Investors Aren't Buying American Axle's Self-Improvement Story

There are more than a couple puzzlingly cheap (or cheap-looking) auto and truck component stocks these days. While production is certainly weakening, the market seems to be pricing in a rather drastic decline in volumes, revenue, and profit margins. To be fair, this sector doesn't have a great track record of earnings "through thick and thin", with quite a few companies sporting low single-digit long-term average FCF margins, but that also doesn't give much if any credit to the margin and liquidity structure improvements these companies made during the good times.

American Axle & Manufacturing (AXL) ("AAM") looks cheap enough that I wonder what I'm overlooking, as low-to-mid single-digit revenue growth and FCF margins averaging out in 4% to 5% range would support a fair value in the $19 to $20 range. What's more, AAM is well-placed to benefit from ongoing efficiency efforts in internal combustion engine (or ICE)-powered cars, a global preference for SUVs/CUVs, and the transition to electrification. Then again, there's a lot of debt on the balance sheet, and a lot of customer concentration risk, and projecting a significant improvement in long-term FCF margins may just be a different form of the loss-producing mantra "it's different this time".

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Investors Aren't Buying American Axle's Self-Improvement Story

Of all the things that have changed in the medical device world in the time I've followed it professionally, the improvement in the quality of care for ischemic stroke patients may be one of the notable. The field has moved from "I'm sorry, but there's nothing we can do" to the introduction of tPA (which gave patients an almost 50/50 chance if they got to the hospital early enough) and now on to stent retrievers and aspiration systems that can boost those long-term survival (with a high quality of life) to more than 50/50 as far as 24 hours away from the onset of the stroke. Even so, these newer mechanical approaches are still not used nearly as often as they should be, and that represents a key growth opportunity for mid-cap med-tech Penumbra (PEN).

Penumbra is the leader in aspiration-based thrombectomy (A Direct Aspiration First Pass Technique, or ADAPT), an emerging alternative that is faster and cheaper than stent retriever systems, but with no observable compromise in efficacy. Penumbra is almost certain to face significant competition from Medtronic (MDT), Stryker (SYK), Johnson & Johnson (JNJ), and others, but with overall market penetration below 20% and opportunities in other fields like peripheral thrombectomy, embolization, and coronary thrombectomy, there are significant revenue opportunities for Penumbra.

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Penumbra: Great Growth From A Better Mousetrap In Stroke Care

Hartford Undervalued And Improving In A Sector That Seems Adrift

Cheapness, relative, or absolute, rarely moves stocks all on its own. More often, it requires a meaningful change in the trajectory of the underlying business (the dreaded overused and misused word "catalyst") or in the perception of the overall sector. In the case of Hartford (HIG), management has done some good things lately - selling the Talcott business, raising prices, and boosting overall underwriting profits - but the larger P&C sector seems to be drifting without much real pricing power and worries about weaker reserves and rising claims inflation.

I continue to believe that Hartford is undervalued and worth owning, but I can't say with much confidence that it's going to be a near-term outperformer. It will take time for the market to fully reward the emerging underwriting profitability improvements and likely even more time for investor love to rotate back to insurers.

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Hartford Undervalued And Improving In A Sector That Seems Adrift

Argo's Top-Line Growth Is Exciting, But ROEs Remain Lackluster

Argo Group (ARGO) has been a frustrating insurance stock to follow for some time, as the company's strong niche underwriting capabilities and meaningful earnings potential have been held back by persistently high expenses. Reinvesting in the business has started to pay off in terms of premium growth, but solid book value growth and ROE improvement have remained elusive.

Even so, Argo has been a strong performer this year, with a roughly 15% year-to-date gain that leaves comps like AIG (AIG), Alleghany (Y), Chubb (CB), Hartford (HIG), and W.R. Berkley (WRB) well in the dust. While stronger than expected first quarter results helped fuel the surge, and I'm bullish on the prospects for technology investments to yield more premium growth, I'm not yet sold on the company's ability to drop that growth down through to the bottom line, and so I'm not seeing a significant amount of undervaluation in the shares now.

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Argo's Top-Line Growth Is Exciting, But ROEs Remain Lackluster

Southern National Bancorp Of Virginia: Well-Placed For Growth, But Also Well-Valued For Its Potential

Bring a good deposit franchise to large, attractive markets that can support above-average loan growth, and good things can happen. Southern National Bancorp of Virginia (SONA) (or “SONA”) does serve attractive growth markets, including the DC metro area and major Virginia cities like Charlottesville and Richmond, and I like the company’s growing deposit share in communities like Charlottesville and Richmond. The deposit franchise is a work in progress, though, as the company has used M&A to drive improvement, but still has a ways to go.

I think SONA is more or less fairly-valued today, as the stock price already seems to anticipate double-digit growth. M&A is an important wildcard, though, as SONA could deploy more capital into consolidating the Northern Virginia/Southern Maryland banking market and/or acquire smaller community banks in or just outside its core operating area to further boost the quality of its deposit base.

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Southern National Bancorp Of Virginia: Well-Placed For Growth, But Also Well-Valued For Its Potential

Franklin Financial Wedged Between A Good Market And Challenged Funding

For Tennessee’s Franklin Financial (FSB), it is the best of times and the worst of times. Credit quality is excellent, and Nashville remains an exceptionally attractive market for loan growth. On the flip side, deposit costs are rising quickly, and Franklin Financial has a relatively poor mix of core deposits, making M&A seemingly all but obligatory if management really wants to maximize the potential of this upswing.

Valuation is an interesting discussion. Franklin Financial looks priced for low double-digit returns, which is good but not exceptional among small banks, and the company’s recent struggles to grow have certainly weighed on sentiment. Patient investors could do well with this name over time, but I think it could frustrate less patient investors who want more quarter-to-quarter action in their holdings.

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Franklin Financial Wedged Between A Good Market And Challenged Funding

Semtech Has Made Progress, But Really Needs LoRa To Take Off

I wasn’t a big fan of seemingly perennial underachiever Semtech (SMTC) back in 2016, and the path since then hasn’t been entirely smooth. The company has done a little better than I’d expected with revenue (beating my circa-2016 expectations by 3% in the last two years), but adjusted free cash flow has been slow to develop, and the company’s key driver, LoRa, has come in well short of management’s targets from a few years ago.

With a strong move in the shares since the last quarter, the stock’s performance has been slightly better than the SOX since my last update, on par with Silicon Labs (SLAB), and below ON Semiconductor (ON) (and well above Maxim (MXIM) and MACOM (MTSI)), but I don’t feel like I’ve missed much with slightly-better-than-sector performance. I’m more encouraged by what I’ve seen recently in the data center and PON businesses, as well as protection, but a lot is riding on increased uptake/usage of LoRa. I’d also note that while I don’t see tremendous value here, the shares have appeal as a takeout candidate.

