Ciena Converting Skeptics And Finding Its Groove

Ciena (CIEN) has been a patience-testing call at times, as the market has been unwilling to trust this optical equipment provider given a not-so-great history and reputation for its sector. While there are still too many subscale players in optical transport, Ciena is doing well on Tier 1 metro spending, growth overseas in markets like India and Japan, and data center growth. Margins are still a bit of a sensitive subject, but I think management has made a good case for why margins should rebound over time.

With the big post-earnings jump (up more than 10%), it's harder to call Ciena a bargain, though I don't think the upside is tapped out yet. I'm a little concerned that Ciena could disappoint on gross margins in the next quarter and shake some of this newly-won confidence, but this is definitely a name I'd look at again if it were to slide back into the mid-$20s.

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Ciena Converting Skeptics And Finding Its Groove

Infineon Facing Near-Term Ordering Risks, But Attractive Long-Term Growth Opportunities

These are interesting times for the semiconductor industry. End-market demand is still pretty healthy, and with many suppliers at or near capacity, lead times have lengthened and double-ordering has become more commonplace. That's a threat to companies like Infineon (OTCQX:IFNNY) (IFXGn.XE), ON Semiconductor (ON), and STMicroelectronics (STM), as the industry has struggled in the past to exit gracefully from periods of extended lead times and deal with what is often an over-capacity situation in the immediate aftermath.

I do believe the near-term outlook for Infineon has some risks to it (and I would say the same for ON, STM, and Renesas (OTCPK:RNECY)), but I like the company's long-term growth opportunities in areas like auto, factory automation, renewables, and appliances, as it leverages its very strong position in power and looks to grow share in microcontrollers (or MCUs).

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Infineon Facing Near-Term Ordering Risks, But Attractive Long-Term Growth Opportunities

Employers Holdings A Well-Run Play On Small Business Growth Through Workers Comp

Focused and disciplined, Employers Holdings (EIG) isn’t likely to ever be a fiery growth stock, but then I think you could argue that aggressive growth in insurance doesn’t often work out so well. Instead, Employers has delivered consistent shareholder value growth since going public by staying focused on its core market opportunity of underwriting workers’ comp insurance for small businesses in industries with low-to-medium hazard risk.

I’m less than comfortable making a big leap into a pure workers’ comp play today, though. The industry has benefited from an extended period of lower losses due in part to the benefits of the ACA and rates have come under pressure in recent years as a result of lower losses and strong returns. Worsening loss trends are a threat, as is a slowdown in employment growth, and more insurers are trying to target the smaller business markets that Employers has targeted. While I do think the shares are modestly undervalued today, another dip toward $40 would certainly get my attention.

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Employers Holdings A Well-Run Play On Small Business Growth Through Workers Comp

Disruptive Innovation And Generally Good Execution Driving Globus Medical

Although there was a little hiccup in June, Globus Medical (GMED) has continued to outperform in a hot med-tech market, as investors have been fired up by the company’s disruptive innovation (particularly in robotics) and prospects to leverage meaningful share gains and pull-through in the coming years. At the same time, the company’s “core” spine business has continued to gain share in what may finally be a recovering U.S. market for spine procedures.

Up close to 80% over the past year, valuation remains my biggest concern with the shares. Ongoing beat-and-raise quarters should be able to support the stock (if not drive it higher), but the stock does appear to be carrying multiples in excess of what the business can support, and I believe that ups the risk.

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Disruptive Innovation And Generally Good Execution Driving Globus Medical

Sandy Spring Offers Quality And Value, But Mind The Funding Risk

By and large, there aren't a lot of great bargains in the banking sector today, and most of those that look to be bargains to me are having some "hair" on the story right now. I suppose bears can point to some near-term issues and challenges with Sandy Spring Bancorp (SASR), but on the whole I believe this metro DC bank is a high-quality proven operator with a good mix of quality and growth, and a decent value story as a nice little kicker.

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Sandy Spring Offers Quality And Value, But Mind The Funding Risk

Carlsberg Has Exceeded Expectations, But There's Still More Work To Do

Relative to the skepticism that prevailed two or three years ago, Carlsberg (OTCPK:CABGY) (CARLb.KO) has executed well – not only against its self-improvement plan, but against a pretty challenging market environment. Management has exceeded its cost-cutting/savings goals, successfully introduced new products, and shown that it can drive revenue and profit growth from “premiumization” in mature markets, while building its business in emerging markets.

Carlsberg shares have outperformed most of its peer group over the past two years, handily surpassing ABInBev (BUD), Molson Coors (TAP), and Heineken (OTCQX:HEINY), though not matching the stellar performance of CR Beer. Valuation is mixed, with the shares not looking so appealing on discounted cash flow, but offering more upside on EV/EBITDA, and management still faces considerable challenges with a mature footprint and rising competition in some of the most attractive emerging markets.

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Carlsberg Has Exceeded Expectations, But There's Still More Work To Do

Improving Rates And Capital Deployment Should Better Support Ship Finance's Dividend

Through the severe ups and downs of the shipping industry, Ship Finance (SFL) has managed to roll with the punches better than most. Although the annualized total return over the past decade including dividends isn’t so impressive next to the S&P 500, the company has done considerably better than the “average” shipping company (more than a couple of which went bankrupt) and has consistently paid a dividend despite significant disruptions at major client companies.

Ship Finance has also evolved with the time, and I believe the company is in fairly solid shape today. Not only is the company placed to benefit from rising rates in containerships and dry bulk, the company has been actively deploying capital into cash flow-generating assets and could likely deploy several hundred million dollars more into productive assets. Although I don’t think the shares offer all that much appreciation potential, I believe the dividend will be increasingly better-supported by cash flow in the coming years and I think the yield offers a decent return relative to the risk.

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Improving Rates And Capital Deployment Should Better Support Ship Finance's Dividend

Nektar Therapeutics Offers A High-Potential But Controversial Pipeline

It has been a while since I updated my thoughts on Nektar Therapeutics (NKTR), and a lot has happened with this biotech over the past year, including a huge development deal with Bristol-Myers (BMY), mixed trial data at ASCO, and ongoing progress with additional compounds in the oncology pipeline. On top of all that, Nektar has a pain asset with potentially impressive upside, an exciting early-stage anti-inflammatory asset, and a significant amount of cash.

Nektar shares sold off hard after the disappointing ASCO results, but have since recovered 40%. At this price, I don’t necessarily think Nektar is seriously undervalued relative to the development risk. That’s a key caveat, though, as better clinical data on the NKTR-214 (or ‘214) melanoma program at the November SITC could restore some bullishness here and there is a lot of potential value in ‘214, NKTR-358, NKTR-262, and NKTR-255 that could be unlocked with future clinical successes.

