this to ever be a well-covered stock on the institutional side.

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Miller Industries Is No Wreck

Seeking Alpha: The Dell And Market Pessimism For EMC Is Too Much

Buyouts are generally supposed to produce upside for the shareholders of the company being acquired, but that hasn't been the case for EMC (NYSE:EMC) since the company announced its merger agreement with Dell back in October of 2015. While it has indeed been a lousy market for a few months now, EMC's 12% drop since the time of the deal is worse than the performance of the Nasdaq, as investors have grown increasingly worried about the weak performance of EMC's storage business, the poor performance of VMware (NYSE:VMW), and concerns that the deal may not go through at all.

I believe that the deal gets done, but even if it does not, I believe EMC would walk away with at least $4 billion in cash in its pocket and an underestimated PaaS business in Pivotal. I wouldn't expect EMC's reported storage results to improve much until mid-2016, but with a stand-alone value above today's price and very low implied value to VMware, I believe there's still upside in these shares that is worth the risk that the deal unravels.

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The Dell And Market Pessimism For EMC Is Too Much

2016 Performace

Apologies for being so late to post this, but regular readers know how things are...

My performance for 2015 was okay, and given all of the other things going on in my life I'll look at it as a decent year.

Portfolio A: +8%
Portfolio B: -10.5%
S&P 500: +1.38%

Nasdaq: +5.73%
Russell 3000: +0.48%

Seeking Alpha: Check Point Software - Solid Performance, Familiar Worries

The more things change, the more they stay the same for Check Point Software Technologies (NASDAQ:CHKP). While this Israeli IT security company still has a leading presence in enterprise IT security and margins that many CEOs could only dream of, a segment of the investing world remains steadfast that the company is doomed to lose share to Palo Alto (NYSE:PANW), Fortinet (NASDAQ:FTNT), and other relative newcomers over time.

To be fair, Check Point has lost market share ... but the erosion seen in recent years has been less than the bears predicted. What's more, while Check Point's "fast follower" strategy means it will always arrive after the party has started, the company seems to have a credible platform for advanced threat detection, endpoint security, and cloud. The shares aren't dramatically undervalued, but they do trade below fair value, and I still think this is a quality idea in the tech space.

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Check Point Software - Solid Performance, Familiar Worries

Seeking Alpha: Dover Probably Undervalued, But Where's The Spark?

There's a pretty broad universe now of beaten-down industrial conglomerates that would seem to offer attractive upside for patient investors. Dover (NYSE:DOV) would seem to be among them, as the sharp decline in the energy business has mauled the company's financial results but not so much that the company couldn't still generate double-digit FCF margin in 2015.

Dover has never been the most exciting of the conglomerates, but I don't think mid-single digit long-term growth in free cash flow should be out of reach, and that still supports a fair value in the high $60's. The problem is that it's hard to see what gets investors interested in owning the shares in the next few quarters. Dover doesn't have meaningful exposure to popular end markets like aerospace, construction, healthcare, or passenger vehicle production, so unless energy starts recovering sooner than most expect, this stock will probably require some patience.

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Dover Probably Undervalued, But Where's The Spark?

Seeking Alpha: Finisar At Risk Of Profitless Prosperity

I've written in the past that Finisar (NASDAQ:FNSR) is best looked at as a fleeting engagement for active investors, and the last nine months underline why - the shares have lost about 40% of their value as the company has underwhelmed on revenue growth and found no traction with margins. To that end, revenue estimates for FY2016 are now about 6% to 10% lower than they were back in May and earnings estimates have fallen even farther.

The basic bullish driver for Finisar, increasing data traffic growth and increasing demand for 40G (and, eventually, 100G) equipment in the data center, is still valid but the current environment is challenging. Finisar doesn't have a good record of generating meaningful economic profits and the optical sector badly needs consolidation. What's more, the adoption of silicon photonics remains a significant long-term risk. These shares could still see the low-to-mid $20s on a renewed wave of bullishness on the data center upgrade opportunity, but that valuation is predicated in part on the market once again forgetting that this is a cyclical business with a bad record of full-cycle profitability.

