Weaker Orders Sapping Fanuc's Strength

The potential order weakness that troubled me in regard to Fanuc (OTCPK:FANUY) (6954.T) has come to pass, and with it are growing concerns regarding Fanuc’s near-term revenue and margin trends. While management cited trade tension among the issues impacting the business, there are signs elsewhere that automation equipment demand is slowing in a more cyclical fashion.

Fanuc is a well-run, innovative company that is placed to take advantage of ongoing global automation growth, including more sophisticated machine tools and robots. Even so, it’s tough to fight the tape and the near-term outlook for order growth is just not very good, while the company continues to sport a pretty robust valuation. A number of Japanese automation names have pulled back recently, including Fanuc, Yaskawa (OTCPK:YASKY), and THK (OTCPK:THKLY), but I’d recommend caution and perhaps letting the dust settle a bit before looking for bargains.

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Weaker Orders Sapping Fanuc's Strength

Strong Current Results Boost Sentiment On Roche

The last four years have not been particularly good for Roche (OTCQX:RHHBY), and the share price amply reflects this. Not only is Roche just starting to see what will be significant revenue pressure from biosimilar competition to its three main drugs (which still generate more than a third of total revenue and a larger share of profits), the company has seen a run of clinical disappointments in its oncology program, headlined by the failure of PD-L1 drug Tecentriq to distinguish itself from its main rival, Merck’s (MRK) Keytruda, in the lucrative lung cancer field.

It’s not all terrible at Roche, though. The company’s non-oncology pipeline has delivered some strong new products, led by Ocrevus and Hemlibra, and the company has a very deep pipeline across oncology and neurology (as well as other therapeutic areas). What’s more, second quarter results highlight that there’s still more potential for the current business to perform well. Although Roche shares do not appear significantly undervalued, there still appears to be potential for high single-digit annualized returns with upside if the pipeline can deliver some positive surprises.

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Strong Current Results Boost Sentiment On Roche

Stryker's Exceptional Growth Supports A Gravity-Defying Valuation

It’s difficult to find much comfort with Stryker’s (SYK) valuation, but the company continues to deliver exceptional financial results that at least help kick the valuation can a little further down the road. MAKO continues to drive share growth from Stryker in knee implants, while new power tools are driving strong surgical equipment growth, and the company continues to benefit from expanding penetration of interventional procedures for stroke patients.

I won’t try to justify the price Stryker is trading at today. Medical devices in general are trading well above long-term norms, but Stryker continues to deliver exceptional financial performance across its business units. I wouldn’t want to be caught without a chair when the music stops, but I know better than to assume that Stryker’s high valuation alone would prevent the shares from heading higher.

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Stryker's Exceptional Growth Supports A Gravity-Defying Valuation

Chemical Financial Seeing Decent Growth, But There's Still Work To Do

Michigan’s Chemical Financial (CHFC) has been doing alright. The shares had basically been tracking the regional bank indices on a year-to-date basis, but still outperforming on a full-year basis, and second quarter results should have investors feeling reasonably good about the near-term growth prospects. In addition to decent loan growth, Chemical Financial announced that it won the banking business of the city of Detroit, a relationship that should bring in around $500 million of lower-cost deposits that the bank can use.

I’m a little concerned about the jump in provisions, but Chemical Financial’s credit is still healthy on balance. I’m also a little concerned about the company’s fairly weak spread leverage – while Chemical’s cumulative deposit beta remains low, so too is the cumulative loan beta. There still appears to be some upside on the basis of high single-digit earnings growth and a high-teens ROTCE, and Chemical Financial does have the option to use further M&A to drive more growth.

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Chemical Financial Seeing Decent Growth, But There's Still Work To Do

RenaissanceRe's Strong Risk Modeling Comes Through Yet Again

Maybe it sounds obvious, but the ability to adequately model, measure, analyze, and price risk is a major strategic asset for an insurance company, and one that has served RenaissanceRe (RNR) (“RenRe”) and its shareholders very well over the years. That risk management skill came through yet again for the company in the second quarter, with lower loss experiences from last year’s natural disasters leading to a big reserve release this quarter.

I don’t expect another reserve release like this again in the near future, and the fundamental problem of weak pricing in reinsurance remains (particularly in cat-exposed business). RenRe has been harnessing its fundamental skills to expand its casualty and specialty businesses, where the risks are often harder to model, the needs of customers are much less “off the rack,” and where good pricing is still available.

With the shares having sold off since my last piece (even with a sector-wide rebound off late June lows), the valuation is a little more interesting – RenRe isn’t exactly dirt cheap, but the shares are trading below my assessment of fair value, and buying well-run companies below their fundamental value usually has a way of working out.

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RenaissanceRe's Strong Risk Modeling Comes Through Yet Again

Improving Pricing And Good Investment Returns Supporting W.R. Berkley

Given the historical returns that W.R. Berkley (WRB) has generated, betting against management is not something to be undertaken lightly. I'm not exactly doing that, but I do believe the company is facing a tough combination of claims inflation, smaller surplus reserves, and a more challenging investment environment that improving pricing can't completely offset. W.R. Berkley's historical performance arguably deserves the premium it gets, but I can't really see much value in the shares at today's level.

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Improving Pricing And Good Investment Returns Supporting W.R. Berkley

Chubb Still Offers Some Value As The U.S. Market Improves

The last twelve months have not been good for P&C insurers in general, or Chubb (CB) in particular, as investors remain concerned about limited premium growth potential, claims inflation, reserve adequacy, and the prospect of value-destroying M&A. As it pertains to Chubb in particular, I think these concerns are overstated and I continue to believe that these shares remain undervalued relative to long-term earnings growth potential and the quality of the franchise. With fair value up into the mid-$150’s, I believe there’s still an argument for buying these shares.

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Chubb Still Offers Some Value As The U.S. Market Improves

Quality Over Quantity Paying Off For Regions Financial

Regions Financial (RF) hasn’t been setting any records lately for revenue, pre-provision profit, or loan growth, but Regions’ focus on cleaning up its credit and improving its cost efficiency has still produced some solid benefits for shareholders. Among its peer group (and regional banks in general), Regions has been a good performer over the last few years, doubling over the last two years and meaningfully outperforming the likes of Synovus (SNV), BB&T (BBT), Wells Fargo (WFC), BancorpSouth (BXS), and First Horizon (FHN).

Competition is heating up in several markets important to Regions, but the bank still has room to benefit from further efficiency improvements while also starting to think a little more about lending growth again. Whole bank acquisition is likely off the table at current valuations, but mid-single-digit long-term earnings growth can still support a share price closer to $20.