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Nektar Therapeutics Offers A High-Potential But Controversial Pipeline

An Unexpected Leadership Transition Likely Won't Faze Roper

It’s hard to find much to pick at with Roper (ROP). Sure, the ROIC/CROCI could be a little higher, but this tech and software-driven multi-industrial has “out-Danaher’ed” Danaher (DHR) over the past 15 years with a 20% annualized return driven by well above-average revenue growth, operating margins, FCF growth, and FCF margins. What’s more, the company’s transition toward niche-based, asset-light, SaaS-driven recurring revenue puts the company in a sweet spot with respect to many of its more cyclical peers.

Roper investors got a negative surprise on Friday, though, as the company announced that Neil Hunn would be assuming the CEO position effective on September 1, with Brian Jellison stepping down. While this transition is coming about three years sooner than expected, Hunn has been groomed for this position for some time. Rising valuations and ample capital left to deploy will test Hunn early in his tenure, but my basic viewpoint today is that Jellison established a model that can continue to generate strong results without him.

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An Unexpected Leadership Transition Likely Won't Faze Roper

Approval, Labeling, Pricing, And Competitor Data All Give Alnylam Pharmaceuticals A Wild Ride

It’s been an interesting period of time to be an Alnylam (ALNY) shareholder, as the company got its first FDA approval (Onpattro), but with a narrower label than hoped and a somewhat confusing price structure. On top of that, a key potential competitor that wasn’t even seen as much of a player just a year ago has come out with data that, while strong, doesn’t exactly lock the door on Alnylam.

I’m finding that relatively conservative expectations have helped me out with Alnylam; the company’s announced net pricing was 1.5% lower than my estimate, and I never had modeled any revenue for Onpattro from more cardiomyopathy-oriented hATTR patients. While data from Pfizer’s (PFE) tafamidis does set a high bar for Alnylam’s ALN-TTRsc02 (or “sc02”), here too I haven’t been expecting Alnylam to run away with the market. All told, I’m still feeling relatively comfortable continuing to own these shares and with a $150 fair value estimate.

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Approval, Labeling, Pricing, And Competitor Data All Give Alnylam Pharmaceuticals A Wild Ride

Can Acerniox Deliver A Stronger Second Half?

One of the strongest bullish arguments for Acerinox (OTCPK:ANIOY) has been that the company’s strong leverage to the U.S. market (40% of production capacity) would significantly improve its pricing outlook and shield it from at least some of the risks of import competition in markets like Europe. Although that has been the case, and Acerinox has outperformed other stainless steel names like Outokumpu (OTCPK:OUTKY) and Aperam (OTC:APEMY), as well as other European steel names like voestalpine (OTCPK:VLPNY) and ArcelorMittal (MT) (which is really more of a global steel company), the shares are still down a bit from my last update and flat for the year as my worries about playing a mature steel cycle have apparently come to pass.

As is the case with voestalpine, it’s hard to recommend Acerinox shares now even though they do look meaningfully undervalued. European steel prices should recover in the second half of the year, but “should” is not a guarantee, and it’s tough to see what’s going to drive a significantly better outlook for these companies. While I do thing the value argument here is legitimate, and peak EBITDA could still be some distance away, investors need to at least consider the risk that Acerinox turns into a value trap.

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Can Acerniox Deliver A Stronger Second Half?

Wright Medical Does A Deal Both Opportunistic And Defensive

For a company that many investors are certain that the CEO is going to sell at some point in the not-so-distant future, Wright Medical (WMGI) continues to show that it is very focused on building its business. To that end, the company announced Monday morning that it would be acquiring privately-held ortho implant company Cartiva for $435 million in cash. Although Wright is paying a high price for Cartiva, the valuation isn’t unreasonable relative to the growth and Wright is adding an uncommonly profitable product with meaningful growth potential.

Given the price Wright Medical is paying, executing on this transaction is essential. While the acquisitiveness of Wright could, perhaps, prompt some investors to question the real underlying health of the company’s portfolio, I think Cartiva was a rare opportunity for Wright Medical to meaningfully augment its growth potential.

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Wright Medical Does A Deal Both Opportunistic And Defensive

Value And Operational Quality Aren't Enough To Get Voestalpine Moving Up

It’s been something of a boilerplate warning for me when I’ve written about steel stocks this year, but one of my biggest concerns with the companies in this sector has been whether there’s anything left in terms of themes or catalysts to drive these stocks higher. In the case of voestalpine (OTCPK:VLPNY) (VOE.VI), the shares have been disappointingly weak since my last update (down about 14%, underperforming the sector by about 10%), as worries about tariffs, end-market exposures, and cycle/price risk outweigh what have been pretty good operating results.

I do believe voestalpine shares are trading meaningfully below fair value, but what’s going to change that? Valuation itself is very rarely a catalyst, and I don’t know that there’s much desire in Washington, D.C. to ease up on tariffs ahead of midterm elections. Accordingly, while I do think that voestalpine is a very good steel company trading at too low of a price, there is a real risk that this is a value trap at a time when the sector is likely plateauing.

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Value And Operational Quality Aren't Enough To Get Voestalpine Moving Up

Core-Mark Races Out Of Wall Street's Doghouse

So much for Core-Mark (CORE) needing time to rebuild confidence in its business, or at least insofar as the Street goes. Core-Mark reported a solid, and certainly stronger than expected, second quarter, and not only have the shares rocketed back up, but the sell-side crowd is back to doing keg stands and conga lines to celebrate the company, and scratching around for excuses to boost price targets even though their actual estimates haven’t gone up so much.

Although I thought things were looking better for Core-Mark in May, I absolutely didn’t expect the shares to double in just three months. Management has certainly made better (and faster) progress in address cost issues in two of its West Coast locations and that seems to have restored a lot of faith in the overall business plan. What’s more, pressures on the cigarette business have normalized and the non-cigarette business continues to grow nicely. I liked Core-Mark more than the Street seemed to back in May, and I’m impressed with second quarter results, but I do think the sharp upward move in the shares more than adequately reflects the improvements in the business.

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Core-Mark Races Out Of Wall Street's Doghouse

PagSeguro Disrupting A Large, Previously Untapped Market

Fintech has been good to investors recently, with the markets prizing highly leverageable “toll-taker” models that can earn small, high-profit bits of revenue off of repeated transactions. One of the classic examples of this model is the merchant acquirer (think companies like Global Payments (GPN)), and PagSeguro (PAGS) is bringing a new and disruptive acquiring model to the small business market in Brazil.

No brief article can completely capture or summarize the risks of a company, so please do your own careful due diligence. In addition to the risk that comes with competing with the likes of Cielo (OTCPK:CIOXY), Itau Unibanco’s (NYSE:ITUB) acquiring operations, newer entrants like SumUp, MercadoLibre’s (MELI) Mercado Pago, and now PayPal (PYPL), there are significant regulatory risks, operating/execution risks, and macroeconomic risks.

