Tuesday, February 26, 2019

AllianceBernstein Executing Well, But Operating Conditions Are Increasingly Challenging

AllianceBernstein (AB) has been my favorite asset manager for some time now and the recent performance trends (both company-specific financials and stock market) have done nothing to shake my preference – AB has strongly outperformed peers/rivals like Invesco (IVZ), Franklin Resources (BEN), BlackRock (BLK), Cohen & Steers (CNS), Waddell & Reed (WDR), Janus Henderson (JHG), BrightSphere (BSIG), Eaton Vance (EV), and Legg Mason (LM) over the past two years, outperformed all of those and T.Rowe Price (TROW) over the past year, and outperformed most of those since my last update in September.

This current year is shaping up to be a more challenging one for the entire space, as market-driven AUM declines undermine the fee base and jittery investors may well pull more funds from the market. In the case of AB, though, the company has continued to outperform with respect to fund flows and I see more long-term potential from operating leverage, even if the next year or two do see a step down in keeping with the broader sector challenges. Although AB shares aren’t appropriate for all investors or portfolios (consult with a tax professional on this), I believe the shares remain undervalued enough to be worth considering, particularly if you want a more income-skewed return profile.

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AllianceBernstein Executing Well, But Operating Conditions Are Increasingly Challenging

Roche Pays Up To Enter The Gene Therapy Space

Gene therapy is an increasingly viable therapeutic approach and Roche (OTCQX:RHHBY) very much wants to be a part of that. While this Swiss drug giant doesn’t try to do everything in the pharmaceutical space, management does try to keep the company well-placed in the most promising new therapeutic areas. To that end, the company decided to spend $4.3 billion of its shareholders’ capital to acquire Spark Therapeutics (ONCE) and its gene therapy platform.

I believe Roche is approaching the Spark deal as a true technology/platform acquisition, particularly given the company’s IP assets and its early positioning in eye diseases, hemophilia, CNS, and rare disease – all areas of interest to Roche. While the near-term results of Spark’s SPK-8011 in hemophilia A will certain impact initial sentiment on this acquisition, I believe Roche is looking at the long game with this deal.

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Roche Pays Up To Enter The Gene Therapy Space

Lenovo Delivering On Its Promises And Outperforming As A Result

My bullishness on Lenovo (OTCPK:LNVGY) hasn’t been the most popular of my calls over the last year, but the company has made real progress delivering on its strategic goals and the shares are up more than 70% over the past year – well above the likes of HP (HPQ), Apple (AAPL), Acer, and Dell (DELL) – and have likewise outperformed strongly since my last update even before the big post-earnings run.

With the progress Lenovo’s made, I feel more comfortable easing up on some of the conservatism I’ve used in my modeling. I don’t think the shares are hugely undervalued, but there is still plenty of skepticism out there and the company has meaningful growth opportunities in its server business that augment a healthy core PC business.

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Lenovo Delivering On Its Promises And Outperforming As A Result

Weyerhaeuser Should Be On More Stable Footing Now

Weyerhaeuser (NYSE:WY) has done okay since my last update on this timberland and wood products company, but I still believe the share price doesn't reflect the full value of the company's assets and operations. The company is still vulnerable to weakness in the U.S. housing market, and I'm not thrilled about the long-term outlook for lumber, but I think the shares may be past the nadir for sentiment unless housing really struggles from here.

2019 won't be a banner year for EBITDA or cash flow, but I don't think the company needs to revise the dividend, and there are some further strategic moves the company may want to consider. With fair value in the $30s, I think there are still sound arguments for owning these shares, though they're probably not well suited to impatient investors.

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Weyerhaeuser Should Be On More Stable Footing Now

Multi-Color Gets Its Bid

Roughly a month after Bloomberg reported a rumor that Multi-Color (LABL) was pursuing a sale of the company, and about two weeks after management acknowledged it as part of its fiscal third quarter earnings report, management announced that it had accepted a bid to be acquired by Platinum Equity in an all-cash deal worth $50/share.

This buyout price is not all that investors could have hoped for, but it’s not a bad outcome for a company that has been struggling for some time now and that didn’t really seem to have any credible plan in place to drive meaningfully better results. While the offer price doesn’t lock the door on a competing bid, I don’t expect one and I would expect the shares to trade at a relatively low discount to the deal price as regulatory approval and funding aren’t really meaningful risks to deal completion.