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Quality Over Quantity Paying Off For Regions Financial

Synovus Reaches For Growth, And Gets Its Hand Slapped

Institutional investors can be a curious bunch at times, and trying to please them can be a little like dealing with Veruca Salt. Bank stocks have fallen out of favor recently as investors have grown more concerned about growth in the sector, but companies that choose to put surplus capital to work in growth-oriented M&A are getting punished even worse. Georgia-based mid-cap bank Synovus (SNV) is seeing that first-hand, as the shares are down about 10% since the company has announced both second-quarter earnings and its all-stock deal for Florida-based FCB Financial (FCB).

Although I don't think FCB is necessarily the best target for Synovus, the deal significantly raises Synovus's status in the Southeast region of the country and gives it a fast-growing loan franchise in a state with above-average population growth trends. I also didn't think that Synovus was particularly cheap prior to this announcement, but I do believe this deal will add value provided the credit quality of FCB's rapidly-built loan book holds out.

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Synovus Reaches For Growth, And Gets Its Hand Slapped

Sensata Performing Better, But Still Not Convincing The Bears

As was the case when I last wrote about Sensata (ST), shares of this leading mechanical sensor and control company remain stuck between the mid-$40s and mid-$50s, as bearish concerns about near-term weakness in auto builds and long-term substitution threats battle against bullish rebuttals based on strong existing market shares and expanding market opportunities.

While Sensata's second-quarter results were pretty good, it's not likely going to be enough to really change anybody's mind. The shares can move higher if and when more financial reports support the content growth thesis of the bulls, and likewise if the company can effectively deploy more capital into M&A, but weaker auto builds and the looming threat of weaker truck orders will continue to be a factor in sentiment.

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Sensata Performing Better, But Still Not Convincing The Bears

Heavy Machinery Supporting Good Growth At Lincoln Electric

The recovery in heavy equipment was a little slower to show up relative to the overall industrial recovery, but companies like Caterpillar (CAT), Deere (DE), and Cummins (CMI) have been reporting strong revenue growth on the back of strong demand for heavy machinery. Add in healthy commercial construction activity and recoveries in mining and oil/gas, and Lincoln Electric (LECO) is looking at a generally favorable backdrop.

It seems like some of the worries about an imminent end to the cycle have faded, and Lincoln Electric shares have done alright since the first quarter – up about 7% in what has still been a dicey market for industrial stocks. Although the shares don’t look very cheap on an absolute basis, there is some relative value here and Lincoln Electric’s leverage to later-cycle markets could give it more beat-and-raise (and more outperformance) potential from here.

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Heavy Machinery Supporting Good Growth At Lincoln Electric

3M Beats Lowered Expectations, But The Second Half Has Challenges

The wilder the party, the worse the hangover, and 3M (MMM) shares were definitely a major beneficiary of the Street’s overheated enthusiasm with industrials going into the start of this year. Still down a quarter from its peak, 3M is looking at a slow process of rebuilding expectations and investor trust, even though the company’s “disappointments” were really not all that egregious.

3M posted decent second-quarter results, with surprisingly strong pricing, but margin concerns will persist and the company is looking at some challenging growth comps in the second half of the year. Valuation is more reasonable now, but stocks like Honeywell (HON) and Eaton (ETN) appear to offer more value among the U.S.-centric multi-industrials.

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3M Beats Lowered Expectations, But The Second Half Has Challenges

Nucor: Leveraging Higher Prices And Prior Growth Investments

Nucor (NYSE:NUE) is one of the best-run steel companies in the world, and is well-placed to continue benefiting from the combination of strong demand in the U.S. (fueled by still-healthy demand from construction and various manufacturing sectors) and protectionism-supported pricing. With capacity utilization now in the mid-90%'s and at much stronger prices, strong margin leverage and FCF generation are also coming through for this company.

Nucor wasn’t my preferred choice in the steel space back in February of this year, and the two I liked better (Ternium (NYSE:TX) and Steel Dynamics (NASDAQ:STLD)) have slightly outperformed Nucor since then, though Nucor has done well compared to others like Gerdau (NYSE:GGB), ArcelorMittal (NYSE:MT), and POSCO (NYSE:PKX), particularly since the protectionist measures went into effect. Looking at the shares again today, I’d still favor Steel Dynamics over Nucor in a head-to-head, but it’s close, and I think Nucor is a perfectly legitimate way to play whatever is left in this run for the sector.

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Nucor: Leveraging Higher Prices And Prior Growth Investments

Steel Dynamics: Running At Full-Throttle

With strong spreads, very healthy volume growth, and more clarity on steel import restrictions, Steel Dynamics (STLD) has done a little better since my last update, with the shares up around 7% - good for a little bit of outperformance versus the S&P 500 and more or less matching Nucor (NUE), while outperforming Ternium (TX), Gerdau (GGB) and ArcelorMittal (MT) by wider margins.

The story remains more or less the same here, as there is a tug-of-war between what is likely to be a series of strong quarterly results and institutional investors’ desire to leave the table before prices start to roll over. I still believe there is upside into the $50s with Steel Dynamics shares, and I continue to believe this is an exceptionally well-run steel company with leverage to strong demand in construction and a range of manufacturing/industrial end-markets. I also believe that this is not a stock that I’d consider for a long-term commitment, and there are some hints of weakness here and there in the end-markets to consider.

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Steel Dynamics: Running At Full-Throttle

Amid A Lot Of Mixed Signals, Crane Seems To Offer Some Value

Crane (CR) has always been a bit of an odd duck. While there are plenty of multi-industrials out there, Crane’s $3 billion revenue base and $5 billion market cap makes it a small player among the conglomerates and one with a fairly unusual (albeit very diverse) mix of end-markets. It’s also not especially widely-followed, with only about a half-dozen sell-side analysts covering it and less than 75% institutional ownership. Now add in some odd trends and market signals, and this is a somewhat challenging story to evaluate.

I didn’t like Crane’s valuation back in February of this year, and the shares have underperformed the broader industrial group since then (as well as the S&P 500) with a roughly 10% decline. Now, though, there seems to be growing momentum in the Fluid Handling and Aero businesses, and margins seem to be coming along a little better than expected. If Crane’s late-cycle exposure bears it out as a late bloomer, this could now be a time to consider the shares.