All of that said, this is an interesting growth story, as PagSeguro has already carved out good initial market share in the “micro-merchant” niche and stands to benefit not only from ongoing merchant acquisition, but increasing transaction volume and value. Fintech valuation has often tended to exist in its own world, but PagSeguro’s growth potential could make it worth a look from aggressive investors who can accept the above-average risks.

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PagSeguro Disrupting A Large, Previously Untapped Market

OceanFirst Financial Executing Well Ahead Of Deal-Driven Leverage

Even I have to admit that small banks are not the most exciting stocks to follow on a quarter-to-quarter basis, but by the same token I don’t invest for excitement. The story at OceanFirst (OCFC) remains fundamentally the same – a well-run New Jersey bank with an attractive deposit base that is leveraging acquisitions and new hires to grow its commercial lending business and profitably expand toward metro New York and Philly.

Although I believe additional deals are a virtual certainty, OceanFirst is still integrating the Sun deal and will soon start to see meaningful expense leverage. At the same time, OceanFirst has the flexibility to expand lending further and a low-cost/low-beta deposit base to fund it. OceanFirst shares have slightly outperformed regional banks indices over the past quarter and still look modestly undervalued today.

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OceanFirst Financial Executing Well Ahead Of Deal-Driven Leverage

Loan Growth Worries Weighing On DBS Group

Even though DBS Group (OTCPK:DBSDY) is one of the best-regarded banks in Asia, it’s not immune to macro-economic concerns. If anything, the company’s position as a significant lender in China and Hong Kong and a large player in trade financing makes it even more sensitive to the health of the global economy. While DBS Group enjoyed a nice two-year run on easing credit quality concerns, new worries about loan growth have thumped the shares over the past three months.

I don’t want to undersell the risks to DBS Group if the trade dispute between the U.S. and China ratchets up, nor the risks from a weaker Chinese economy (and particularly its property market) or a slowing U.S. recovery/expansion. DBS Group needs loan growth to really thrive and any/all of those factors could create loan growth pressures, as well as efforts to cool the Singaporean housing market. That said, this is a bank that has been tested by macro challenges in the past and came through. With the shares trading more than 20% below my estimate of fair value, I’d at least consider these shares as candidates for a watch list.

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Loan Growth Worries Weighing On DBS Group

Hartford Defies The Market And Announces A $2.1 Billion Deal For Navigators

Wall Street has a one-size-fits-all answer for what insurance companies should do with any extra capital - buy back shares. Hartford Financial (HIG) had frustrated the Street's push for a buyback all year, and at least some investors and analysts were disappointed that the company didn't announce a buyback with second quarter earnings, and now they've gone and announced a $2.1 billion acquisition of another insurance company (specialty insurer The Navigators Group (NAVG), or Navigators). As you might expect, the shares sold off on the announcement.

I'm not completely sold that Navigators is the right deal at the right price, but I don't believe it is liable to destroy shareholder value to any large extent. As I believed Hartford to be undervalued before the deal announcement, I still believe that to be the case, but sentiment is going to be an even greater obstacle now and it's going to take noticeably better than expected results from Hartford and Navigators to move the shares.

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Hartford Defies The Market And Announces A $2.1 Billion Deal For Navigators

ING Putting Investors Through Dutch Water Torture

This has been a tough year for European bank stock investors, with very few banks showing much if any gains so far this year (Swedbank's (OTCPK:SWDBY) meager 5% return makes it one of the outperformers) and the Benelux banks continuing to do fairly poorly, and ING Groep (ING) underperforming in particularly with a year-to-date 20%-plus fall. There are a lot of reasons for the weakness, including relatively modest rate leverage, worries about economic growth, and concerns about capital, but in the case of ING, I believe the primary concern remains the slow pace of growth, with issues regarding capital and Turkey cropping up more recently.

I admit some concerns that ING is slipping into a Societe Generale-like (OTCPK:SCGLY) morass of being unable to hit its earnings, capital, and return goals, but in fairness to ING, there have to be quite a few additional disappointments before they get there. Still, I think the point stands that for the value that there appears to be in ING shares today, investors have to at least consider the risk that growth will come in meaningfully below already-low expectations.

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ING Putting Investors Through Dutch Water Torture

FIS Prized For Its Leverage To Bank IT Investments

I was fairly lukewarm on FIS (FIS) back in May of this year, and the shares have since risen another 5% or so – keeping pace with the S&P 500 but largely sitting out the strong ongoing run in fintech names, as peers/comps like Jack Henry (JKHY), Worldpay (WP), Fiserv (FISV), and Total System Services (TSS) have shot higher as Wall Street seemingly can’t get enough of the fintech sector growth story.

As it concerns FIS, while I like the story of leveraging ongoing growth in bank IT investment, including a growing willingness to outsource as “keeping up with the Morgans” with internally-developed systems becomes prohibitively expensive, I just don’t see the growth here to support a substantially higher share price. Outsourcing among banks could perhaps inflect more strongly than I expect, or FIS could perhaps migrate a bit further down-market from its core Tier 1/Tier 2 bank focus, but this remains a stock where I understand the fundamental drivers but struggle to make more sense of the valuation and expectations.

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FIS Prized For Its Leverage To Bank IT Investments

Aviva On Track And Undervalued

European insurers have continued to underwhelm this year, with names like Prudential PLC (PUK), AXA (OTCQX:AXAHY), Legal & General (OTCPK:LGGNY), and Aviva (OTCPK:AVVIY) all down on a year to date basis, making companies like Ageas (OTCPK:AGESY) more the exception than the rule. While there are company-specific issues in play and some macro concerns (including Brexit), a bigger issue is the underwhelming pace of growth in both reported earnings and book value.

As it concerns Aviva, although these shares have not done as well as I would have expected, I continue to believe that slow and steady can win the race. The company has made what I believe is a good case for how it will grow in the U.K. life market, and continues to invest in growth opportunities in insurance markets like Poland. Although I don’t expect exceptional growth, low-to-mid single-digit earnings growth is enough to support a fair value in the mid-teens (for the ADRs) and management remains committed to returning capital to shareholders.

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Aviva On Track And Undervalued

PAX Global Still Facing Some Significant Issues

Although the shares are up about 15% since my last update, PAX Global (OTCPK:PXGYF) (0327.HK) remains a frustrating company and stock in many respects. The mid-teens revenue growth is certainly positive, as is the company’s relationship with fast-growing PagSeguro (PAGS) in Brazil, but management has repeatedly missed its own targets for the North American business and the Chinese business has eroded drastically. What’s more, management took a regrettable turn towards less disclosure earlier this year despite a prior pledge to be more open with shareholders.