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Multi-Color Gets Its Bid

Louisiana-Pacific Boosted By A Buyback And May Be Past The Worst

Cyclical commodity companies are never easy to model or analyze, and Louisiana-Pacific (LPX) (or “LP”) is really no exception. Oriented strand board (or OSB) prices have stabilized recently, but at much lower levels than a year ago, but competition seems to ramping up in specialty siding and you can never really be too confident that the company’s smaller rivals will remain disciplined on pricing and capex. On top of all that, you have the uncertainties that go with modeling the residential construction market.

LP has done pretty well since my last write-up, rising more than 15% and outperforming not only the S&P 500, but also competitors like Weyerhaeuser (WY) and Norbord (OSB), with investors liking what they heard in mid-February regarding an accelerated buyback plan. At this point, I no longer see LP as undervalued and further upside seems tied much more to the health of the residential construction market.

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Louisiana-Pacific Boosted By A Buyback And May Be Past The Worst

CyberArk Delivers A Powerful Beat, And There's A Long Runway To Grow

I did give CyberArk (CYBR) one of my rare, “I don’t care so much about the valuation, I like the opportunity” calls back in December, and the shares have shot up by about a third since then. Granted, picking almost anything in late December was a good way to make your stock-picking skill look better, but CyberArk helped its own cause with a very strong fourth-quarter result and guidance that, even with CyberArk’s customary conservatism, looks pretty good.

Yeah, the valuation is still a sticking point for me, as the shares are above my view of fair value, but I also know that valuation alone rarely stops a growth stock from going up, and I won’t be slightly surprised if CyberArk has another beat-and-raise in its pocket. Given the long-term potential of Privileged Access Management (or PAM) and CyberArk’s strong position in that market, I can sympathize with a “buy it anyway” attitude, but I’ll probably wait in the hope of a better price.

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CyberArk Delivers A Powerful Beat, And There's A Long Runway To Grow

With LNG Opportunities Coming Into View, Chart Industries Looking More Exciting

Chart Industries (GTLS) is almost equal parts exciting and frustrating today – exciting because the opportunity in small-scale LNG has never looked better, and frustrating because it’s difficult to time orders and revenue and the recent resegmentation of the business creates some modeling challenges. All told, though, while I do have some concerns about the valuation and the near-term outlook for the company’s legacy industrial gasses business, the opportunities in natural gas, LNG, and growth segments within industrial gasses are pretty compelling.

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With LNG Opportunities Coming Into View, Chart Industries Looking More Exciting

Lincoln Electric's Results Highlight Some Of Today's Macro Modeling Challenges

Lincoln Electric (LECO) remains one of the most-respected companies I follow in the industrial space; even analysts who are negative on the shares for whatever reason usually feel compelled to acknowledge its strong share, variable cost structure, attractive ROIC history, and solid strategy. That said, the shares have basically traced the performance of the average industrial over the past year, lagged the sector over the past two years, and significantly lagged over the last five years – a phenomenon I attribute more to the high valuation the company has often enjoyed rather than any long-term reduction in business quality.

As far as considering the shares today, I’m not quite sure what to think. I see growing risks from macro headwinds in a number of important end-markets, but I don’t think my long-term growth assumptions are all that heroic and the shares look priced more or less in line with a lot of other industrial names that I believe to be less well-run. I think Lincoln shares may not do all that great in 2019 unless there is a favorable resolution to the U.S.- China trade issues and there’s re-acceleration in multiple end-markets, but as a long-term holding today’s price is at least okay in my book.

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Lincoln Electric's Results Highlight Some Of Today's Macro Modeling Challenges

Schneider Slowing, But May Be Better Positioned For The Downturn Than The Street Thinks

Concerns have been growing about the health and durability of the short-cycle upturn, and the performance of the stocks of companies like Schneider Electric (OTCPK:SBGSY) have reflected at least some of that. While a strong post-earnings run has lifted Schneider’s performance over the average industrial and peers like Eaton (ETN) and Rockwell (ROK) since my last update, the shares spent most of the second half of 2018 lagging broader industrial indices.

I’ve made no secret of my concerns about a slowdown in the global economy, and as it pertains to Schneider, I am concerned about the near-term outlook for non-residential construction and factory automation. On the other hand, Schneider isn’t as short-cycle-dependent as in the last cycle, and the company’s position in process automation, oil/gas, grid automation, and data center could help offset some of the weakness. With a long-term growth outlook roughly similar to Emerson (EMR), and sandwiched between Eaton and Rockwell, I do think these shares are undervalued, but 2019 could be a tricky year for the stock as sentiment has seemingly shifted to a point where there is a “show me” story.