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Amid A Lot Of Mixed Signals, Crane Seems To Offer Some Value

Stronger Traffic And Less Political Panic Benefiting OMAB

I liked Grupo Aeroportuario del Centro Norte (OMAB) (“OMAB”) back in late May, but I didn’t really expect to see a better-than-25% move in the shares in such a short period of time. While OMAB continues to see strong traffic and a healthy Mexican economy, as well as strong execution on costs, the stock also got some leverage from the sharp rebound in the Mexican stock market since the late May lows.

With the big move in the shares, the low-hanging fruit is once again off the table here, but I do believe OMAB remains positively leveraged to a still-healthy Mexican economy. The implied returns for the shares are still good enough to justify holding on, but I’d wait in the hope of a pullback if you don’t already own shares.

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Stronger Traffic And Less Political Panic Benefiting OMAB

Illinois Tool Works Loses A Little Luster

A quarter ago I said I preferred Honeywell (HON) and Eaton (ETN) to Illinois Tool Works (ITW), and in the three months since Honeywell and Eaton have outperformed Illinois Tool Works by about 10%. Now, Illinois Tool Works shareholders are left to digest a second straight disappointing quarter - while ITW hit the organic revenue growth target this time, segment EBIT missed expectations by a few percentage points and management lowered guidance.

I'm not too surprised that Illinois Tool Works is seeing higher than expected cost pressures; if anything, that's a theme this quarter in the industrials. I'm more surprised, though, by what looks like weaker results in areas like auto and electronics relative to peers like 3M (MMM), Danaher (DHR), and Stanley Black & Decker (SWK). With weaker prospects for beat-and-raise quarters across the industrial/multi-industrial landscape, I'm more worried about the risk of re-rating in the second half of 2018 (multiples shrinking back toward historical norms).

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Illinois Tool Works Loses A Little Luster

Stanley Black & Decker Still Not Getting Much Benefit Of The Doubt

Between worries about retail demand, construction spending, auto build rates, and input costs (including tariffs), Stanley Black & Decker (SWK) still hasn’t been getting all that much love. This is part and parcel of the challenges of “buying the dip” as I outlined in my prior piece, though Stanley has only modestly underperformed industrials in general over the past three months (though Snap-on (SNA) has been much stronger), the year-to-date performance is still pretty weak and there are valid reasons to worry that management’s guidance for the second half is too aggressive.

I do see some near-term risks, but I think the valuation is pretty interesting. I do believe the Craftsman acquisition creates some interesting opportunities, and I likewise think Stanley has the option to deploy capital into potentially value-enhancing transactions within fastening. Against that “interesting” valuation, though, is the reality that this company’s track record with respect to ROIC and margin improvement are not great and there are execution risks to consider.

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Stanley Black & Decker Still Not Getting Much Benefit Of The Doubt

Multiple Tailwinds Filling The Sails For Chart Industries

Chart Industries (GTLS) has been through some tough times in its past, but the outlook today is much brighter as multiple tailwinds come together to push results, estimates, and the share price higher. The shares have more than doubled over the past year, and climbed close to 60% just on a year-to-date basis, as the company continues to see strong demand from gas processing, vehicle fueling, industrial gas, and newer opportunities like space vehicles.

Chart Industries has significant untapped potential operating leverage and the double-digit revenue growth I expect over the next few years should push margins into the double-digits. Better still, LNG liquefaction orders remain a very significant potential positive driver in the coming years as global LNG demand continues to rise. That said, today’s price does assume quite a lot of growth already and this is more of a momentum-based story driven by the ongoing top-line outperformance and growing order book.

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Multiple Tailwinds Filling The Sails For Chart Industries

A Window Of Opportunity At Atlas Copco, But Is It Wide Enough To Climb Through?

Atlas Copco (OTCPK:ATLKY) (ATCOa.ST) is one of those top-notch companies that has historically validated the concept of a watchlist – bide your time, wait for your opportunity, and then take advantage when it arrives. Of course, those opportunities always come with caveats – Atlas Copco doesn’t sell off “just because”, and that is the case today. While the slowdown in semiconductor capex orders that rattled investors may well be a temporary blip, nobody knows how big of a blip it will be and it seems less likely that strength in the remaining businesses will produce meaningful additional boosts to estimates during this up-cycle.

Atlas Copco shares do look undervalued on the basis of forward EV/EBITDA, but not yet on the basis of discounted free cash flow and that is my preferred “buy” signal (though “preferred” is by no means the same as “perfect”). I do see some downside risk as the industrial up-cycle ages, and with the possibility of a longer pause in semiconductor order growth, but I wouldn’t try to get too cute with timing this opportunity unless you expect a sharper correction to industrial equipment is on the way.

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A Window Of Opportunity At Atlas Copco, But Is It Wide Enough To Climb Through?

Dover's Core Doing Okay And New Management Brings New Options

I’ve never hid the fact that Dover (DOV) is not among my favorite companies, and over a longer-term holding period, you’d still have done better with names like 3M (MMM), Illinois Tool Works (ITW), Fortive (FTV), Danaher (DHR), and Ingersoll-Rand (IR). That said, Dover shares have been performing meaningfully better on a relative basis over the past couple of years, first with the recovery in the energy sector, then the spin-off of Apergy (APY), and what I believe is building optimism about what a change at the top (a new CEO) could mean in terms of self-improvement.

My complaints about Dover have largely centered around low margins/elevated expenses, weak returns on capital, and a collection of businesses with iffy long-term strategic value. New CEO Richard Tobin seems eager to start work on the expense side of the equation, and I wouldn’t rule out the possibility of management shuffling the deck a little further down the road (selling some businesses and perhaps buying some new ones). While I’m warming up to Dover from a strategic perspective, the valuation still isn’t all that enticing to me, though a longer run of this industrial up-cycle could certainly generate some upside to my expectations.

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Dover's Core Doing Okay And New Management Brings New Options

Neogen's Story Continues To Work

Neogen (NEOG) is the sort of stock that could make value investors tear their hair out in frustration. No question that this is a very good company – basically a “one-stop shop” for food safety and food animal products, Neogen has produced mid-teens long-term revenue growth, 20%-plus free cash flow growth, and an annualized return of over 26% over the past decade, despite almost always sporting exceptionally robust valuation multiples and not hitting its own operating margin goals for five straight years.

Having followed this company for around 20 years, I no longer spend as much time trying to make sense of the valuation – Neogen lives in its own little “pocket dimension” of the market when it comes to valuation, and that either works for you or doesn’t. Fundamentally, though, the company continues to improve its food safety, animal care, and genomics offerings, and as more of the developing world adopts more rigorous food safety testing, I believe Neogen’s market opportunity should continue to grow.