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Semtech Has Made Progress, But Really Needs LoRa To Take Off

Qorvo In A Tricky Spot Between Opportunity And Execution

One of the most frustrating investment situations to be in is when a company has exciting potential and large market opportunities but just can't marry that to sustained execution. It's been a while since I've written publicly on Qorvo (QRVO), but inconsistent execution was an issue in late 2016 and it remains an issue today, even though there are a lot of legitimate positive points to this story.

Winning business from Apple (AAPL) that was previously Broadcom's (AVGO) domain was a coup, and I like the company's strong position in GaN semiconductors as well as the growth opportunities in the IDP business. I don't like the disappointing, inconsistent, "it's always something" track record with gross margins, and it's a significant impediment to Qorvo realizing its full potential. Even so, I'm intrigued by the potential value here and I think the stock price may be underpinned by a sense of "if they won't fix it… somebody else will" M&A leverage.

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Qorvo In A Tricky Spot Between Opportunity And Execution

Silicon Labs Getting Its Due As A Leading IoT Play

Some investors seem to hate the idea of Internet of Things (or IoT), and like any other hot market, the term certainly gets overused and run into the ground. The thing is, though, is that it's a real opportunity and one that continues to drive strong growth at Silicon Labs (SLAB). Add in other attractive plays like timing and isolation and an M&A take-out angle, and I can understand why these shares have continued to perform well despite a steep multiple.

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Silicon Labs Getting Its Due As A Leading IoT Play

Calyxt Going Boldly Forward With A Different Bio-Ag Model

With Syngenta and Monsanto off the market, investors don’t have a lot of great pure-play investment options for bio-ag, even though this remains a very large and vibrant area of R&D activity. This brings me to Calyxt (CLXT), a company custom-built to apply gene editing tools to the development of new crop varieties. Although there is little comparison between what Calyxt is now and what Syngenta and Monsanto were in the years leading up to their acquisitions, I nevertheless believe this is an interesting speculative option in the bio-ag space.

Modeling a pre-revenue company like Calyxt involves considerable guesswork, and that guesswork is made all the more difficult by Calyxt’s decision to pursue an uncommon (and in my opinion, risky) commercialization strategy with its initial products that will see the company take a much more direct role in selling semi-finished products (ingredients) to food companies, rather than the proven model of selling seeds (and technically licensing traits) to farmers. While absolutely acknowledging the elevated modeling risk and uncertainty, I believe Calyxt shares have some appeal at this level if you accept the premise that the company good reach $500 million in revenue in six years, over $1 billion in nine years, and $2 billion in 15 years.

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Calyxt Going Boldly Forward With A Different Bio-Ag Model

Natural Grocers Up On Strong Traffic, But Margin Follow-Through Is Crucial

I thought Natural Grocers by Vitamin Cottage (NGVC) ("Natural Grocers") held some appeal for more risk-seeking investors back in February, as the company's decision to "reinvest" in lower prices seemed likely to spur improving comps. The shares have done exceptionally well since then, with the shares shooting up about 70% since fiscal second quarter earnings in early May on the strongest comps in roughly four years and less gross margin pressure than feared.

As is often the case with low-margin business models, even small changes in margin modeling assumptions can drive big changes in the resulting fair value. I'm still skeptical that Natural Grocers can recapture the margins they're giving up to bring traffic in through the door; while using price to get people familiar with the brand isn't a terrible idea, I believe price-conscious shoppers are liable to leave if and when management tries to raise prices. Although Natural Grocers could offset its pricing action with more back-office efficiency, I think the company's modest scale works against it, and I think the risk/reward trade-off is much more balanced now than before.

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Natural Grocers Up On Strong Traffic, But Margin Follow-Through Is Crucial

Stryker Combining Industry-Leading Performance With Peaking Sector Valuations

Whether or not Stryker (SYK) is the best-run med-tech company these days is a debatable subject, but there's far less debate that the company's recent financial performance has been exceptional. Couple that with industry valuations that are at their highest level in a long, long time, and that is a powerful mix for Stryker's share price performance.

Although I don't believe there was much, if any, substance to the rumors of Stryker approach Boston Scientific (BSX), further M&A is a near-certainty, and Stryker has shown that it can successfully integrate and build on the companies it buys. I am concerned that there's not much room for sector valuation to go much higher, but that's been a losing call for a while now and I wouldn't be all that eager to short Stryker at this point.

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Stryker Combining Industry-Leading Performance With Peaking Sector Valuations

The Market Believes Winter Is Coming For THK

Given where we are in the cycle and the robust valuation of many factory automation stocks, and particularly those in Japan, finding one that doesn’t seem all that expensive leads to a certain level of “what am I missing?” paranoia. In the case of THK (OTCPK:THKLY) it’s not too hard to see why the shares are trading at a seemingly reasonable valuation – a surge in orders from machine tool, semiconductor equipment, and other industrial companies has driven financials, but analysts are now worried that the company is looking at impending bad news as electronics, machine tool, and general industrial orders could all slow in the next 12 months or so.

In my experience I’ve done much better trying to buy stocks like THK around the bottom rather than at the cusp of a downturn. Although that downturn may not come – electronics orders could rebound and machine tool orders may not slow as expected – the DCF valuation isn’t in “can’t miss” territory and I’m concerned that this recent upsurge has breathed a little extra life into THK’s rivals.

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The Market Believes Winter Is Coming For THK

Keyence Is A Key Enabler In Factory Automation

There are many moving parts to factory automation, figuratively and literally, but Keyence (OTCPK:KYCCF) (6861.T) is a key player in numerous high-value segments like sensors, control systems, measurement, and machine vision. With robotics quickly spreading beyond its traditional strongholds of auto and semiconductor assembly and into large, high-potential markets like consumer electronics, general industry, food/beverage/pharma, and logistics, Keyence has a large and growing market to serve with leading-edge products that are not only market leaders, but in many cases unique product offerings.

Keyence is priced like the leader it is, and investors may lament the lack of product/segment-level disclosure, not to mention the low (albeit consistent) volume for the ADRs. While concerns about smartphone-related capex spending and a potential slowdown in machine tool orders later this year are valid, this is a name to watch for investors who are not so value-sensitive and want to invest in gating technologies for factory and warehouse automation.

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Keyence Is A Key Enabler In Factory Automation

CK Asset Following A Different Path, And The Market Doesn't Like It

CK Asset Holdings' (OTCPK:CHKGF) (1113.HK) controlling Li family has laid out a relatively clear vision for what they want CK Asset to be - a diversified asset conglomerate that invests in property development, property management, and infrastructure assets. Unfortunately, this is not really in keeping with what the market wants, as many see this as turning away from CK Asset's traditional strengths and competencies, diluting returns, and missing out on the gains to be made in markets like China and Hong Kong.