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Schneider Slowing, But May Be Better Positioned For The Downturn Than The Street Thinks

The Market Seems To Be Counting On A Quick Rebound At Maxim Integrated

There are a lot of meaningful positives with Maxim Integrated (MXIM). Not only has this company successfully transitioned to a more attractive end-market mix driven by auto electrification and factory automation, the company has also meaningfully upgraded its profitability by pruning lower-return businesses, bringing more distributors into the mix, and outsourcing more production. With strong margins, above-average growth potential, and a strong business anchored in power management and interface ICs, I believe Maxim can do well on its own and/or become an attractive acquisition target.

All that said, there are limits to what I’ll pay and Maxim is trading beyond those limits. Recent results and guidance should serve as a reminder that Maxim’s better mix doesn’t immunize it from macro challenges, and I am concerned that investors have gotten too cavalier about assuming a quick return to growth across the chip sector. In the $50’s, Maxim just looks too expensive to me relative to the risks of further setbacks/revisions in the sector.

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The Market Seems To Be Counting On A Quick Rebound At Maxim Integrated

Microchip Called The Bottom... But What Will The Bounce Look Like?

Microchip’s (MCHP) CEO Stephen Sanghi has never been what you might call shy or retiring, but his call for the March quarter being the bottom of this cycle still got plenty of attention. In the case of Microchip, it may well be true, though there are caveats related to trade talks between the U.S. and China and not so much certainty on what the shape of the post-bottom bounce is going to look like.

I liked Microchip back in mid-September and the 10%-plus return since then has meaningfully outperformed semiconductors in general, as well as more MCHP-relevant comps like STMicroelectronics (STM), Infineon (OTCQX:IFNNY), Texas Instruments (TXN), and NXP (NXPI). While I do think there are still attractive revenue and margin drivers in play here, I’m not quite as bullish as I was before and I think there are other names to consider in the MCU/analog/FPGA space.

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Microchip Called The Bottom... But What Will The Bounce Look Like?

MaxLinear Marking Time Ahead Of Commercial Ramps In 2019/2020, But Spending Less

I've thought that MaxLinear (NYSE:MXL) held some potential for more risk-tolerant investors for some time, but I was surprised to see the strong (approximately 25%) move in the shares since my last update. Granted, chip stocks have done well over the past month, with the SOX up almost 20%, and I think investors liked the company's guidance for much better opex in 2019, but it's still worth noting that the growth story here is tied to wireless access, backhaul, and optical interconnect opportunities that won't really kick in until late this year and where MaxLinear has to show it can elbow aside established players like Analog Devices (ADI), Broadcom (AVGO), and Inphi (IPHI).

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MaxLinear Marking Time Ahead Of Commercial Ramps In 2019/2020, But Spending Less

Lattice Semiconductor On The Run As Investors Start To Appreciate The New Opportunities

I’ve been pretty bullish on Lattice Semiconductor (LSCC) for a while now, as I’ve thought that this company has some really interesting opportunities in low-power FPGAs, and particularly given the strong management team the company has assembled. In addition to diversified growth opportunities across autos, industrial (machine vision, security, et al), communications, and data center, Lattice is an under-appreciated player in low-power AI inference, a high-potential market only just getting started.

Clearly the word is out on Lattice now, as the shares reacted very positively to first quarter guidance that was quite a bit better than what most chip companies have offered. While I’m worried about talking myself into a more bullish to support a higher fair value, I really do think there’s something here and that these are still the early innings of what could become an impressive differentiated chip growth story.

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Lattice Semiconductor On The Run As Investors Start To Appreciate The New Opportunities

A Tug Of War With Alfa Laval Between Weak Sentiment And Post-Peak Growth

The market definitely didn’t like Alfa Laval’s (OTCPK:ALFVY) fourth quarter earnings, and particularly the parts of the call where management said things like first quarter demand being “somewhat higher” than the fourth quarter and that demand was “nearing the peak” for the cycle. Although Alfa shares are up slightly from my last update on the company, the shares lost about 10% of their value in the immediate aftermath of the fourth quarter report and have since recovered about half of that.

Operationally, I like Alfa Laval. I think this is a well-run company with good exposure to late-cycle end-markets, but I also know that orders are likely to slow dramatically in 2019, with revenue and earnings following in 2020 and 2021. These shares do look undervalued now, and I think the market may be overlooking opportunities in HVAC, power gen, life sciences, and ballast water treatment, but the reality is that fighting the tape is tough and investors are going to need to have some patience with this one.