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Neogen's Story Continues To Work

Self-Improvement And Growth Initiatives Making A Difference For Umpqua

Umpqua’s (UMPQ) management change at the start of 2017 has made a difference for this West Coast bank, as the company has moved fairly aggressively to address two of my biggest concerns in late 2016 – a high level of expenses and a lack of clear growth drivers. A new focus on “upper-middle-market” lending should drive profitable C&I lending growth, while Umpqua Next Gen could result in some meaningful expense (a mid-single-digit percentage of 2017 expenses).

Since my last update, Umpqua shares have done a little better than the regional averages and better than peers/rivals like Washington Federal (WAFD) and PacWest (PACW), though not as well as SVB (SIVB) or East West (EWBC). At this point, I believe Umpqua shares are a little undervalued, provided an expectation of double-digit long-term core earnings growth is reasonable.

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Self-Improvement And Growth Initiatives Making A Difference For Umpqua

Life Sciences Performing Well For Danaher

Danaher (DHR) continues to show why it’s one of the more highly-regarded conglomerates; second quarter revenue and margin leverage will most likely be on the good side of average in what is shaping up as a pretty good quarter for multi-industrials. In particular, Danaher’s pivot toward life sciences and healthcare seems like a strong move that will not only drive above-average growth but also above-average margins and below-average cyclicality.

Danaher shares have been pretty lackluster over the past three months, though they continue to stack well on a year-to-date and 12-month basis. These shares are still not what I would call cheap, but waiting for a good entry point with this stock often takes time and patience – those opportunities come, but they don’t come often and investors have to make peace with the risk of being on the outside of a pretty well-run company in the meantime.

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Life Sciences Performing Well For Danaher

Honeywell's Story Getting A Little Sweeter

In prior articles on Honeywell (HON), I had written that I expected this company’s attractive business mix and high-quality management to deliver above-peer results in 2018. So far, that prediction is looking relatively safe as Honeywell continues to produce strong overall results. Better still, the company’s leverage to aerospace and safety should continue to generate good short-term results, while businesses like process automation and productivity look to have strong long-term potential.

Honeywell has lagged the S&P 500 on a year-to-date and trailing 12-month basis, and I can’t really say that the shares are cheap today. The current industrial cycle may not be as late as previously thought, but industrial sector valuations are still pretty high on a historical basis and I am worried that rotation away from the sector could offset the good results from Honeywell. I’m not urging long-term holders to sell, but the price still isn’t at a price that compels me to buy.

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Honeywell's Story Getting A Little Sweeter

Sluggish Results And Guidance Renew Questions About BB&T's Self-Improvement

I had thought BB&T (BBT) had been making some progress in resolving at least some of the issues that had led the bank to underperform peers like PNC (PNC), SunTrust (STI), Fifth Third (FITB), and Regions (RF) in recent years. One quarter doesn’t really change a story, but BB&T’s lackluster results and guidance do suggest that the turnaround isn’t happening quite as fast or smoothly as the bulls might hope.

While the sell-off after earnings was probably at least partly due to the lower guidance, I believe the market also didn’t like the indications that large bank M&A was likely coming back onto the near-term agenda once the bank is fully clear of its consent orders. Selling BB&T because you don’t like M&A seems pretty silly given that M&A has always been core to this company (and management has never backed away from that as an ongoing long-term driver), but then that’s Wall Street for you.

I can’t say that BB&T is all that cheap today, and I’m a little troubled that BB&T seems to be unable to generate the sort of growth initiatives that peers like PNC have put into place. Although the shares are somewhat undervalued on the assumption of mid-single-digit long-term earnings growth, I won’t make a forceful argument that investors should choose this stock over PNC, U.S. Bancorp (USB) or other options in the banking sector.

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Sluggish Results And Guidance Renew Questions About BB&T's Self-Improvement

Will Two Straight Good Quarters Mark A Turn For ABB?

As far as ABB (ABB) is concerned, the industrial recovery that has propelled names like Honeywell (HON), Emerson (EMR), Rockwell (ROK), and Schneider (OTCPK:SBGSY) over the past couple of years is just something that happens to other companies. Hampered by large exposures to industries that have been much slower to recover, and troubled by some of its own restructuring and execution issues, ABB has been a frustrating laggard at a time when investors are banking solid profits in many other industrial names.

With two straight better-than-expected quarters and improving orders, though, maybe ABB’s late-cycle leverage is about to start shining through. The outlook for transmission and distribution is still not particularly strong, but the company is executing well in its automation operations and there are signs of life in the low/medium voltage business as well. There remain good reasons why ABB continues to trade at a discount to its peer group, but if ABB can make the most of this late-cycle move, the shares could finally close some of that performance gap.

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Will Two Straight Good Quarters Mark A Turn For ABB?

Texas Capital's Strong Loan Growth And Spread Leverage Is A Potent Growth Cocktail

With some exceptions, bank stock investors have to choose between companies with strong leverage to higher rates (like M&T Bank (MTB) and Comerica (CMA)) and those with stronger loan growth. In many cases, “both” is not an option, which makes Texas Capital Bancshares (TCBI) a pretty exceptional growth story right now.

Deposit costs are rising and Texas Capital’s lending portfolio isn’t exactly low-risk, but I expect above-average growth from this lender to continue, particularly as it expands its national lending opportunities. Valuation is a difficult call; more traditional valuation approaches would say that these shares are quite expensive but traditional valuation approaches don’t necessarily fit a non-traditional growth story.

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Texas Capital's Strong Loan Growth And Spread Leverage Is A Potent Growth Cocktail

Grainger's Pricing Reset Continues To Drive Exceptional Volume Growth

I’ve been critical of several of W.W. Grainger’s (GWW) strategic moves over the years, particularly its overseas business decisions, but the decision to cut prices has proven so far to be a very good move for this company. Against a very healthy backdrop for manufacturing and construction, Grainger has managed to dramatically outperform smaller rival MSC Industrial (MSM) on volume and outperform Fastenal (FAST) on pricing, allowing the company to outperform both on margin and earnings leverage.

Grainger has done a great job of clawing back the mid-sized customers that it lost in years past when its pricing got too high, but what happens when it exhausts that supply remains an open question. There’s still room for distributors to run as the industrial cycle ages, and Grainger’s valuation isn’t unreasonable on an EV/EBITDA basis, but I do think it’s harder to make the long-term valuation case with the shares up roughly 100% over the past year.