For every positive about Pax Global, I can find a negative (and vice versa). I am concerned about the company’s lack of investment in software and services, and I do worry about the competitive threat presented by peer-to-peer payment technologies and other fintech players. But with the shares trading close to tangible book and pricing in relatively lackluster growth, there could still be an opportunity here for aggressive investors.

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PAX Global Still Facing Some Significant Issues

Can Middleby Follow Through After Beating Low Expectations?

You never really can tell just what Wall Street will decide to focus on when it comes to a company undergoing a turbulent transition period. In the case of Middleby (MIDD) and its second quarter earnings, it seems as though the Street was happy to look past weaker-than-expected EBITDA (a 6% miss on already-lowered expectations) and gross margin and focus on a small revenue beat and a generally more constructive tone from management.

I had some interest in Middleby earlier this year as it slid toward $100, and I wouldn’t call today’s valuation unreasonable, although it is trading for more than I’d care to pay on both a DCF and EV/EBTIDA basis. If Middleby can maintain, or improve upon, the best results seen in the Commercial Foodservice and Residential businesses in years, I expect these shares to trade higher, but the weaker margins are a concern, and I’m not completely sold that the organic growth issues are fixed.

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Can Middleby Follow Through After Beating Low Expectations?

Bay Banks - Interesting Opportunity, But A Lot Of Work To Do

Investors have hundreds of bank stocks to choose from, and within that pool you can find a story to fit almost any preferred investment strategy. In the case of tiny Bay Banks of Virginia (OTCQB:BAYK), the opportunity here revolves around leveraging the Virginia Commonwealth acquisition to gain more low-cost deposits and gain share in the fragmented Richmond and Virginia Beach markets, while also pivoting towards a more commercial-oriented lending mix and building up the fee-generating treasury and asset management operations.

Although these shares have sold off since second quarter earnings, they’re still not all that cheap on a standalone or peer basis. I like the opportunity Bay Banks has to generate above-average growth from improving its deposit composition, gaining loan share in underserved markets, and leveraging its enhanced scale, but not enough to stretch for this stock today.

Readers should also note that Bay Banks has less than ideal liquidity, though the company is pursuing a NASDAQ listing, and that should ultimately improve liquidity.

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Bay Banks - Interesting Opportunity, But A Lot Of Work To Do

Healthy Petrochemical Markets Helping Kirby Recover

The inland barge market hasn't fully recovered yet, but it is definitely on its way back, and that has helped drive a good performance from Kirby's (KEX) shares. Between a recovering inland market, a bottoming coastal market, and healthy demand for energy equipment, Kirby should be looking at significantly improving EBITDA, earnings, and free cash flow over the next few years.

I thought Kirby's valuation looked a little full at the time of my last update, and the shares are down a bit since then, underperforming the Dow Jones Transports by about 10%. I do expect Kirby to benefit from ongoing strength in the economy in the short term as well as growing petrochemical production capacity in its core operating area over the medium term, and I do see mid-to-high single-digit annual return potential here, but slowdowns in Permian activity could have a bigger short-term impact on sentiment.

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Healthy Petrochemical Markets Helping Kirby Recover

NuVasive Boosted By Renewed Confidence, But Follow-Through Will Be Critical

The last couple of years have certainly highlighted that NuVasive (NUVA) has yet to outgrow its volatility, but the stronger than expected second quarter results were the sort of confidence-building results I thought these shares would need to get back some of their luster. Now the question is whether or not the company can leverage recent new product introductions to maintain that momentum and whether procedure volumes in the spine market at large can support a stronger growth outlook.

With the shares back into the high $60s, it’s tougher to make a call on NuVasive. While there are still opportunities to gain share in the spinal market, NuVasive doesn’t have the operating track record of a company like Stryker (SYK), and I certainly wouldn’t criticize investors who bought shares in the $40s thinking about cashing in and moving on. If NuVasive can deliver another quarter or two of better than expected growth, though, a fair value in the mid-$70s could very well come back into play.

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NuVasive Boosted By Renewed Confidence, But Follow-Through Will Be Critical

FormFactor Looking At Increasingly Challenging End Markets

Shares of FormFactor (FORM) have fallen about 6% since my last update, which I actually consider a pretty restrained response to what has been a stream of bad (or at least weak) news about the chip market, including weakening NAND prices, delays in architecture transitions, and what seems to be a general slowing trend across the sector. Investors even shrugged off a fairly weak guide from FormFactor with second quarter earnings that led to a greater than 10% drop in the average EPS estimate for 2018 and a roughly 10% drop for the 2019 estimate as well.

I like FormFactor as a business, and I like the company’s leverage to increasingly sophisticated chip architectures that make the company’s MEMS-based probe card technology even more compelling and competitive. I don’t like the idea of potentially reaching into to a woodchipper to grab a bargain, though, as there is probably still more downside risk in chip volume expectations than upside risk. For those not afraid of earning the nickname “Stumpy”, there appears to be value in FormFactor today and even I admit wondering whether expectations are low enough to buy in now.

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FormFactor Looking At Increasingly Challenging End Markets

Adecoagro Has Its House In Order, But The Neighborhood Is On Fire

Although I had some concerns back in April about Adecoagro’s (AGRO) exposure to volatile commodity markets, particularly the oversupplied global sugar market, the shares have done better than I’d expected since then, with a 10% rise that not only beats Sao Martinho, but trounces Cosan Ltd. (CZZ). I believe Adecoagro has helped up better in part because of its low-cost sugar/ethanol operations, as well as its greater capacity to shift production toward ethanol at a time when sugar prices are so weak.

Looking ahead, the ongoing trade disputes between the U.S. and China should continue to help crop prices in Brazil and Argentina, while Adecoagro is also able to take advantage of weaker local currencies and a pretty solid hedging position. Moreover, I think the share price doesn’t reflect the progress the company has made over the years in improving its operations, nor the potential leverage to a larger dairy business. The commodity exposure increases the risk of this stock, but I do think the valuation remains relatively attractive.

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Adecoagro Has Its House In Order, But The Neighborhood Is On Fire

Still Not Much Momentum At Accuray

Small-cap oncology system manufacturer Accuray (ARAY) reported a decent fiscal fourth quarter, but it’s hard to see much momentum in the business or any real sign that this company is becoming a more disruptive force within the radiation oncology market. Although I continue to give management high marks for improving the underlying efficiency of the business and cleaning up the balance sheet, I just don’t see signs that Accuray is really gaining on Varian (VAR) (or even Elekta (OTCPK:EKTAY)) in any meaningful way, and I don’t see anything on the horizon that would drive a sudden shift in sentiment among customers.