That disappointment has translated pretty directly into disappointing share price performance, with the local shares down about 5% year-to-date and down closer to 10% from the time of my last article. While I highlighted some of the risks in this new strategy, I believe I underestimated how the market would respond to this shift, particularly as the market sees this as a company that is turning away from high-margin development activities and buying into income-producing properties at high multiples (which isn't entirely wrong). Although I believe CK Asset is going to have to earn back the benefit of the doubt, I continue to believe that long-term earnings growth in the neighborhood of 7% can support a fair value more than 20% above today's price, making this a more interesting contrarian call.

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CK Asset Following A Different Path, And The Market Doesn't Like It

EV's And Robots Offer Powerful New Growth Legs For Nidec

As the company goes from strength to strength, I continue to be impressed by the management team at Nidec (OTCPK:NJDCY) (6594.T). Not only does the company continue to gain share with its core brushless motor technology, but it also continues to expand into complementary businesses and find new opportunities to apply its core capabilities. There are still plenty of opportunities to gain share in existing businesses like appliance motors, but the more exciting opportunities are in areas like electric vehicles and robotics.

I wish Nidec was undiscovered and undervalued, but the shares do already reflect at least some of the exceptional growth potential. I suppose a mid-to-high single-digit annualized expected return isn’t terrible in today’s market, and the shares could still outperform if the company surpasses earnings expectations, but it’s tough to call this a cheap stock today.

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EV's And Robots Offer Powerful New Growth Legs For Nidec

Is The Market Missing The Forest For The Trees At Weyerhaeuser?

Residential construction is healthy and the prices of building supplies like sawlogs, timber, and OSB are very healthy… and yet, Louisiana-Pacific (LPX) and Weyerhaeuser (WY) have had lousy runs in the stock market this year and over the last twelve months. While Canadian companies like Canfor (OTCPK:CFPZF) (CFP.TO), Norbord (OSB), and West Fraser (OTCPK:WFTBF) (WFT.TO) have all enjoyed good runs, Weyerhaeuser shares have gone nowhere fast.

Lagging price realizations in OSB and still-lagging recoveries in Southern sawlogs are issues, and perhaps Weyerhaeuser is lagging because it’s not the “pure play” on some of these hot assets that other names are, but I find it interesting that the stock hasn’t responded more enthusiastically to the spiking prices in many of its end-markets.

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Is The Market Missing The Forest For The Trees At Weyerhaeuser?

IDEX's Differentiated Model Supporting Above-Average Growth

IDEX’s (IEX) focus on differentiated, mission-critical products for comparatively niche applications continues to serve it well in what has been a sometimes shaky market for industrials this year. With the shares up about 5% this year and closer to 25% over the past 12 months, IDEX has been one of the better-performing industrials, which fits with the company’s better-than average revenue and order growth and margin leverage.

Valuation remains my primary issue with the company. I have no problem modeling above-average long-term growth for IDEX, and I believe companies with strong margins and ROICs deserve a premium, but it’s tough to make the numbers work today. Should the company stumble around a quarterly earnings report and/or should the sector see a contraction in multiples, this is definitely a name I’d revisit.

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IDEX's Differentiated Model Supporting Above-Average Growth

Insteel Seems To Be Shrugging Off Serious Margin Pressures

There are a lot of things about Insteel's (IIIN) business model that make it a challenging company to model. Although the company has had success in coaxing construction companies to use its welded wire reinforcement products instead of rebar, demand is driven by non-residential construction (and public construction, to a lesser degree) and there's not much Insteel can do to drive that. What's more, the company competes with rebar manufacturers like Nucor (NUE) and Commercial Metals (CMC), but also turns to companies like Nucor to buy the wire rod it needs, putting it in a sometimes-challenging spot between competing with rebar on price and trying to maintain a healthy spread between its rod costs and end-user pricing.

Margin pressures have hit Insteel hard recently on higher wire rod pricing, and the tariff actions taken by the U.S. government aren't going to help Insteel's supply situation (though they should help somewhat on protecting it from imported competing products). Insteel has managed volatile pricing before, and while there will be lags and turbulence, I believe the company's own pricing actions will help restore margins later this year. A bigger question remains the ongoing health of the non-residential construction market and whether these high input prices finally bring an end to a long recovery and expansion. Although I feel far less confident in my Insteel model than I'd like, I'm not sure I see a lot of upside from here.

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Insteel Seems To Be Shrugging Off Serious Margin Pressures

OSB Prices Booming, But Louisiana-Pacific Shares Aren't Following

I thought Louisiana-Pacific (LPX) (or “LP”) shares were trading more or less near fair value when I wrote on the company earlier this year, and the shares have risen about 5% since then - slightly better than the iShares US Home Construction ETF (ITB), but lagging both Weyerhaeuser (WY) and Nordbord (OSB) over that time. The price of LP’s primary product, oriented strand board (or OSB) has continued to shoot higher amid healthy residential construction and restrained capacity/supply additions, though, and LP still has meaningful leverage to higher prices.

Residential construction is probably the most powerful potential driver at this point, as activity is trending a little higher than LP’s base-case assumptions. Although I do believe higher prices will eventually bring more supply into the market, I won’t dismiss the upside potential of a “stronger for longer” cycle. Still, LP operates in a cyclical business and I’d be careful about making big bets on “it’s different this time”.

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OSB Prices Booming, But Louisiana-Pacific Shares Aren't Following

Colfax Continues To Underwhelm

I should have known better than to buy into some of the guidance and happy talk coming from Colfax (CFX) management last year, particularly when the shares had already had a big recovery run. For as much as Colfax’s fans like to talk about culture and management’s ties to Danaher’s (DHR) Danaher Business System, the reality is that this is NOT Danaher and the results that this company has generated over the years aren’t even close to Danaher levels – not only in terms of M&A execution, but in terms of continuous business improvement and ongoing innovation.

Colfax shares are down about 30% since my last article on the company, dramatically underperforming the otherwise lackluster share price performance of Lincoln Electric (LECO) and Illinois Tool Works (ITW), while Danaher and Fortive (FTV) (the true option for investors who want to invest in a company run along Danaher’s philosophical lines) have both done considerably better.

Colfax shares look undervalued, but it takes more than cheapness to drive performance, and I do not trust this management team to create meaningful value over the cycle. The company is well behind Lincoln Electric and Illinois Tool Works in welding innovation, and management’s desire to add a new business vertical brings fair questions about whether they can identify a suitable target and execute a successful deal. I may well end up being just as wrong for disliking Colfax down here as I was for being somewhat bullish back in 2017, but if I’m going to stick my neck out for a company, I want it to be one with a history of executing and delivering on its targets.