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Grainger's Pricing Reset Continues To Drive Exceptional Volume Growth

M&T Bank Posts Better Margins, But Loan Growth Remains Pressured And The Valuation Isn't Skimpy

In a market where larger banks are still struggling to generate strong loan growth, banks with strong leverage to higher rates like M&T Bank (MTB) can do a little better, and particularly if and when they can keep their costs down. What’s more, while M&T Bank’s reported loan growth is being weighed down by merger-related run-offs and 2018 reported growth is unlikely to look great, underlying originations suggest a little more momentum in the business and the betas still look good.

I wasn’t crazy about M&T’s valuation after first-quarter results, and the company has since underperformed not only regional bank indices, but also peers/competitors like JPMorgan (JPM), PNC (PNC), Bank of America (BAC), and Wells Fargo (WFC) even with a nice little post-earnings pop in the stock. Stretch that comparison out to a year and M&T is still an underperformer, lagging all of those aforementioned peers (including Toronto-Dominion (TD)) except Wells Fargo. While the valuation is more reasonable now, I think there are better ideas out there with not only better growth drivers but stronger underlying served markets.

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M&T Bank Posts Better Margins, But Loan Growth Remains Pressured And The Valuation Isn't Skimpy

Weak Asset Sensitivity Offsetting Improving Efficiency At U.S. Bancorp

Value-based calls on bank stocks don’t really lend themselves to quick outperformance, and U.S. Bancorp’s (USB) shares continue to muddle along as the bank works through some operating challenges in 2018. Although the shares have done a little better over the past three months, they continue to lag the peer group on a year-to-date basis, and even Wells Fargo (WFC) has done better on a trailing 12-month basis.

Bulls will point to U.S. Bancorp’s strong historical results and the company’s ongoing status as one of the most profitable (in ROA/ROE/ROTCE terms) large banks in the country, not to mention the strong fee-generating businesses and the opportunity to use M&A to add more scale. All of that is true, but the performance gap has been shrinking, with rivals like PNC Financial (PNC) stepping up their game in recent years. I continue to believe that U.S. Bancorp is undervalued so long as it can generate mid-single-digit earnings growth, but this is a name that’s going to take time to generate alpha.

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Weak Asset Sensitivity Offsetting Improving Efficiency At U.S. Bancorp

PTC Delivering On Its IoT Promises

There was plenty of skepticism, if not outright scorn, a few years ago regarding PTC's (PTC) plan to put its industrial IoT platform ThingWorx at the center of its growth plans. Fast forward back to the present, and not only has PTC continued to grow, the IoT business has grown to roughly parity with the legacy product lifecycle management (or PLM) software business on a new bookings basis. What's more, PTC has brought in Microsoft (MSFT) Azure and Rockwell (ROK) as partners to grow the IoT business, with partnering with Ansys (ANSS) to augment its legacy Creo CAD business with simulation capabilities.

I liked these shares back in the spring of 2017, and the 80% or so move since then has been gratifying to see, particularly as the business seems to be picking up momentum. Although my growth outlook is stronger now than before, in no small part due to the big-name partnerships PTC has added for ThingWorx, the growth in valuation has exceeded the growth in my expectations. Consequently, while I do still like this business and I fully acknowledge the potential that financial outperformance could drive higher multiples, I can't find the undervaluation to call this a good buy unless you're interested in trading more on momentum than value.

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PTC Delivering On Its IoT Promises

Fulton Financial Still Floundering

It looks like the struggle for Fulton Financial (FULT) shares to find some traction is going to go on a little longer. Investors were already a little impatient with the slow progress in resolving the BSA/AML consent orders that have prevented the bank from consolidating its charters and participating in M&A, but now they also have to digest a sizable fraud-related loss and ongoing sluggishness in core lending growth.

Although the potential for better long-term results is certainly here, the shares have already been reflecting that potential for some time, and I believe the lack of execution on that potential goes a long way toward explaining why the shares have not only lagged regional bank ETFs, but peers (in terms of asset size) like Western Alliance (WAL), Chemical Financial (CHFC), Old National (ONB), United Bancshares (UBOH), and UMB (UMBF) on a year-to-date, one-year, and two-year basis.

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Fulton Financial Still Floundering

A Sour Sentiment Toward First Horizon Could Mean Opportunity

"Worse than Wells Fargo (WFC)" isn't a title anybody wants to hold or share these days, but First Horizon's (FHN) share price performance over the past year and year-to-date does have it trailing that larger scandal-plagued rival. Granted, other similarly-sized banks like Signature (SBNY) and FNB (FNB) have been no great shakes over the past year either, but investors really didn't like what they heard from this Tennessee-based mid-cap bank this quarter.

I think this could be an opportunity for long-term investors to consider First Horizon, but the next few quarters could make for a tough holding period, as it is hard to see what would really drive a meaningful turn in performance or sentiment. First Horizon is a well-placed Southeastern bank active in most of the attractive, major MSAs, and one with a good net beta and specialty lending franchise, but the current performance trajectory isn't getting the job done and the valuation isn't so cheap that it's a can't-miss prospect.

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A Sour Sentiment Toward First Horizon Could Mean Opportunity

Exceptional Rate Leverage Continues To Drive Comerica

With one of the strongest net betas (loan beta minus deposit beta) in the banking sector, Comerica (CMA) has continued to outperform, with the shares beating regional peers over the last year and on a year-to-date basis, though lagging more recently. Although Comerica isn’t posting particularly strong loan growth, that’s actually not such a bad thing right now, as loan growth isn’t really what the market is prioritizing or valuing (EPS revisions/growth are stronger drivers at the moment).

Comerica continues to look like a good name to consider for investors who want to play above-average near-term earnings growth, but aren’t as worried about valuation relative to long-term benchmarks. Rising deposit costs do remain a worry, but between regulatory relief, spread leverage, operating leverage, and perhaps some M&A options, Comerica still offers a lot of what the Street currently wants in a bank stock.

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Exceptional Rate Leverage Continues To Drive Comerica

Mellanox Looking Like A Multiheaded Growth Monster

A lot of things are starting to go right for Mellanox (MLNX). Not only is Mellanox well-placed to benefit from the growth of high-performance computing demand in general, it is taking share from rivals like Broadcom (AVGO) and Intel (INTC) as customers upgrade beyond 10G Ethernet and now stands to benefit from both reacceleration in enterprise storage demand, but also the commercial ramp of its Bluefield chip. Add in the fact that management has committed itself to significant operating margin improvements over the next couple of years, and I think Mellanox is a rare mix of expanding markets, growing share within those markets, and improving margin leverage.