Valuation remains undemanding, and I still believe the acquisition of Accuray by a Chinese or Japanese company is conceivable, but med-tech stocks most often trade on the basis of revenue growth and it looks like Accuray has a long row to hoe to generate enough revenue growth to get investors excited about the shares.

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Still Not Much Momentum At Accuray

Two Encouraging, But Not Convincing, Quarters From Lenovo

Once again Lenovo (OTCPK:LNVGY) (992.HK) has delivered a better-than-expected set of quarterly financial results and once again many sell-side analysts are reacting with “yeah, well … I still don’t believe it”. That skepticism isn’t completely unfair, as Lenovo has struggled for some time now to translate its strategic and R&D decisions into real financial upside and quite a bit of the recent outperformance has been driven by cost reductions.

I remain in the “skeptical optimist” camp with Lenovo, and I continue to hold a relatively small position, as I believe the company still has leverageable brand value in PCs, not to mention an efficient product development and manufacturing system, and long-term upside in its Data Center Group business. I’m still looking for roughly 2% long-term revenue growth, sub-2% FCF margins, and high single-digit FCF growth as the company stabilizes the Mobile group and drives better results from its PC business.

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Two Encouraging, But Not Convincing, Quarters From Lenovo

Exact Sciences: Overreaction Achievement Unlocked

When I last wrote about ever-controversial Exact Sciences (EXAS), I said that I preferred to wait for another inevitable overreaction to news. The shares are pretty much the same price now as they were then, and there’s the advantage of getting another two quarters of financial data in hand, not to mention some encouraging clinical data on new biopsy tests under development.

Although there’s more volatility here than I normally like, and management’s execution hasn’t been flawless, the long-term opportunity is pretty interesting. I’m still a little concerned about the med-tech sector re-rating down off of historically high levels, but that’s a “you pays your money, you takes your chances” sort of boilerplate risk. Given that I see upside into the $50’s, I’d say this is a name to consider, but do bear mind that this stock is quite a bit more volatile and controversial than you might otherwise think based upon the product, market, and financials to date.

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Exact Sciences: Overreaction Achievement Unlocked

Taking Another Look At AxoGen After A Nasty Post-Earnings Tumble

With great multiples come great expectations, and institutional growth investors can be merciless and indiscriminate in selling out of high-multiple growth stocks that don’t quite live up to expectations (or produce beat-and-raise quarters). This was one of my biggest concerns with AxoGen (AXGN) when I wrote about the company earlier this year, and the stock got hammered after what I believe was a quite modest second quarter shortfall that didn’t seem to have much to do with end-market demand.

To be sure, AxoGen is still in many respects a “story stock”, and a story with above-average risk at that. The addressable market opportunity is large and poorly-served today, and AxoGen’s clinical results have been pretty impressive, but driving adoption of new surgical procedures is not simple (or fast), competition may yet become an issue, and expectations aren’t exactly low. Still, when factoring in the incremental opportunities from future applications like total joint replacement, this is looking more and more like a risk worth taking.

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Taking Another Look At AxoGen After A Nasty Post-Earnings Tumble

Euronet: DCC Uncertainty Remains, But So Do Growth Opportunities

Euronet (EEFT) is still waiting for resolution on regulatory changes to dynamic currency conversion (or DCC) in Europe, a significant source of high-margin revenue, but the company continues to execute a multi-armed growth strategy that still has room to run. While the shares have done pretty well since my last update, rising 13% against a 10% rise in Paypoint (PAY.LN), an 8% rise in the NASDAQ, and 4% rise in the S&P 500, Cardtronics (CATM) has done even better and further upside is tied at least in part to a relatively benign DCC proposal from the EU Parliament later this month or early in September.

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Euronet: DCC Uncertainty Remains, But So Do Growth Opportunities

Inconsistency Continues To Offset HollySys's Potential

China’s HollySys Automation (HOLI) remains a frustrating stock, as the company’s inconsistent operating performance makes it a difficult name for investors to trust. Now take explicit guidance for the next year out of the mix and it becomes an even murkier situation, particularly as there is not a lot of visibility as to rail order/contract win timelines.

HollySys still has attractive opportunities. The company is gaining share in China’s process automation market and is starting to make a bigger push into factory/discrete automation. Rail orders remain consistently inconsistent, but opportunities in subways/metro should offer upside, and the M&E business could still benefit from China’s long-term One Belt One Road initiatives. Valuation really doesn’t look very demanding, but consistent execution has never been a strong point to this story, and I can understand why investors would stay clear.

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Inconsistency Continues To Offset HollySys's Potential

Wafer Worries Weighing On Shin-Etsu

When the stock of a well-run company that you’ve long admired gets to a point where the apparent annualized returns are in the double-digits, it’s a good time to refresh your due diligence. Such is the case with Shin-Etsu (OTCPK:SHECY) (4063.T), where management continues to execute at a high level and where the company’s core markets are healthy, but where recent fears relating to the semiconductor market seem to be having a disproportionate impact on the share price.

The risk of a sudden drop in semiconductor demand is not trivial, as Shin-Etsu’s wafer business generates about 30% of total operating profits today, but I also don’t think it’s particularly likely given the tight current supply situation and the relatively constrained capacity expansion plans across the industry. I also don’t think my modeling assumptions are all that ambitious, as I’m looking for long-term revenue growth of 4% and high single-digit FCF growth from a company exposed to global construction growth, semiconductor production, and EVs.

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Wafer Worries Weighing On Shin-Etsu

Solid Pricing Boosting Braskem's Free Cash Flow, But A Buyout Is The Best Outcome

I thought Braskem (BAK) had so-so prospects back in the spring of 2018, as the company was likely to face tougher spreads and a wobbly Brazilian recovery but improving free cash flows. Although the local shares have done better than I expected on persistently higher prices, with the BRKM5.SA shares up almost 20%, the unsteady Brazilian situation and the resulting currency weakness have depressed the returns on the ADRs to just a bit over breakeven.

A tight U.S. polypropylene market could continue to help Braskem, and chemical spreads should remain favorable, but management has guided toward weaker utilization and demand and spreads outside of the U.S. and Mexico could be vulnerable. Braskem appears to have a little bit of upside from here as is, but the ongoing discussions between LyondellBasell (LYB) and Braskem's controlling shareholders Odebrecht are likely the best source of upside for shareholders, as a buyout in the low $30s would offer a clean outcome with a decent premium.