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Finisar At Risk Of Profitless Prosperity

Seeking Alpha: Cavium Still Navigating Lofty Expectations

As I recently wrote in reference to F5 (NASDAQ:FFIV), growth investors are unforgiving when growth erodes, and Cavium (NASDAQ:CAVM) shares have not done well lately as this chip company's revenue has continued to decelerate ahead of what bulls hope will be significant product ramps. While Xpliant, LiquidIO, and ThunderX could add about $2 billion to Cavium's addressable market relative to 2015, companies like Intel (NASDAQ:INTC) and Avago (NASDAQ:AVGO) are hardly pushovers and the adoption of ARM servers has been disappointing so far.

It takes ambitious growth expectations to support a fair value in the $60s and the company's margin prospects over the next couple of years really don't support a corresponding EV/revenue multiple. That said, Xpliant, LiquidIO, and ThunderX are really just getting started and the company could be in a position to exploit M&A-related disruptions in its sector. This is by no means a safe stock, or one with low expectations, but the company's technology offers high performance, programmability, and cost of ownership attributes that could grab meaningful share in markets that can support multiple billions in long-term revenue.

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Cavium Still Navigating Lofty Expectations

Seeking Alpha: Steel Dynamics Grinding Through The Lows

I continue to believe that Nucor (NYSE:NUE) and Steel Dynamics (NASDAQ:STLD) are extremely well-run steel companies, but it's hard for even the best-run companies to make a lot of headway when imports help push prices down almost 40% in a year. Likewise, weakness in energy, off-road machinery, and "general industrial" is an ongoing concern going into 2016.

The good news is that Steel Dynamics has some internal efforts that can help, including ongoing improvements at the Columbus facility and efforts to improve its market penetration in categories like auto production. It also looks as though the government is going to help, as there seems to be a lot more momentum behind efforts to punish artificially cheap steel imports.

Valuation is a head-scratcher. The shares look about 10% undervalued on 2016 EBITDA, but closer to 20% undervalued on 2017 EBITDA and the company has continued to generate cash flow throughout this downturn. I'm not sure there is such a thing as a buy-and-hold materials company, but if you think the outlook for the U.S. economy is going to improve as 2016 goes on, Steel Dynamics could be a name to consider.

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Steel Dynamics Grinding Through The Lows

Seeking Alpha: Eagle Bancorp Flying High

Eagle Bancorp (NASDAQ:EGBN) has done well since I spotlighted the bank as a Top Idea back in mid-2013, with the shares up more than 90% in that time and basically matching super-performer Bank of the Ozarks (NASDAQ:OZRK). Like Bank of the Ozarks, Eagle is now in that tough grey zone where I love the growth and love management's strategy, but I don't love the valuation. I am generally loathe to tell investors to get out of a good growth story just because of valuation, and that's the case here, but I don't see enough valuation upside to recommend it as a new investment.

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Eagle Bancorp Flying High

Seeking Alpha: Commerce Bancshares Has A Strong Core, But Needs More Cardio

Analyzing and writing about a bank like Commerce Bancshares (NASDAQ:CBSH) can be a frustrating exercise, because there's nothing really wrong with this conservatively-run Midwestern institution, but the upside in the shares, absent a new growth driver, just isn't impressive. Like U.S. Bancorp (NYSE:USB), though, Commerce Bancshares knows what it is, and the management is not going to change course just to make the shares a little more exciting for short-term speculators.

I continue to believe that CBSH can leverage its low-cost deposit base in Kansas and Missouri, along with rising rates and good fee income growth, to generate mid-teens ROE down the road, supporting cash earnings growth of around 7% for the next five years. That's not enough to drive a compelling fair value today, but Commerce looks like a safer bet for investors who believe interest rate hikes will be slow to arrive and that credit conditions could get a little hairy in the short term.