Although Mellanox does not look all that cheap on an adjusted DCF basis, growth tech stocks rarely do. What's more, operating margin is typically a powerful driver/determinant of multiples for companies like Mellanox, and progress toward a high 20%s operating margin could put a $100-plus fair value on the table by this time next year.

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Mellanox Looking Like A Multiheaded Growth Monster

First Republic Putting Some Worries To Rest

There aren’t many truly unique business models in banking, but First Republic (FRC) comes pretty close. Specializing in high net worth (or NHW) clients, First Republic combines a “regular” bank focused largely on jumbo mortgages with a fast-growing business bank focused on private equity, venture capital, and non-profit organizations (including private schools) and a fast-growing asset and wealth management business. First Republic is consistent across its businesses in using a “high-touch” service model that prioritizes outstanding customer service, and the concentration of HNW households means that First Republic doesn’t need many branches to operate its business.

The only downside is that First Republic’s qualities are well-known on the Street. Second-quarter results were pretty solid across the board, but the shares already price in mid-teens long-term earnings growth and meaningful improvements in returns on capital. Accordingly, while this is definitely a name I’d look to reconsider on a pullback, the risk/reward balance doesn’t look so interesting to me now.

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First Republic Putting Some Worries To Rest

Alfa Laval Flexing Its Late-Cycle Muscles

I liked Sweden’s Alfa Laval (OTCPK:ALFVY) (ALFA.ST) earlier this year as a late-cycle play on stronger Marine and Energy orders, as well as decent prospects for ongoing growth in the Food/Water business. Much of that has come to pass, and the shares are now about 20% higher than they were at the time of that last article. Alfa Laval has since logged two very strong quarters, and those hoped-for improvements in the company’s three main business lines have materialized with stronger revenue, orders, and margins.

With the strong move in Alfa Laval’s share price, not to mention some growing concerns about how much is left in this current industrial upswing, I believe these shares have moved from good idea to okay idea. The implied long-term return is still in the high-single digits, which isn’t bad, and I won’t be too surprised if the company has at least one more better-than-expected quarter up its sleeve. Still, I wouldn’t push my luck too far, even though I regard this as a well-managed operator in some attractive businesses.

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Alfa Laval Flexing Its Late-Cycle Muscles

For Wells Fargo, Heavy Is The Head That Wears The Asset Cap

In a quarter, thus far, of pretty good bank earnings reports, Wells Fargo (WFC) stands out as an early outlier with a rare core earnings per share miss. Not surprisingly, while Wells Fargo continues to offer up performance metrics that suggest the bank is continue to re-grow its customer base follow its multiple scandals, the burdens of the regulator-imposed asset cap and remediation efforts are weighing on the balance sheet and earnings growth. Although Wells Fargo shares do continue to look undervalued, there are multiple other banks at similar (if not better) valuations that offer a cleaner story.

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For Wells Fargo, Heavy Is The Head That Wears The Asset Cap

Slow Progress Not Getting The Job Done For Citigroup Shares

The year-to-date performance of the banking sector hasn’t been all that impressive, as the benefits of higher rates and loan growth seem to be largely priced into market expectations and investors don’t see any particularly exciting near-term drivers. Even against that backdrop, Citigroup (NYSE:C) has continued to deliver lackluster performance, with the year-to-date performance only slightly exceeding Wells Fargo (NYSE:WFC) and trailing the likes of JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), PNC Financial Services Group (NYSE:PNC), and Capital One (NYSE:COF) (the latter arguably being its best/fairest peer comparison).

Although I think there is significant long-term value in Citi shares even if management falls short of its near-term/intermediate targets (something that the share price already seems to reflect as a given), it’s harder to make the case for near-term outperformance given the bank’s heavy reliance on cards (as opposed to business or mortgage loans) and the fact that a lot of the expense/efficiency benefits won’t show up until 2019 and 2020. Even so, I still believe patient shareholders can be rewarded here, and I think the shares are undervalued below $80.

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Slow Progress Not Getting The Job Done For Citigroup Shares

PNC Financial Is A Great Bank With A Good Valuation In A So-So Market

This has been a pretty mediocre year so far for banks, as the sector has continued to modestly trail the S&P 500 on growing concerns that the rate cycle has largely played out and there aren’t many particularly compelling drivers left. For its part, PNC Financial (PNC) has been a middling performer so far in 2018, underperforming JPMorgan (JPM) and Bank of America (NYSE:BAC), while outperforming Wells Fargo (WFC).

I don’t really see anything in PNC’s second-quarter results that is going to change many minds. The valuation is still attractive, but not so much so that it demands action, and the company’s efforts to grow loans and drive attractive operating leverage are working, but not really that much moreso than expected.

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PNC Financial Is A Great Bank With A Good Valuation In A So-So Market

JPMorgan Leveraging Its Strengths

While loan growth appears to be improving and credit conditions remain benign, not everything is great in the banking sector, as higher deposit costs are starting to squeeze and the yield curve is flattening out. Even so, JPMorgan Chase (JPM) continues to generate very good results as management skillfully runs one of the best banking franchises in the country. As NIM expansion becomes more challenging, I fully expect the bank’s market share growth efforts to pay off, allowing the bank to outgrow many of its peers.

As far as valuation goes, there still appears to be some upside in the shares. An economic slowdown, or even a recession, is certainly a risk to the sector, but mid-to-high single-digit long-term earnings growth from JPMorgan can still support a fair value in the $115-120 range, while the near-term ROTE likewise supports a similar target.

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JPMorgan Leveraging Its Strengths

Bank Of The Ozarks Squeezed By Growing Commercial Real Estate Concerns

I've been concerned about the heavy weighting of some banks toward commercial real estate and construction lending given where we are in the CRE cycle. Apparently, I'm not the only one, as more than a few banks with high ratios of commercial real estate loans to capital have underperformed their regional banking peers so far this year.

This brings me to Bank of the Ozarks (OZRK-OLD) (soon to be "Bank OZK" (NASDAQ:OZK)); this isn't the first time I've been concerned about the combination of OZRK's aggressive construction/CRE lending growth, its aggressive expansion into new markets, and its funding situation, not to mention its valuation, but it does seem like the market is now paying closer attention. The shares do now look undervalued if double-digit long-term growth remains a reasonable expectation, but investors should note the elevated risks that accompany that undervaluation.