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Solid Pricing Boosting Braskem's Free Cash Flow, But A Buyout Is The Best Outcome

Parker Hannifin A Curious Mix Of Value And Cycle Risk

By and large, investors seemed to come out of the second quarter earnings cycle feeling better about industrial stocks and the amount of room left for the cycle to run, although that seems to be wavering a bit lately on worries that Turkey’s troubles could weaken already unimpressive demand in Europe. In the case of Parker-Hannifin (PH), though, the shares have continued to lag the industrial sector as a whole by a pretty noticeable amount year to date, as investors seem worried about the risk of “general industrial” and mobile equipment demand rolling over relatively quickly.

I’ll admit to being a little flummoxed by this stock right now. I thought there was some risk of underperformance (due mostly to perception/sentiment) when I last wrote about the stock, and the shares have underperformed the sector by about 5% since then. It is getting late in the game for a short-cycle name like Parker-Hannifin, but then, underlying trends in most of the company’s markets are pretty positive, and the valuation looks pretty undemanding even if there’s a noticeable slowdown in the reasonably near future.

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Parker Hannifin A Curious Mix Of Value And Cycle Risk

Kemper's Self-Improvement Plan Is Generating Strong Results

I liked Kemper (KMPR) earlier this year and saw strong potential as the company continued its turnaround efforts and moved toward the completion of its acquisition of Infinity, but I frankly underestimated the scope of near-term growth and underwriting improvement potential for the company’s core non-standard auto insurance business. And so while I liked the stock back in April, I wasn’t counting on a 33% move in the stock in such a relatively short time – then again, neither was the Street, and analysts have been moving their estimates higher pretty steadily.

Although I do think Kemper shares are a little pricey now on a core discounted earnings basis, a mid-teens P/E (in line with post-merger EPS growth prospects) to 2019 earnings can support a fair value in the $80’s and I wouldn’t be quick to assume that Kemper doesn’t have a few more beat-and-raise quarters up its sleeve. Higher cat losses remain a risk and the company has work to do in areas like commercial auto, but this is still a pretty interesting growth insurance stock.

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Kemper's Self-Improvement Plan Is Generating Strong Results

Everest Re Dented, But Not Permanently Damaged

Reputation carries a lot of weight with insurance investors, and Everest Re’s (RE) recent adverse developments from the 2017 catastrophe season have dented the company’s reputation as an above-average risk manager. Even so, the total impact on the business hasn’t been that unrecoverable, and I think the company is showing that it still has opportunities to grow in both its core reinsurance and insurance operations.

Everest Re shares appear to be trading at roughly a double-digit discount to my estimate of fair value, implying solid double-digit annualized return potential from here. With a low-cost model and an attractive size/share opportunity in the reinsurance space, I think this is a name worth considering today.

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Everest Re Dented, But Not Permanently Damaged

Could Check Point Be Looking At Improving Momentum?

The 15% move in Check Point (CHKP) shares over the last three months looks pretty good against other security stocks like Palo Alto (PANW) and Proofpoint (PFPT), but stretch the time period out to just a year and Palo Alto, Proofpoint, Fortinet (FTNT), and CyberArk (CYBR) continue to outperform Check Point by wide margins, as Check Point continues to bumble along with low single-digit revenue growth and little-to-no near-term momentum in profits or free cash flow.

Check Point’s chronic problems with top-line growth remain a sticking point with me, and I don’t find the valuation as forgiving as I did six months ago (the shares are up 13% since then, beating the NASDAQ). On the other hand, Check Point’s issues may be more cyclical than appreciated and the company may be in the early innings of a cyclical upswing that has seen annual contract values peak roughly every two years going back about a decade. The old boilerplate warning about past performance not guaranteeing future results certainly applies (particularly with the different revenue model with Infinity Total Protect), but I think this name merits a little closer watching now.

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Could Check Point Be Looking At Improving Momentum?

Nokia On The Edge Of The Ramp

The last few years haven’t been all that much fun for Nokia (NOK), or its shareholders, as this telecom equipment company found itself sandwiched between more aggressive competitors and more conservative customers, and stuck in a place where customers have scaled back investments in older network technology but haven’t yet started spending on 5G. Now, though, the company appears to be just at the starting edge of a ramp-up in network spending that should drive meaningful cash flow generation in the coming years.

I don’t believe 5G will be transformational for Nokia in the sense that the company will suddenly see breakout revenue growth, but I do believe the company’s end-to-end solution could drive some share and revenue upside. I also believe there could be more long-term opportunity in the optical networking and IP routing businesses from recently-introduced technologies. Given all of that, I think Nokia is worth considering into the $6’s.

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Nokia On The Edge Of The Ramp

Medidata Solutions: Attractive Addressable Market, But More Work Is Needed

Large addressable markets are all well and good, but delivering on those opportunities isn’t always so easy. That’s a key challenge for Medidata Solutions (MDSO), as this company has an excellent electronic data capture platform for pharmaceutical clinical trials and has built out a strong suite of ancillary products, but must continue to cross-sell and get customers to subscribe to those additional products to maximize revenue and margins. Likewise, while Medidata has the ingredients in place for strong data analytics offerings, designing the products and getting customers onboard will take time.

I liked the opportunity I saw earlier this year with Medidata and the shares are up more than 10% since then. The valuation is somewhat less compelling now; although there is still some decent upside at today’s price, I’m a little concerned that slowing subscription growth and the need to spend more on sales and marketing to revitalize growth could weigh on sentiment. Still, given the long-term cross-selling and data-driven product opportunities, I’d keep an eye on this name in case the stock price and underlying valuation diverge again.

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Medidata Solutions: Attractive Addressable Market, But More Work Is Needed

Veeco Hit Hard As LED Orders Disappear

In the eight months or so since I last wrote on Veeco Instruments (VECO), this semiconductor and LED tool manufacturer has been on a wild ride. While the shares did spend about a month earlier this year above the fair value estimate of $17.50 I offered in that piece, the shares have since sold off sharply as my concerns about a peaking MOCVD market and inconsistent performance from the Ultratech acquisition seem to be coming to fruition.

My position on Veeco isn’t really all that much different now. I do believe the shares are undervalued, but I believe the traditional MOCVD market is only going to get more challenging and I’m not sure that opportunities like ion beam etch, MOCVD for VCSEL, and Ultratech’s advanced packaging, LSA, and metrology will be enough to fully compensate. Although I think there’s a valid case to be made that Veeco shares should trade in the mid-teens, I’d rather own stocks like Advanced Energy (AEIS) or VAT (OTCPK:VACNY) if I had to own something in the tool/semi equipment space today.

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Veeco Hit Hard As LED Orders Disappear

IPG Photonics Tripped Up By Some Familiar Themes

Advice like “wait for a pullback” or “buy the dip” is easy to write, but harder to follow. That’s particularly true for growth darlings like IPG Photonics (IPGP) that don’t so much pull back as tumble out of bed when they come up short on growth. And that’s where IPG Photonics sits today – down almost 40% from its 52-week high as the company guided to single-digit revenue growth for 2018; the first year in a long time that the company won’t produce double-digit growth.