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Colfax Continues To Underwhelm

A Buyable Dip In Cognex?

Being a value-oriented investor who loves technology, particularly industrial technology, often has me feeling like a stranger in a strange land. There’s never any shortage of “you can’t worry about valuation; you just have to buy!” comments, and it can indeed be frustrating to watch the expensive shares of great companies get ever more expensive and float up and away like a kid’s balloon.

But with great valuation often comes great volatility, and that can work for patient investors. Cognex (CGNX) is back where it was when I last wrote about the company, but I believe the company is a little better today, even if its near-term revenue growth opportunities are not. Although the risk of further declines in consumer electronics can’t be ruled out, nor declines in auto spending or issues in China, the valuation now looks close to reasonable and that may be about the best you can hope for, though I’d note the shares are not cheap by most metrics.

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A Buyable Dip In Cognex?

Air Transport Group Executing, But Headwinds Continue To Weigh

In terms "controlling what it can control", I believe Air Transport Services Group's (ATSG) management team is doing a good job. Even so, there are worries about Amazon's (AMZN) future plans for its Prime Air operations, possible competitive losses to Atlas Air (AAWW), higher rates, and access to planes continuing to weigh on the shares, which have underperformed Atlas Air quite significantly since March of this year.

I expect Air Transport to expand its business relationship with Amazon over time, but there are no guarantees. Likewise, I believe the company's efforts to expand its ground-based service and conversion businesses will pay off, but not for several years. Although the overall air cargo and leasing environment remains healthy, escalating trade disputes could threaten that and Air Transport doesn't have a great track record of free cash flow or ROIC generation. That said, there still appears to be worthwhile opportunity here for those investors who can get comfortable with the risks.

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Air Transport Group Executing, But Headwinds Continue To Weigh

SPX FLOW More Focused, But Iffy Order Flow Is A Concern

Investors are trying to figure out where industrials are headed, and SPX FLOW's (FLOW) share performance so far this year reflects a lot of that uncertainty. The market liked what management had to say at its early March investor meeting (after which the shares traded into the mid-$50's), but disappointing results and guidance across the sector had investors worried going into earnings, taking the share down into the low $40's, before the results brought some stability to the shares.

It's an interesting coincidence (and perhaps not just coincidence) that SPX FLOW's share price performance puts it almost directly in the middle of Alfa Laval (OTCPK:ALFVY), better-run and with better near-term prospects, and the rolling train wreck that is GEA Group (OTCPK:GEAGY). Although the shares seem to have a little bit of upside here, I'm concerned that the Food & Beverage business could stay weaker for longer and that management may not be able to maximize the opportunities in the power and energy rebound.

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SPX FLOW More Focused, But Iffy Order Flow Is A Concern

Milacron Delivering, But The Road Is Getting A Little Rockier

There's no question that companies opened their wallets over the last 12 months to buy capital equipment, whether to expand production capacity, replace aging machinery, or take advantage of greater efficiency with more modern equipment (or some combination), and that has benefited Milacron (MCRN), as the company has seen better demand for plastic molding equipment and an ongoing conversion toward hot runners.

With better results and higher multiples across the machinery space, Milacron's shares have done okay since my last update in May of 2016. Though the shares have sold off about 10% recently, they've still generated a double-digit return over the past year despite rising input costs offsetting a lot of the progress the company has made with operating expenses. Although I think Milacron's multiple should have room to improve from here, I'm a little more cautious on the near-term outlook for machinery investment, particularly with trade protectionism bubbling up.

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Milacron Delivering, But The Road Is Getting A Little Rockier

Sensata Shares Chopping In A Narrow Band Despite Better Sales

Sensata (ST) remains in a tough place, as many investors continue to believe that this leading player in automotive sensing and controls will struggle to generate organic growth as the auto market shifts towards electrification. Not helping matters is a pretty lackluster recent track record of organic growth and not much clear operating leverage.

I didn't think Sensata offered exciting value back in February, and the shares are down a bit since then. At this level, the valuation call is a little trickier, as I do think the shares are undervalued, but I also understand the Street's concerns about future growth and competition. A fairly robust R&D program gives me encouragement, and the shares look undervalued on the basis of margins, but I do wish there was more value apparent on the free cash flow side.

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Sensata Shares Chopping In A Narrow Band Despite Better Sales

Lackluster Assets And No Real Dynamism Continue To Weigh On CK Hutchison Holdings

It's hard enough for conglomerates to get their due, but when the assets in question aren't even that exciting, it makes it even harder to make money. That's been my issue with CK Hutchison (OTCPK:CKHUY) for a while now, as I just can't muster much enthusiasm for a so-so collection of assets in telecom, retail, infrastructure, and energy spread across the world. I wasn't all that fond of the value proposition back in January, and the shares have fallen about 15% since then - lagging not only the Hang Seng but also other conglomerates like Swire Pacific (OTCPK:SWRAY) and CITIC Ltd. (OTCPK:CTPCY).

Unfortunately, there's nothing in management's recent commentary that suggests they see much need for change. CK Hutchison isn't in the business of capital recycling and there don't seem to be many moves afoot to significantly improve any of the constituent parts of the business. I do believe the shares look relatively undervalued now, but it takes more than just a low valuation to make stocks work and my confidence level in CK Hutchison management is not high right now.

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Lackluster Assets And No Real Dynamism Continue To Weigh On CK Hutchison Holdings

Brookfield Infrastructure's Ample Liquidity Should Fuel Years Of Healthy Distribution Growth

Between a weak share price performance since the start of the year, ample liquidity, and a rich set of investment options around the world, I think this is an interesting time to look at Brookfield Infrastructure Partners L.P. (BIP). Management is methodical about allocating capital; they know what they want, and they know where their sweet spots are. With that, there aren't too many transactions in the company's history that have gone seriously sour and the company has a good track record when it comes to building value and boosting its distributions.

Investors should note that Brookfield Infrastructure is structured as a partnership and investors will get a K-1. The company offers a fair bit of easy-to-interpret information on its website, but I'd advise readers to do a little extra research to make sure they understand the tax ramifications. In any case, I think these units are worth the trouble - in addition to a yield that's close to 5%, I believe a deep pipeline of ongoing investment opportunities will support long-term distributable cash flow growth in the high single-digits to low double-digits.