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Commerce Bancshares Has A Strong Core, But Needs More Cardio

Seeking Alpha: First Horizon In Good Shape, But Looking At A Hard Slog

I thought Tennessee's First Horizon (NYSE:FHN) was more or less fairly valued a year ago, and I haven't missed out on much, as the shares of this regional bank are pretty much where they were a year ago. Of course, there's been movement in between, as bullishness on the prospect of rate hikes and loan growth saw these shares exceed $16 back in the summer before getting caught in the general downdraft.

I'm a little torn on First Horizon. On one hand, I applaud the management for being quite transparent with its plans and goals, but I don't think it's necessarily going to be able to reach all of those goals. Likewise, while I don't see much undervaluation in the shares on an "as is" basis, the stock should definitely do better if rates start heading up and/or if management deploys more of that surplus capital toward M&A. With all of that in mind, I'd call this a "high-quality hold"; I don't see enough undervaluation to buy these shares when BB&T (NYSE:BBT) and Regions (NYSE:RF) both look more undervalued, but there are definitely worse places for a bank stock investor to hang out while waiting for better conditions.

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First Horizon In Good Shape, But Looking At A Hard Slog

Seeking Alpha: Nektar Therapeutics Going Into The Decline With A Better Profile

I have no idea how long this downturn in the biotech sector will last, but Nektar Therapeutics (NASDAQ:NKTR) has survived its share in the 20-plus years of the company's existence. I also believe that the company is going into this downturn in the best shape it has been - Nektar can look forward to meaningful royalty streams from two drugs with $1 billion-plus potential, and the company has a more credible and focused pipeline.

My model suggests that the shares should be worth over $18 today, with royalties from approved drugs (AstraZeneca (NYSE:AZN)/Movantik and Baxter's (NYSE:BAX) Adynovate) making up about $9 of the valuation. Nektar's pipeline remains high-risk, but the potential of abuse-resistant painkillers and differentiated immuno-oncology drugs is meaningful, and the company seems to be making better decisions with regard to its R&D capital allocation.

It's certainly important to note that this is an ugly stretch in the biotech space and it could get worse (if not much worse) before getting better. My valuation is predicated in part on what the market has been willing to pay for approved drugs in the past, and the market can certainly undershoot those multiples during pullbacks.

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Nektar Therapeutics Going Into The Decline With A Better Profile

Seeking Alpha: Cosan Ltd Looks Like Value The Hard Way

The shares of Cosan Ltd. (NYSE:CZZ) are hardly unique in being Brazilian shares that have done poorly over the past year, as Brazil's ongoing economic struggles and currency weakness have badly hurt many stocks. Cosan has a host of its own challenges, though, as investors wrestle with the prospects for Cosan SA's (CSAN3.SA) Raizen joint venture to improve profits and cash flow in the sugar and ethanol operators, as well Rumo's (RUMO3.SA) very weak share price and its prospects for raising much-needed capital on acceptable terms.

The positive spin on Cosan Ltd. is that it gives investors a one-stop exposure to one of the largest sugar and ethanol producers in the world, as well as a leading operator of gas stations in Brazil, a large natural gas distribution business, and a growing rail and port operator. The negative spin is that those sugar and ethanol operations have never generated great returns on capital and that the logistics operations need very large amounts of capital in the coming years. There's also a negative argument for complexity here - this is a tough business to model and the holding company structure creates risks and inefficiencies.

When it's all said and done, I believe that Cosan Ltd. is undervalued, but this is a good example of a stock where investors may find the return prospects significantly overshadowed by the risk and complexity. These shares can definitely outperform on a Brazilian economic recovery, but there are significant commodity, macroeconomic, and operational risks to consider.