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Bank Of The Ozarks Squeezed By Growing Commercial Real Estate Concerns

Yaskawa Electric's Earnings Report Underlines The Uncertainties In Automation

Investors looking to get a clear sense of the near-term direction of key automation segments like servomotors, drives, and robotics will need to wait a little longer, as Yaskawa Electric’s (OTCPK:YASKY) (6506.T) fiscal first quarter earnings report confirmed some worrying trends but also showed some better than expected strength in other areas.

Although Yaskawa shares are down another 10% from when I last wrote, I’m still not completely sold on the valuation argument at today’s price. This “lull” in smartphone-related capex could go on a little longer than expected, and I’m likewise concerned about the potential for weaker semiconductor, machine tool, and auto-related orders. Long term, I like Yaskawa’s position in both motion control and robotics, and the valuation is getting more interesting on an EV/EBITDA basis, but I’m inclined to stay on the sidelines here for now.

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Yaskawa Electric's Earnings Report Underlines The Uncertainties In Automation

Commerce Bancshares Executing At A Very High Level

As the quarterly earnings cycle starts up, Commerce Bancshares (CBSH) has established a pretty high mark for other mid-cap banks to beat. That’s nothing especially new for this well-run Midwestern bank, but the key issue remains valuation. While Commerce Bancshares has been operationally excellent for some time, I believe the high valuation has been a headwind and at least partly explains why the shares have lagged many regional peers in recent years.

Commerce Bancshares has an excellent net beta and good management, and is likely to accumulate a large amount of excess capital in the coming years, but the combination of weak balance sheet growth and still-high valuation limits my enthusiasm for buying the shares.

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Commerce Bancshares Executing At A Very High Level

AngioDynamics Slowly Building Confidence In Its Turnaround

The current CEO of AngioDynamics (ANGO) has referred to his restructuring plan at times as “fixing the plane while its flying”, and that’s not a bad description. Years of questionable management choices and changes in direction left AngioDynamics with a dated, not particularly competitive, line-up of products that have long consigned the company to weak growth and feeble margins, but management’s restructuring plans look sensible and achievable.

Investing in AngioDynamics means taking some measure of a leap of faith that those restructuring efforts will lead to actual organic revenue growth – something the company has lacked for the better part of a decade – and improved margin leverage. The valuation would seem to suggest that the market is still skeptical that AngioDynamics can ever achieve meaningful growth, leaving some upside for intrepid investors if management can in fact deliver.

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AngioDynamics Slowly Building Confidence In Its Turnaround

Fastenal's Familiar 'Strong Growth / High Expectations' Profile

Fastenal (FAST) has long been an interesting case study in the question of just how much investors should pay for growth, as this company has long been a growth leader in the industrial distribution space, and the shares have typically sported a hefty valuation. Arguing for the case of “valuation always matters sooner or later”, Fastenal’s long-term returns (10 to 15 years) aren’t that exceptional relative to the S&P 500, though the company has more or less kept pace with Grainger (GWW) and outperformed MSC Industrial (MSM).

I don’t really have too many doubts about Fastenal’s ability to continue to grow by expanding into adjacent product markets and growing its vending and onsite operations. I also don’t think that the shares are all that unreasonably priced relative to the market’s prevailing willingness to pay for given levels of margin and returns in the industrial sector. Still, given the changing competitive dynamic in the industrial distribution sector and the mediocre long-term returns implied by discounted cash flow, this isn’t a compelling idea for me now.

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Fastenal's Familiar 'Strong Growth / High Expectations' Profile

Broadcom: Crazy Like A Fox, Or Just Barking Mad?

Sooner or later, every highly acquisitive company will do a deal that investors don’t like and that analysts roundly second-guess. Given that Broadcom (AVGO) does most things on a larger scale, I suppose it stands to reason that when they step outside the box for an acquisition, they step way outside the box.

To call Broadcom’s proposed acquisition of CA Inc. (CA) controversial is to strain the word almost to a point of absurdity. As of this writing, the market is set to wipe away over $15 billion in market value from Broadcom, suggesting that the $19 billion deal is a huge, huge mistake. Although I do believe that this deal is a very risky, and largely unnecessary, leap into the unknown, it would seem that the extreme initial reaction is going to create a buying opportunity for at least those Broadcom investors who still remain in the “in Hock we trust” camp.

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Broadcom: Crazy Like A Fox, Or Just Barking Mad?

MSC Industrial Falls Short Again

In what has become an all-too-common pattern, industrial distributor MSC Industrial (MSM) missed the mark in its fiscal third quarter and issued disappointing guidance for the next quarter. This is quite disappointing for a company and stock that badly needs some beat-and-raise quarters to re-establish credibility with the Street, and the fact that the issues seem internal (in other words, strategic/management mistakes) is not going to help matters.

I do continue to believe that MSC Industrial has a good position in a segment of the industrial distribution market that should withstand competitive pressures from Amazon (AMZN) and other online/e-commerce distributors more effectively than many other distributors. I also believe the valuation now offers some upside, though management’s inability to execute on anything on a consistent basis is now a key concern.

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MSC Industrial Falls Short Again

High Expectations Could Be Teleflex's Most Serious Challenge

Ever since deciding to focus exclusively on medical devices, Teleflex (TFX) has done quite well for itself and for its shareholders, with the stock price making a hockey stick formation since 2011. Gross margins have improved more than six points, operating margins have improved similarly (on an adjusted basis), and the company generates attractive recurring free cash flows. What’s more, management has shown on multiple occasions that it can identify, close, and integrate value-creating acquisitions.

Teleflex has a lot going for it right now, including growth opportunities tied to the ramp-up of existing products (particularly UroLift) and new pipeline opportunities. The issue is valuation; the market is valuing Teleflex as a company with double-digit revenue growth, which it will be in 2018, but as that growth rate decelerates, I am concerned about whether there will be enough drivers (or strong enough drivers) to maintain the valuation.

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High Expectations Could Be Teleflex's Most Serious Challenge

Komatsu Sliding Despite Ongoing Order Growth

Even though many companies in the mining industry are saying the capex recovery is only just starting, and companies in the construction space still see more upside for equipment demand, the shares of major equipment manufacturers have been reflecting a very different assessment. Komatsu (OTCPK:KMTUY) shares are down about 15% since my last update in the spring of this year, and down 20% year-to-date though up about 12% over the last year, as investors have been selling down Caterpillar (CAT), Hitachi Construction Machinery (OTCPK:HTCMY), Sany, and Manitowoc (MTW) on worries about cyclical demand and margin pressures from input costs (namely steel), not the mention the risk of accelerating global trade tensions.