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Brookfield Infrastructure's Ample Liquidity Should Fuel Years Of Healthy Distribution Growth

CapitaLand Continues To Build Out From A Strong Core

Singapore’s CapitaLand (OTCPK:CLLDY) (CATL.SI) is never going to be an “easy follow,” as the basic business model of buying land, developing it, and selling it down the line creates inherent volatility and lumpy financials. While CapitaLand has a solid track record of building value through its property development activities, the market is rarely comfortable enough with the basic model to give the shares any sort of premium, and the local shares have basically marked time between S$3 and S$4 for most of the last decade.

Although I don’t believe you get very far arguing with the market, I do think CapitaLand has generated returns above its cost of capital over the last decade, but the accounting is not simple and that outperformance is not an annual feature (CapitaLand under-earned its cost of capital by my estimation in two of the last three years and three of the last five). With management committed to more capital recycling, though, expanding into new territories and generating more recurring revenue, I believe the valuation is still appealing.

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CapitaLand Continues To Build Out From A Strong Core

The Market Doesn't Seem So Pumped About Weir

Weir Group (OTCPK:WEGRY, WEIR.L) got hit hard on the simultaneous declines in oil/gas and mineral/mining capex, and the company is now benefiting as spending recovers strongly in both markets. Although the bulk of Weir’s business is, and has virtually always been, its minerals business, the shorter-cycle oil/gas business tends to be the tail that wags the dog, with investors putting a lot of energy into worrying about near-term completions metrics, frac fleet spending, and market share trends.

Although I do have some longer-term market share concerns about the oil/gas business, I believe Weir is likely looking at a good stretch here of oil/gas and minerals order growth. I thought the shares offered about 5-10% upside back in late May of 2017, and the local shares are up about 10% since then. I still see a little upside from here, but investors should note the propensity for short-term excitement/worry about U.S. onshore activity to move the stock.

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The Market Doesn't Seem So Pumped About Weir

AXA's Accelerated Transformation Carries Bigger Risks

France's AXA (OTCQX:AXAHY) has never been afraid to do things its own way, and the company's past efforts to shift away from more capital-intensive savings-oriented life products in favor of protection-oriented products made it an early mover in what proved to be a sound strategic shift. More recently, management has been working to strip administrative costs out of operations, grow its P&C and health insurance products, shift more capital towards faster-growing regions like Asia, and begin selling down its U.S. operations. The biggest move, though, has also been the most controversial - the $15 billion-plus acquisition of XL Group (XL).

I don't fault the reasoning for making a large acquisition in P&C insurance/reinsurance, and I can see the positive leverage opportunities in acquiring a Bermuda-based reinsurer like XL Group. I'm not sure this was the right company, though, and I think at least some of the share price weakness has been a reasonable reaction to those concerns. While AXA does appear to trade at a double-digit discount to fair value, I'd just as soon own a company like Prudential plc (PUK) or Aviva (OTCPK:AVVIY) at this point.

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AXA's Accelerated Transformation Carries Bigger Risks

Dialog Semiconductor On The Clock

A year ago, the debate around Dialog Semiconductor (OTCPK:DLGNF) was whether or not there was any substance to bearish rumors and predictions that Apple (AAPL) was working on its own power management integrated circuits (or PMICs) and would use them to replace Dialog’s chips in its iPhones and other products. With Apple having since done exactly that (although not completely), now the debate is how far the substitutions will go and what Dialog can do to preserve and rebuild its business absent contributions from Apple that have historically made up 70% or more of revenue (and high-margin revenue at that).

Both Dialog and Synaptics (SYNA) have confirmed that they’re discussing a merger; while Synaptics has been a frequent-flier on sell-side “likely to be bought” charts, and there would be potential synergies in such a deal, Dialog’s iffy history in M&A doesn’t lend a lot of confidence. The good news, such as it is, though, is that the market is already pricing in a very dire outlook for this beaten-up chip company.

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Dialog Semiconductor On The Clock

A Mining Recovery Has Boosted FLSmidth Far Enough

I always find it worthwhile to have an exit strategy in mind before ever entering a position, as it is sometimes easy to get carried away when an idea is working out. To that end, FLSmidth (OTCPK:FLIDY) has developed better than I'd expected as short-term play on a mining equipment recovery, with the shares up about 15% since my January write-up even after a roughly 10% decline from a near-term high.

Although there are potential drivers of even better performance and FLSmidth's valuation isn't bad relative to many other industrials, I'm not inclined to get greedy. So, while mid-single-digit revenue growth and margin improvements can still support a high single-digit total annualized return and I believe mining orders still have room to surprise to the good, I don't see enough upside to continue pushing this as a buy idea.

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A Mining Recovery Has Boosted FLSmidth Far Enough

Alaska Air Fighting Some Competitive Headwinds

I described myself as “cautiously bullish” on Alaska Air (NYSE:ALK) earlier this year, as I was concerned that the generally positive long-term outlook for this well-run airline could be overshadowed by near-term cost/synergy and competitive capacity worries, not to mention overall late-cycle weakness in airlines. Shares have lost a little ground since then, more or less keeping pace with Delta Air Lines (NYSE:DAL) and bracketed by Southwest (NYSE:LUV) and JetBlue (NASDAQ:JBLU) on the weaker end and United (NYSE:UAL) on the better-performing end.

My basic outlook on Alaska Air really hasn’t changed that much. Higher labor costs and fuel costs are a drag on results, but management seems to be switching back to a network optimization footing, and history suggests that will generate some positive results for shareholders. I’ve been concerned for a little while that a prolonged stretch of good behavior from airlines would eventually end, and I think that may be happening now with capacity growth along the West Coast. Even so, I think low-to-mid single digit growth from Alaska Air can support a fair value above $70 and double-digit total annualized returns from here.

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Alaska Air Fighting Some Competitive Headwinds

Nervous Markets Seem To Be Weighing On USAP's Valuation

By most standards these are good times for the specialty alloy companies. The oil/gas markets are recovering, multiple industrial markets continue to expand, and aerospace orders have noticeably picked up. And yet, for companies like Allegheny (ATI), Carpenter (CRS), and Universal Stainless (USAP), it has been a somewhat choppy 2018 as improving backlogs and margin leverage are overshadowed by worries about slowing industrial growth and price momentum in the stainless steel market.

Given USAP’s strong recovery from its late 2015/early 2016 lows, it’s easy to say that a lot of the easy money has been made in the stock. What’s more, I do think there are real signs of slowing activity in multiple industrial markets and mixed signals in stainless steel. On the other hand, I don’t think USAP has reached its peak yet, as I believe there’s more business to come from the aerospace and oil/gas sectors and more margin leverage as well. At close to tangible book value and with upside to around $30, I still see appeal in this very small specialty alloy company.