Is it the end of IPG Photonics as a growth story? I don’t think so. The competition has continued to improve its own fiber laser offerings, and IPG is looking at weaker demand in some market segments, but the arguments for fiber lasers remain compelling and there are still opportunities for IPG to benefit from new market entry/conversion and ongoing upgrades to new technology. Chinese machine tool demand could be problematic in the short term, but if IPG can leverage mid-single-digit revenue growth into double-digit FCF growth, today’s price looks like an interesting opportunity.

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IPG Photonics Tripped Up By Some Familiar Themes

Emerson Playing A Hot Hand

Emerson Electric (EMR) is a significant player in two of the strongest verticals within industrials today – process automation and HVAC. What makes Emerson’s better performance so far this year (up about 3% versus a sector that’s down about 2%) a little more interesting is that the company’s performance in the HVAC business hasn’t been all that impressive so far. Assuming that the Climate segment picks up later in 2018, Emerson should be looking at one of the better revenue growth and margin leverage outlooks within its peer group.

I can’t really say that Emerson is undervalued. Even with a more forgiving/aggressive EV/EBITDA methodology that rewards Emerson for its healthy margins, the shares look more or less fairly valued. That said, investors often pay for performance and pay up for growth and I’d be leery of assuming that just because Emerson looks a little pricey today it can’t continue to outperform if the results from the Automation business remain this strong and Climate picks up.

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Emerson Playing A Hot Hand

After Restructuring Optimism, Weak Second Quarter Results Bring BRF SA Back Down

Investors in troubled Brazilian food producer BRF SA (BRFS) got a brief respite from a year of terrible performance when the market responded favorably to the hiring of Pedro Parente as CEO and the subsequent broad restructuring initiatives he announced late in June. That honeymoon was short-lived, though, as challenging production costs, a trucker strike in Brazil, lack of market access in Europe, and tougher conditions in Asia all combined to produce a rather weak set of second quarter results.

To some extent, the quarterly results over the next year aren’t critically important – the bigger concerns are reducing leverage and making progress on restructuring efforts aimed at making BRF a leaner, more competitive global protein player in the years to come. Still, the results do underline some of the ongoing operating challenges and the basic reality that this is not going to be a smooth or easy process. While today’s price is arguably fair relative to the likely near-term performance, a successful turnaround should drive a substantially higher fair value in the coming years, but there’s really no visibility (let alone certainty) as to when that will start to materialize.

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After Restructuring Optimism, Weak Second Quarter Results Bring BRF SA Back Down

Washed Out Expectations Should Help MaxLinear From Here

It tells you something about the level of confidence the market had in a company when it announces that the next quarter’s revenue will be 20% lower than expected (and 25% lower relative to expectations just a month or so before) and the stock basically shakes it off in a few hours. Such was the case with MaxLinear (MXL), a recent serial disappointer in the semiconductor space that has repeatedly lowered expectations in recent quarters, but where there’s still some measure of confidence that 2019 and 2020 will see a significant ramp in new advanced products.

As I’ve written in the past on MaxLinear, I expected 2018 to be a forgettable year (although not this bad), and I still see opportunities for the company to pick up business in MoCA, wireless backhaul, and DOCSIS 3.1 in 2019 and 2020, with hyperscale data center interconnects also chipping in late in 2019 and into 2020. I believe MaxLinear shares can support a low $20s fair value today, but a lot of management credibility is resting on this third quarter being the worst point of the cycle and revenue ramping up from there.

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Washed Out Expectations Should Help MaxLinear From Here

Sugar Prices Have Soured The Cosan Story

There's a lot more to Cosan Ltd. (CZZ) than sugar, but plunging global sugar prices are dominating the story at this Brazilian conglomerate and likely to continue to do so for the time being. Although the company is executing well in its fuel distribution, ethanol, gas, lubricant, and rail operations, sugar is a significant source of earnings, and there is only so much management can do to offset a global supply glut.

Even factoring in the weak sugar price outlook, Cosan Ltd. shares look significantly undervalued. Unfortunately, near-term sugar prices have long had a disproportionate influence on how Cosan Ltd. shares trade, and I'm not willing to just assume that's going to stop. Higher oil prices are supporting the ethanol business and the Rumo rail operations are performing much better, but it's going to take a more constructive market sentiment toward Brazil in general and sugar for these shares to get out of the doghouse.

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Sugar Prices Have Soured The Cosan Story

MTN Group Making Progress, But Not Fast Enough To Shift Sentiment

Between foreign currency weakness, resumed sanctions on Iran, local economic concerns, and competitive pressures, MTN Group (OTCPK:MTNOY) isn’t getting much credit for the progress it has made. New management hasn’t been in place long, but the renewed focus on cost-effective service quality and responsible portfolio management looks like the right strategy to drive long-term value.

Although MTN Group shares do look meaningfully undervalued, the troubles in Turkey show how quickly and how dramatically adverse currency moves can decimate the value of a holding. While that’s an apples-to-oranges comparison for MTN Group, South Africa isn’t exactly in superior shape and the risk of ongoing economic and currency challenges in major markets like South Africa and Nigeria is likely to keep a lid on sentiment until MTN Group logs multiple better-than-expected quarters.

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MTN Group Making Progress, But Not Fast Enough To Shift Sentiment

Societe Generale Still Treading Water And Going Nowhere Fast

French banking giant Societe Generale (OTCPK:SCGLY) continues to post the sort of performance that puts the stock firmly in the “cheap for a reason” camp. Although second quarter results were better than expected pretty much across the board, the core results weren’t as strong and the company is falling short of its own modest targets. Although the stock sports a high yield, low multiples, and very low expectations, it’s tough to see what will break this company out of its malaise short of another turnover in management or a more serious merger approach from a company like UniCredit (OTCPK:UNCRY).

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Societe Generale Still Treading Water And Going Nowhere Fast

Prudential PLC Continuing To Build A More Profitable Business

Like their American cousins, European insurance companies have started to get a little more love lately as investors have gone bargain-shopping in the value bin. Although Prudential PLC (PUK) has chopped its way a little higher over the last month, I still don't believe the shares reflect the value that management is creating. With a fast-growing Asian business and efforts well underway to increase the cash flow of the U.S. business, I believe Prudential PLC is well placed for above-average growth and undervalued today.

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Prudential PLC Continuing To Build A More Profitable Business

Copa Buffeted By Macro Issues

Operationally, Copa Holdings (NYSE:CPA) continues to do well with those things it can control. The company’s planes are pretty full, non-fuel costs are well-controlled, and its hub-and-spoke system is well-placed to continue benefiting from traffic growth across Central and South America. Unfortunately, there are other parts of the operational picture that Copa cannot control, and those didn’t go so well for the company in the second quarter, leading the shares down to a new 52-week low.