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Cosan Ltd Looks Like Value The Hard Way

Seeking Alpha: Xenoport Arguably Undervalued, But Low On Options

The days of talking about XenoPort (NASDAQ:XNPT) as a biotech are pretty much over, as the company has given up developing '829 and '279 on its own and refocused its efforts on maximizing the potential of its restless leg and postherpetic neuralgia (or PHN) drug Horizant. Unfortunately, XenoPort also really isn't a specialty pharmaceutical company either, as the company has no other marketed products and still lacks the scale (and the resources) to market Horizant to full effect.

The best outcome for XenoPort would appear to be a sale of the company to another pharmaceutical company with the primary care sales infrastructure to make Horizant a lucrative "drag and drop" addition. I believe such a transaction is worth about $6.50 to Horizant today, but I believe the shares would be worth far less in a go-it-alone scenario due to a slower revenue ramp and a lack of operating leverage. I don't presently see any meaningful value in out-licensing the portfolio.

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Xenoport Arguably Undervalued, But Low On Options

Seeking Alpha: Cresud And The Cost Of Complexity

With so many stocks out there for investors to choose from, I have never believed that investors are obligated to put up with confusing, complicated, or unfavorable situations just to generate a little extra return. That point has really been driven home at Cresud (NASDAQ:CRESY) in recent months, as investors have grown concerned about the relationship between Cresud's majority-owned IRSA (NYSE:IRS) and Israeli holding company IDB Holding (OTC:IDBZF) (IDBD.TA).

Given that IDB's debt is non-recourse to IRSA and/or Cresud, I'm not worried about IDB "ruining" CRESY, but I am concerned that management is stretching itself far and wide and really becoming much more of a diversified holding company. I suppose that's fine if that's what you want to invest in, but as a vehicle for investing in Argentina (and particularly Argentina's farmland), I'm not sure Cresud really fits the bill for me anymore.

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Cresud And The Cost Of Complexity

Seeking Alpha: Can Better Policies In Argentina Take Adecoagro Higher?

Agricultural and ethanol company Adecoagro (NYSE:AGRO) has been one of the few companies with significant operations in Brazil to do reasonably well over the last six months or so, although most of that outperformance has come since September. I've liked this company for a while, particularly because of its efficient sugar and ethanol operations in Brazil and its undervalued land assets in Argentina, and now it looks as though at least some of the macro factors influencing the company are pointing in a more positive direction.

Brazil's weak economy and weak currency remain real issues for the company, but Argentina's adoption of agriculture-friendly tax and policy reforms should offer a real boost to Adecoagro's farming results in the coming years. Weak global commodity prices remain a challenge, and it may take longer for Argentine land values to appreciate, but Adecoagro still looks modestly undervalued today.

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Can Better Policies In Argentina Take Adecoagro Higher?

Seeking Alpha: SLC Agricola Closer To Dirt Cheap

Like most equities in Brazil, reaching out to grab SLC Agricola (OTCPK:SLCJY) (SLCE3.SA) has been like grabbing a falling knife. While the local shares haven't done quite as bad (SLCE3.SA's shares down about 12%), the ADRs have fallen another 35% or so since I last wrote about the company, as the shares have been hit hard by a weak Brazilian real, some productivity challenges, and ongoing concerns both about Brazilian equities and farming companies in a lower commodity price environment.

The performance of Brazilian equities over the last year or so has been an abject lesson that things can always somehow manage to get worse. Even so, SLC Agricola's share price seems to reflect a level of pessimism that seems out of line with the real fundamentals. Although the company's land is consistently more productive than U.S. cropland when it comes to cotton and soy and not too far out of the running with corn, the market values SLCJY's land at nearly half the value of U.S. cropland. Even allowing that the challenges of the Brazilian market (including higher logistics costs) should demand a discount to U.S. values, I have to wonder whether the market isn't overly discounting the long-term value of SLC's farmland, and by extension, the shares of the company.

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SLC Agricola Closer To Dirt Cheap