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Nervous Markets Seem To Be Weighing On USAP's Valuation

Baked Goods Giant Grupo Bimbo Can Still Rise, But Operations Have Yet To Turn

Writing positively about Mexican baked goods giant Grupo Bimbo (OTCPK:BMBOY) (BIMBOA.MX) back in February was a horrible call, as seen by the subsequent 25% decline in the ADRs. Even though a company/stock like Grupo Bimbo ought to be defensive in a nervous Mexican market, adverse currency moves, ongoing margin pressures, and ongoing questions about management's strategic focus have continued to weigh heavily on the shares.

The sharp drop in the share price does not match a corresponding deterioration of the business, but investor confidence is easy to lose and hard to regain, and this is not a well-liked management team. Given the challenges in owning Bimbo (the ADR is illiquid, and buying local shares may be more hassle than it's worth, at least for some investors), I can't really push a strong "buy the pullback" call here. I do believe the current share price undervalues the business, I believe there will be some signs of stability in the business in the coming quarters, and I think the market jitters in Mexico will calm down, but it's tough to trust this company.

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Baked Goods Giant Grupo Bimbo Can Still Rise, But Operations Have Yet To Turn

Schneider Has Put The Pieces In Place To Drive Higher-Value Growth

Relative to what investors seem willing to pay for companies like Rockwell (ROK), Emerson (EMR), and Yaskawa Electric (OTCPK:YASKY), I'm starting to wonder if Schneider Electric (OTCPK:SBGSY) isn't in some respects an overlooked contender in some attractive markets. Not only is Schneider a leader in energy management (and with a relatively attractive mix), but it is also a strong player in both discrete and process automation and well-positioned for what looks to be a growing convergence between hardware and software in automation.

Schneider isn't exceptionally cheap, but in a market where many high-quality industrial names are quite expensive, it still looks like an interesting relative laggard on valuation. I'd really like to see a stronger ROIC here, and I believe that at least partly explains the valuation, but low-to-mid single-digit organic revenue growth can support a decent return from here.

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Schneider Has Put The Pieces In Place To Drive Higher-Value Growth

XPO Logistics Leveraging A Hot Freight And Logistics Market

One of the pleasures of following XPO Logistics (XPO) has been listening to the various and sundry comment section prophets of doom call for XPO's imminent collapse - back at $30, $50, $75, and so on. There have most definitely been some big corrections along the way, but management has demonstrated that not only can it assemble a high-quality broad-ranging freight and logistics franchise but also run it well. A debt-rich balance sheet, economic sensitivity, and a desire for more deals are all risk factors to varying degrees, but XPO has carved out strong positions in areas like truck brokerage, forwarding, less-than-truckload (or LTL) trucking, last mile logistics, and contract logistics.

Valuation is a much more significant issue for me now, though. Even if XPO Logistics can grow at a pace similar to what companies like Old Dominion (ODFL), J.B. Hunt (JBHT), Hub Group (HUBG), and C.H. Robinson (CHRW) have managed and push FCF margins into the mid-single-digits, the implied returns aren't that impressive, and the shares are likewise not all that cheap on a forward EV/EBTIDA business compared to a blended multiple based upon its end-market exposures.

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XPO Logistics Leveraging A Hot Freight And Logistics Market

Is It Too Late To Make Money With POSCO?

It’s difficult to get the timing right with cyclical stocks, as there’s often a discrepancy between what the numbers tell you and how the market actually behaves. In the case of steel, for instance, it’s common for institutional investors to start bailing once steel prices stop rising – leading to the frustrating phenomenon of strong revenue and earnings growth (as those higher prices flow through the business), low apparent multiples, and yet disappointing stock performance.

Having more than doubled from its lows in late 2015, POSCO (PKX) has indeed already enjoyed a good run, and I do have some concerns that the shares may struggle to reach apparent “fair value” if steel prices only remain steady (even if steady at very attractive and profitable levels). I do believe there’s a good argument for these shares trading at or above $100, but investors considering the shares need to be comfortable with the risk that they’re showing up late to the party and may get stuck cleaning up.

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Is It Too Late To Make Money With POSCO?

Lattice Semiconductor Looking To Go From Stabilization To Growth

It has been a rocky couple of years for Lattice Semiconductor (LSCC), including a failed attempt to sell the company to a Chinese entity, but the company has regrouped and management has stabilized the business. Now the question moves to whether or not the company’s focus on lower-cost, lower-power FPGAs for applications like robotics, security/surveillance, auto ADAS, and edge computing/networking can drive a re-acceleration to double-digit revenue growth and meaningful margin leverage.

I’m skeptical on Lattice’s prospects for attaining/maintaining double-digit revenue growth on any consistent or long-term basis, but I do believe the company’s low-power FPGA and millimeter wave technologies address real market needs and opportunities, and I believe the move to 28nm FD-SOI chip architecture can drive meaningful margin leverage. With the shares trading between my DCF and margin-based EV/revenue fair values, I believe there’s still upside here, but Lattice will need to start delivering some beat-and-raise quarters to drive truly exciting performance.

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Lattice Semiconductor Looking To Go From Stabilization To Growth

PINFRA Punished As A Proxy For Mexico's Economy

As a bond proxy for Mexico, PINFRA (OTCPK:PUODY) (PINFRA.MX) hasn’t had a very good run since my last update on the company in January. Although the local shares have modestly outperformed the broader Mexican market, the Mexican market has been weak overall on worries about the upcoming presidential election and the renegotiation of NAFTA. Add in foreign exchange weakness, and the PINFRA ADRs have posted a nasty 17% drop since that last article.

At the risk of doubling down on a bad call, I still think PINFRA is worth a closer look. Although PINFRA doesn’t have the tariff revision mechanism that benefits airport operators like Grupo Aeroportuario del Sureste (ASR) or Grupo Aeroportuario del Pacifico (PAC), it does have a strong track record of building and operating toll roads, a deep portfolio of long-lived concessions, and a strong cash flow-generating model. The risk of a sharp turn in Mexico’s economic policy is real, but I think the current discount to fair value more than compensates for that risk, and PINFRA could be a beneficiary of the leading candidate’s pledges for greater infrastructure spending.

Readers should note that the ADRs offer lousy liquidity, and may want to consider purchasing/holding the much more liquid local shares.

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PINFRA Punished As A Proxy For Mexico's Economy

Itau Unibanco In A Wobbly Recovery Cycle

With another plunge in the exchange rate, there is once again a gulf between the performance of the actual business at Itau Unibanco (ITUB) (ITUB4.SA) and the performance of the local shares and ADRs. While the local shares haven't had a great six-month run (down about 6% versus a 3% drop in the Bovespa), the ADRs have suffered far more with a roughly 17% drop.