There are always going to be macro worries with a company and stock like Copa. The company needs healthy economies in major operating areas like North America, the Caribbean, and South America, relatively stable currencies, and manageable fuel costs, not to mention reasonable and responsible competitors. While the market is clearly sour on Copa right now, and there are ongoing economic and currency risks in countries like Brazil and Argentina, I think the long-term value opportunity is pretty compelling if you can tolerate the near-term risk, volatility, and unpopularity.

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Copa Buffeted By Macro Issues

Wright Medical Getting Its House Back In Order

It’s tempting to make a “shot themselves in the foot” pun with respect to the problems Wright Medical (WMGI) got itself into over the last couple of years, but this extremities-focused orthopedics company does seem to be getting its house back in order. Not only should the approval and launch of the injectable form of Augment spur meaningful adoption growth, but the company’s shoulder business continues to perform very well, and it looks as though management has the traditional foot and ankle business back on track.

Wright Medical shares have given investors plenty of trading opportunities over the last few years, as the company has struggled to establish a consistent growth path after the Tornier deal. I believe the company is getting there, and I’ve been impressed with the company’s internal R&D engine. The shares do still seem to offer some upside, and over the long-term a buyout is still a possibility, but investors should appreciate that there is a history of inconsistent execution here.

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Wright Medical Getting Its House Back In Order

After A Wild Party, Lundbeck Wakes To A Nasty Hangover

I would argue that the reaction to H. Lundbeck’s (OTCPK:HLUYY) (LUN.CO) second quarter earnings highlights just how big of a role momentum and expectations, reasonable or otherwise, play in stock valuations. Lundbeck’s quarter wasn’t pristine, but it was a beat-and-raise quarter, but it wasn’t on pace with the recent beat-and-raise trend and it’s clear that the strong cost-cutting tailwinds that pushed Lundbeck along so strongly are now going to crash into the realities of serious patent/generic revenue drop-offs.

I probably got a little greedy holding on to Lundbeck, but I was pretty much playing with house money and I don’t really have too many regrets. I believe Lundbeck is on a good trajectory, and the company has added multiple compounds to its pipeline recently, but it is likely going to take some meaningful good news from the clinic to get excitement going again in these shares, as I think the party is over for the run of beat-and-raise quarters fueled by the prior administration’s cost cuts.

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After A Wild Party, Lundbeck Wakes To A Nasty Hangover

With The Company Still In A Cyclical Downturn, AGT Management Gets Opportunistic

I believe it is possible for a deal to be both opportunistic and fair, and I think that is what AGT Food and Ingredients (OTCPK:AGXXF) (AGT.TO) shareholders are looking at today in the recently-announced management-led buyout offer of C$18/share. It is definitely possible to argue that this is a low point in the cycle and that investments AGT made in recent years will start paying off more significantly in 2020 and beyond, justifying a buyout price that should start at C$20. At the same time, though, you can look at the company’s poor liquidity/debt situation, its ongoing operational struggles, and the unpredictability of crop and weather cycles and conclude that, while this may not be full value for shareholders, it’s not a bad walk-away price for a company still likely a couple of years away from EBITDA leverage.

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With The Company Still In A Cyclical Downturn, AGT Management Gets Opportunistic

Aptose Now In 'Hurry Up And Wait' Mode

Drug development takes time, patience, and careful attention to detail, and if you follow biotech investor message threads, you’ll see that’s not exactly a perfect match between industry and its investors. While biotech investors want a steady stream of positive news and updates, the reality is that sometimes there will be dry patches as the companies do their work. Such may well be the case now for Aptose Biosciences (APTO).

These shares have pulled back about 40% from their post-ASCO peak, but without much in the way of real news. Aptose announced the expected lifting of the clinical hold on APTO-253, but since then I believe the shares have weakened on relatively weak prospects for meaningful incremental updates and worries that Aptose would raise substantial new capital. While second quarter results should put the capital-raising question temporarily to rest, investors need to accept that there likely won’t be a lot of news until later this year and into 2019.

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Aptose Now In 'Hurry Up And Wait' Mode

Manitex Continues To Benefit From Market Recovery And Self-Improvement

Healthy construction markets, complemented with recovering oil/gas and some strength in utilities, are putting some wind back into Manitex’s (MNTX) sails, and the company is complementing this end-market recovery with improved cost efficiency performance. While orders slowed in the second quarter, that’s normal on a seasonal basis and I don’t think much is changing in terms of end-market opportunities for the company (in other words, I don’t believe the second quarter order flow indicates that the window is closing).

Manitex shares don’t look particularly undervalued to me right now, even with a double-digit decline from its 52-week high. I believe there are still legitimate opportunities to grow the PM knuckle-boom crane business in the U.S. over the coming years and I think the Tadano relationship offers some upside in terms of product development, joint sourcing, and expanded market access in Asia, but that’s a multiyear opportunity that won’t even really start until next year. Even so, the share price seems to reflect a fair bit of that now.

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Manitex Continues To Benefit From Market Recovery And Self-Improvement

A Modest Step Back For Multi-Color

While you might think that tying yourself to consumer staples like laundry detergent, mouthwash, beer, and wine would insulate your business from volatility, that’s never really been the case for Multi-Color (LABL), and once again the company came up short of putting together a multi-quarter run of better-than-expected performance.

Organic growth improved in the first quarter of fiscal 2019, but growth is going to slow as the company sees the impact of weaker trends in its beverage label business, putting even more pressure on management to deliver on cost/efficiency synergies from the Constantia deal. Management does seem a little more focused on driving growth from its existing operations, and the shares do look undervalued if management can push FCF margins into the high single-digits, but business mix is going to remain a challenge for the foreseeable future.

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A Modest Step Back For Multi-Color

Execution Can Drive More Upside From PRA Group

PRA Group (PRAA) has been a fairly weak performer on balance since the company last updated investors on its earnings. While the shares did stay above $40 for most of June and July, they’re more or less back where they were a quarter ago, trailing the S&P 500 but at least doing better than peer/rival Encore Capital (ECPG) over that time. Given where the company’s report was relative to analyst expectations, I’d say the expectations reset period is over, putting more pressure on management to deliver execution-driven upside.

I do believe management can do this, as the company still has a large number of relatively new employees that should become considerably more productive over the next few quarters. PRA Group is taking a more conservative stance toward Europe, which is likely a good move over the long term, and continuing to invest in business-building efforts with a long-term payoff, including more compliance and government relations work. I continue to believe that PRA shares can and should trade into the low-to-mid $40’s.

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Execution Can Drive More Upside From PRA Group