As it concerns Komatsu, I think the year-to-date performance might be a little overdone. I do have some concerns about slowing construction demand, but I think Komatsu is looking at a good opportunity in the mining business, and I think the company’s significant investments in automation (both external and internal) will pay off in the coming years. With what appears to be a valuation that is already baking in a lot of weakness, I think these shares are worth another look today.

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Komatsu Sliding Despite Ongoing Order Growth

Like Other Old-Tech Names, Oracle's Value Is Tied To Its Ability To Reignite Growth

Reading the sell-side research on Oracle (ORCL), I’m struck by how frequently the analysts benchmark Oracle’s valuation multiples (whether it’s P/E, EV/FCF, EV/revenue, et al.) against the peer/industry group in an attempt to make the “Oracle is undervalued” case, but neglect to benchmark the company’s revenue growth rate. While margins and free cash flow certainly do matter, revenue growth is a significant near-term driver for valuation multiples, and Oracle’s growth rate is much more in the CA Inc. (CA)/IBM (IBM) neighborhood than the Microsoft (MSFT)/Adobe (ADBE) neighborhood of older tech stocks.

Given the weak growth rate, the recent trends in Oracle’s position in sell-side CIO surveys, and the company’s ongoing challenges with the on-premises-to-cloud transition, I can’t work up much enthusiasm for the stock. While many old-tech companies have faced challenges in their attempts to renew themselves and remain competitive (Microsoft had its issues, IBM is still in the middle of them…), I just don’t see enough of a discount here to take on the incremental execution risk.

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Like Other Old-Tech Names, Oracle's Value Is Tied To Its Ability To Reignite Growth

GenMark Diagnostics Starting To Deliver, But Consistency Is A Key Issue

If you tried to play a drinking game with the number of times I've mentioned consistency and/or execution in relation to GenMark Diagnostics (GNMK), you would risk serious damage to your liver. Even so, the ability of this company to deliver on the promise of its ePlex multiplex diagnostic system is arguably the key variable in the entire investment equation. The question of whether or not multiplex testing delivers value for health care systems is more or less settled, but whether GenMark can generate adequate commercial interest in its system, manufacture them profitably, and develop an adequate test menu in time are not settled.

With good flu-related demand in the first quarter and the recent submission of the gram-positive sepsis to the FDA, I think things are looking better for GenMark, and the shares are up about 50% from last update in March. If management continues to deliver, this could only be the beginning, as GenMark serves a market that can support hundreds of millions of dollars in revenue at better multiples than the shares currently enjoy.

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GenMark Diagnostics Starting To Deliver, But Consistency Is A Key Issue

Brookfield Infrastructure Gets Moving On New Investments

It was only a couple of weeks ago that I wrote about Brookfield Infrastructure (BIP) looking to deploy significant amounts of capital into new cash-generating assets, and the company has moved quickly to do just that. In just that short span of time, Brookfield has participated in two deals with a combined headline value of $4.5 billion, with both deals looking pretty typically “Brookfield-esque” in terms of structure and long-term opportunity.

As is typically the case, Brookfield Infrastructure management provided minimal financial information, and that certainly complicates the modelling process. Even so, I believe these deals add about 1% to the company’s long-term AFFO growth rate and about $2.50/share to the long-term discounted fair value. While Brookfield is usually careful not to bite off more than it can chew, I’d note that the company’s ongoing use of equity and debt to acquire minority stakes leaves open the possibility of more acquisitions in the not-too-distant future.

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Brookfield Infrastructure Gets Moving On New Investments

United Fire Looks A Little Overheated In A Still-Challenging Sector

These are challenging times for the insurance industry, and small-cap player United Fire (UFCS) has not been immune. Healthy reserve releases have helped boost underwriting results, but the top line remains pressured, and management has decided to reinvest in the business by boosting its technology platform - a decision that should pay off long term, but that will pressure expense ratios in the near term. While United Fire has a decent enough business focusing on smaller businesses and offering coverage for commercial auto, fire (and allied lines), workers' comp, and product liability, the valuation more or less already captures the positives of the story.

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United Fire Looks A Little Overheated In A Still-Challenging Sector

Near-Term Trends Masking The Long-Term Potential For ProAssurance

Transitional periods are never fun, and ProAssurance (PRA) is likely looking at a couple of years where core earnings and book value growth will be pressured by rising claims costs. This is a sector-wide phenomenon, though, and many of ProAssurance’s competitors have been less conservative with their accounting assumptions and lack the same quality of reserves, which should lead to stronger industry-wide pricing.

Valuing ProAssurance is complicated by the likelihood that the near-term results aren’t really representative of the long-term earnings power of the business. Although there is a practical reality that insurance companies don’t usually outperform without underlying earnings and book value growth, I believe there is worthwhile long-term potential here.

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Near-Term Trends Masking The Long-Term Potential For ProAssurance

CyberArk Worth Watching For Pullbacks

In a highly competitive and ever-evolving space, CyberArk Software (CYBR) looks like an interesting security name to me. Although there’s controversy and debate about the true size of the Privileged Access Management market, I believe it is a meaningful “second line of defense” that will be increasingly important to mid-sized and larger enterprises, giving CyberArk a chance to further penetrate a market that I believe could be worth somewhere around $5 billion. The valuation isn’t quite where I’d like to be, though, so this is a name I’m relegating to the watch list in the hope of getting a better entry price in the next year or two.

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CyberArk Worth Watching For Pullbacks

Rudolph Technologies Growing Into Expanding Markets, And Priced Fairly

Against a backdrop of generally weakening sentiment, Rudolph Technologies (RTEC) has been a bit of an outlier in the semiconductor equipment space. Up almost 30% over the last year, and over 20% year to date, Rudolph is solidly ahead of peers/rivals/comps like KLA Tencor (KLAC), Lam Research (LRCX), Applied Materials (NASDAQ:AMAT), Nova Measuring (NVMI), and SUSS Microtec (SMHN.XE). What makes that a little odd is that although the company has been steadily growing its addressable market, its revenue growth hasn't been all that outstanding on a peer-to-peer basis and its product exposures (RF, etc.) could be a vulnerability.

Rudolph has done a little better than I'd expected back in 2016, but compared to a stronger equipment environment than I'd expected the "net outperformance" hasn't been all that significant. Although I do like Rudolph's prospects for leveraging ongoing demand for advanced architectures and packaging, as well as its prospects to sell lithography stepper tools into the OLED space, the valuation seems pretty fair at a time when the overall sector is looking pretty wobbly.

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Rudolph Technologies Growing Into Expanding Markets, And Priced Fairly