Between an upcoming election and a recovery that has already seen some fits and starts, Brazil isn't exactly a safe market. Moreover, while Itau is arguably the best-run of the Brazilian banks and generated better than expected returns during the downturn, management has a habit of over-promising and under-delivering and needs to reinvest in the next round of growth drivers. I do believe that Itau's shares are undervalued, but there's a lot of risk and volatility that comes with this name that may overshadow the opportunity for some investors.

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Itau Unibanco In A Wobbly Recovery Cycle

Macro Worries, Sluggish Loan Growth, And Capital Generation Weighing On BBVA

Spain’s Banco Bilbao Vizcaya Argentaria (BBVA) wasn’t my favorite European bank back in December of 2017, but I’ve still been surprised to see the greater than 15% decline in the value of the ADRs, more or less matching the decline in Santander (SAN) over the same period. Loan growth and capital generation have remained lackluster, though credit quality and cost leverage are improving, and the markets are considerably more worried about the near-term outlook for the bank’s Mexican and Turkish operations.

I believe conditions in Spain are improving, and I believe Mexico will hold up better than currently expected. Turkey could get uglier from here, but I think that’s already reflected in the share price. If a high single-digit long-term earnings growth rate is still a reasonable expectation (corresponding to a low double-digit ROE), BBVA shares look meaningfully undervalued and worth a closer look.

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Macro Worries, Sluggish Loan Growth, And Capital Generation Weighing On BBVA

Ongoing Growth, At A Price, From Canadian Western Bank

Edmonton’s Canadian Western Bank (OTCPK:CBWBF) (CWB.TO) continues to execute on several of its primary growth drivers, including generating attractive commercial loan growth, building the Optimum alternative mortgage business, and continuing an ongoing shift away from a heavy legacy exposure to energy and energy-reliant markets. While the bank does have a good growth outlook, some of the concerns I had about valuation and near-term headwinds have had an impact on the share price, which is down a bit (in Canadian dollars) since my last write-up late in 2017.

If Canadian Western were an American bank, I think there would be more concerns about the company’s weak core deposit situation and its high, and rising, total cost of funding. Using debt to fund loan growth is a risky strategy, but credit quality remains strong as does operating leverage. Although the level of operating risk is a concern, these shares do look more reasonably priced and should offer a lot of earnings growth in the coming years.

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Ongoing Growth, At A Price, From Canadian Western Bank

FDA Approval Of Injectable Augment Should Give Wright Medical's Growth A Shot In The Arm

It’s a kinder, gentler FDA that the healthcare world is dealing with these days, and while I don’t believe that’s an unalloyed positive for the industry, the approval of the injectable version of Augment is definitely a positive development for Wright Medical (WMGI). Although the near-term impact to sales is likely to be on the order of 1% or so, the longer-term impact could be more significant. Coupled with a strong upper extremity business that continues to gain share and a lower extremity business that should see some re-acceleration in the second half, Wright’s outlook is brightening. If the company can get revenue growth back up to a double-digit pace, a 5x forward revenue multiple and a fair value in the mid-$30s could be back in play in a year, though I wouldn’t pay quite that much today.

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FDA Approval Of Injectable Augment Should Give Wright Medical's Growth A Shot In The Arm

South State Bank Underperforming As It Digests Its Latest Deal

Whole bank acquisitions are a time-tested strategy for growth and value creation, but it takes time to realize the value and the shares of acquirers can underperform during the integration process. Such would seem to be the case with South State Bank (SSB), which has lagged the regional bank ETF so far this year and lagged most of its similarly-sized peers. Although there’s nothing fundamentally wrong with the bank, unpredictable expenses and weak loan growth during the integration process have led to lackluster reported results.

I still believe that South State’s acquisition of Park Sterling will look like a good move in the future, but it’s clear that the market isn’t inclined to show much patience as South State restructures the acquired loan book and the deposit base. I’ve trimmed back my fair value slightly on lower near-term earnings, but I continue to believe that South State can generate double-digit long-term earnings growth and that the shares should trade closer to $100.

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South State Bank Underperforming As It Digests Its Latest Deal

BRF SA Finally Catches A Break

"Once is happenstance. Twice is coincidence. Three times is enemy action." - Ian Fleming

Between rising costs, weakening positions in once-key markets, a scandal that has closed off the EU market, and a general sense of operational disarray, BRF SA (BRFS) has continued to struggle and has lost about half of its market value since the start of the year. At long last, though, investors finally have some good news to celebrate - the company's Chairman and former CEO of Petrobras (PBR) has been named as the new CEO.

To be clear, Mr. Parente has a lot of work ahead of him, and BRF's turnaround is not going to happen overnight. Nevertheless, I see more than a few casual similarities between Petrobras and BRF at the time Mr. Parente became CEO - both companies had unacceptable levels of inefficiency and high costs, both had serious regulatory/conduct issues, both had unfocused operations, both had issues with pricing and focus, and both had troublingly high debt. While Parente's success at Petrobras is no guarantee of a successful turnaround at BRF, I believe this was the best move available to the company and could, perhaps, represent the first few at-bats in what is likely to be a nine-inning turnaround cycle.

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BRF SA Finally Catches A Break

Advanced Energy Industries Closer To The Edge

Everybody has probably seen at least one video of a person (usually a male between the ages of 15 and 40) running full-speed at some sort of barrier that the runner assumes is lightweight and/or will be easily passed through… only to discover too late (typically upon regaining consciousness) that it was actually quite solid.

I mention that as an opening to the dilemma facing Advanced Energy Industries (AEIS) investors right now. Based upon what major customers like Applied Materials (AMAT) and Lam Research (LRCX) are saying, it looks pretty likely that semiconductor equipment demand growth will slow noticeably in 2019 - but is this a "lightweight" barrier that is just a dip in a long-term growth trajectory driven by new architectures and strong demand for IoT and memory or is the industry looking at a hard stop and a return to the "normal" cyclicality of past eras?

I'm cautiously optimistic that it is more the former than the latter, and it doesn't take hefty growth assumptions to drive a worthwhile fair value here. I advised caution on AEIS back in mid-February and the shares are down slightly since then (peers like MKS Instruments (MKSI) and Comet (OTC:CHLDF) (COTN.S) have done similar-to-worse, while XP Power (OTCPK:XPPLF) (XPP.L) has done better). I think this is still a risky call - buying tech into a slowing growth cycle is tough way to make money - but it's hard to ignore a well-run company with growing end-markets (on a long-term basis) and an interesting valuation.

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Advanced Energy Industries Closer To The Edge

Yokogawa Electric Looks Undervalued, But Consider The Reasons Why

The last year has seen a strong recovery in a variety of industrial markets, but Japan's Yokogawa Electric (YOKEY) (6841.T) hasn't seen all that much benefit. One of the top players in distributed control systems (or DCS), Yokogawa's dependence upon petro-sector capex and its substandard margins have both created issues and led to lackluster performance. While the conglomerate nature of the process automation sector complicates comparisons (there's a lot more going on at Honeywell (HON) and Siemens (OTCPK:SIEGY) than process automation), Yokogawa's performance relative to companies like Emerson (EMR), Schneider (OTCPK:SBGSY), Rockwell (ROK), and HollySys (HOLI) hasn't been all that impressive, though it has at least outperformed industry-laggard ABB (ABB) over the past year.

Yokogawa shares do look undervalued on what I believe are reasonably conservative expectations, but the company's reliance on the petro-vertical is a long-term risk in my mind, and I cannot get that excited about the level of execution management has demonstrated over the years, with relatively weak margins and ROICs being the norm.

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Yokogawa Electric Looks Undervalued, But Consider The Reasons Why

Automating Chinese Factories Has Sent Yaskawa Electric On A Wild Ride

When I last wrote about Japanese automation company Yaskawa Electric (OTCPK:YASKY

) (6506.T) in the spring of 2017, I thought it was a good way to play a long-term trend in factory automation and particularly in the growing adoption of automation in China. I thought the shares were somewhat undervalued, but little did I expect the shares to triple in nine months! Since peaking in January, the shares are down about 30%, but there is still a wide spread of opinions on the sell-side regarding the fair value for these shares.

I love the Yaskawa story, and I do think the company stands to generate a lot of growth from the automation of Chinese factories. That said, I simply cannot reconcile today's valuation with any likely earnings/cash flow trajectory or relative valuation approach. The current average sell-side price target would seem to require long-term FCF growth in the high teens on an annualized basis (or a rather low discount rate), while the current share price works back to a mid-teens growth. Although not impossible to reach, I don't think that level of expectations leaves much, if any, room for error or disappointment.

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Automating Chinese Factories Has Sent Yaskawa Electric On A Wild Ride

Excellent Results Supporting A Steep Valuation At Halma

I really like the businesses at Halma (OTCPK:HLMAF) (HLMA.L), but when I last wrote on the company in January, I thought there wasn't much room for the already-steep multiples (on both an absolute and relative) to expand much further. For a little while that call worked, with the shares losing about 10% of their value between late January and late March, but a positive late March update and renewed enthusiasm for companies exposed to the oil/gas recovery and commercial buildings sparked a big rally that has left the shares about 10% higher than they were back in late January.

I am still a big fan of Halma's business mix and management's strategy to augment its core strengths with selective M&A and greater internal investments in digital capabilities (including IoT and analytics). It's also very easy to like a company that is logging double-digit organic revenue growth and even stronger order growth. The "but" remains valuation; the shares are trading at multiples more than 50% above the company's long-term averages and close to 33% above a peer group of quality growth companies. Given the level of expectations built into the price, I'd rather err on the side of missing more of the run than risk jumping in ahead of even a partial reversion to the mean.

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Excellent Results Supporting A Steep Valuation At Halma

Fortive Following A Familiar Pattern

If you're well-acquainted with Danaher (DHR) and Roper (ROP), Fortive's (FTV) strategy is going to look pretty familiar in at least some respects. Like both Danaher and Roper, Fortive's management doesn't want to be the classic sort of industrial conglomerate and is instead pivoting towards more technology-driven markets, and particularly those with higher service/recurring revenue components. It's no surprise, of course, that Fortive would be similar to Danaher (from which it was spun out), and the company has yet to really follow Roper's SaaS focus, but in any case, Fortive management is not afraid to pay big multiples for businesses that it believes will generate attractive long-term margin profiles.

As far as the shares go, I'm not inclined to chase them here. The stock already seems to factor in healthy future cash flow growth, and I'm not willing to count on significant further expansion in short-term multiples for the industry.

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Fortive Following A Familiar Pattern

Dassault Looks Well-Placed For The Next Era Of Manufacturing, But Valuation Is Problematic

French PLM software leader Dassault Systemes (OTCPK:DASTY) is part of the reason I’m much too gray for somebody in their 40s – while I love the business that the company is in, and its leverage to the ongoing “digitalization” of the manufacturing sector, the valuation is pretty brutal for someone who considers themselves a GARP investor. Although I think investors who put more emphasis on the “Guh” part will be happy with the growth that Dassault delivers in the coming years, the valuation is just too much of a sticking point for me right now… even though it really won’t surprise me if I’m reading this three years from now and thinking, “man… I should have just bought it anyway”.

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Dassault Looks Well-Placed For The Next Era Of Manufacturing, But Valuation Is Problematic

Taking A Cue From Siemens, Rockwell Automation Partners With PTC

With Monday’s announcement of a strategic partnership between Rockwell (ROK) and PTC (PTC), two well-respected and perpetually-expensive players in industrial automation are coming a little closer together. Although this tie-up certainly won’t bring all of the benefits of an acquisition to Rockwell, integrating PTC’s strong IoT offerings with its own FactoryTalk offerings should meaningfully boost the data-gathering and analytical capabilities and advance Rockwell’s Connected Enterprise concept. Rockwell shares still don’t look cheap, but then they rarely do, and if management is right about the increasing role software will play in factory/process automation, this is an important long-term investment.

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Taking A Cue From Siemens, Rockwell Automation Partners With PTC

Alnylam Pharmaceuticals Continues To Develop Options Outside Of Amyloidosis

With a $10 billion market cap, it’s hard to call Alnylam (ALNY) overlooked, but I do believe the shares of this maturing biotech are undervalued as the company approaches a window that should see multiple new product approvals through 2020. Most recently, Alnylam has offered up some data that suggest growing opportunities outside its core amyloidosis programs.

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Alnylam Pharmaceuticals Continues To Develop Options Outside Of Amyloidosis

Broadcom Shares On Pause, But The Business Isn't

I expected some turbulence at Broadcom (AVGO) when I last wrote about the company, and that has indeed been the case, but the shares have held up reasonably well. While the SOX index is pretty much flat since the time of my last article on Broadcom, the company's shares are up close to 5% - more or less keeping pace with the Nasdaq (although the trailing one-year comparisons are much worse). Although the market has been concerned about the company's wireless business, with weak unit volumes at Apple (AAPL) and some share loss to Qorvo (QRVO), the company's wired business is still in fine shape and will likely accelerate as 2018 moves on. I continue to believe that Broadcom is among the better bargains in a sector where most of the cheaper-looking names are "scratch and dent" merchandise with some operational issues.

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Broadcom Shares On Pause, But The Business Isn't