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A Tug Of War With Alfa Laval Between Weak Sentiment And Post-Peak Growth

Lundbeck Entering A Period Of Heightened Uncertainty

The next few years are going to seriously challenge the skills of H. Lundbeck’s (OTCPK:HLUYY) (LUN.KO) recently-hired CEO Deb Dunsire and head of R&D Johan Luthman, as the company has to contend with serious erosion in its mature portfolio, a very weak late-stage pipeline (not to mention risky early-stage assets), and the challenges that go with M&A and in-licensing. While Lundbeck does head into this difficult period with some strong drugs still early in their commercialization and a very clean balance sheet, investors need only look at Roche (OTCQX:RHHBY) to see how the market treats pharma companies with sluggish near-term EPS growth prospects.

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Lundbeck Entering A Period Of Heightened Uncertainty

AEIS Powered Down For Now, But Still Undervalued On An Eventual Semiconductor Recovery

Down a little bit from my last write-up (during which time the stock swooned another 25% only to regain most of that), Advanced Energy Industries (AEIS) is a tempting target in a sector undergoing serious pressure and downward revisions as semiconductor companies, particularly in the memory space, slash their capex budgets and semiconductor equipment companies cut their orders for critical components like power supplies, matchboxes, and plasma generators.

This year (2019) is likely to be ugly, and I’m not ruling out the possibility of another round (or two) of guidance revision, but at some point the sector will bottom out, and I think AEIS’s leadership in power subsystems is worth more than the share price currently reflects and I think management has the capability to do something a little more dramatic on the capital allocation side.

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AEIS Powered Down For Now, But Still Undervalued On An Eventual Semiconductor Recovery

Content And Share Gain Expectations Driving Outperformance At ON Semi

I really can’t complain about ON Semiconductor’s (ON) performance since my last update, as the shares have dramatically outperformed the semiconductor rally and risen by more than a third. While power management companies (including ON, Infineon (OTCQX:IFNNY), and STMicro (STM) ) have done a little better with respect to performance and guidance than others like Texas Instruments (TXN), Maxim (MXIM), and NXP (NXPI), it seems like ON in particular has regained investor interest on the back of solid wins, improving bookings, and management’s confidence that revenue will grow in 2019.

I still like ON shares, but not as much as I did back in December. The semiconductor sector as a whole has a lot riding in terms of guidance on a second half rebound and I think it may be premature to just rule out another round of guidance cuts due to weaker conditions in China (autos and manufacturing) and emerging weakness in Europe (Germany and Italy). I think ON shares should now be trading closer to the mid-$20’s, but it may make sense to let things simmer down a bit first.

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Content And Share Gain Expectations Driving Outperformance At ON Semi

IDEX Is A Best Of Breed Industrial, And Priced Accordingly

Companies like IDEX (IEX) will frustrate you if you’re a value investor. Undeniably excellent, IDEX rarely gets that cheap, as the company’s strong margins, ROIC, and business quality seem to keep it from ever getting all that cheap. I’d love to own what I think is one of the best fluid management companies out there (and a contender for best-run industrial overall), but you have to really stretch to argue that IDEX shares are in any way undervalued. That said, the market can do some crazy things and this is definitely a name that investors who are interested in the industrial sector should have high on their watch list for a “just in case” scenario.

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IDEX Is A Best Of Breed Industrial, And Priced Accordingly

Between Soft Guidance, Erratic Orders, And Flat Margins, It's Tough To Love Wartsila

I liked Finland’s Wartsila (OTCPK:WRTBF) (WRT1V.HE) back in late 2016, and for about two years that call worked, as the company benefited from an improved mix in its Marine Solutions business and good order momentum driven by the need for commercial shippers to install scrubbers ahead of IMO2020 pollution regulations. What hasn’t been so good, though, is progress on margins, with the company’s cost-cutting efforts offset by increased price competition in its business – a particularly disappointing development given generally good share – and a less profitable revenue mix.

This year (2019) should see Wartsila deliver some of the best revenue growth among multi-industrials as it delivers on its record order book, but orders seem likely to flatten out, and margin leverage is probably a 2020 event and I don’t have a lot of confidence that the company will reach its 14% target in the next five years. While Wartsila does look undervalued and should benefit from improving power gen orders at some point, this is a hard company for me to trust at this point and there are a lot of industrials with similar or better undervaluation and both less volatile business mixes and more credibility on hitting their margin targets.

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Between Soft Guidance, Erratic Orders, And Flat Margins, It's Tough To Love Wartsila

With Another Miss-And-Lower, Multi-Color's Credibility Is In Shreds

Multi-Color (LABL) management’s credibility is pretty much in the same shape as a beer bottle label after a nervous first date, as management once again missed expectations and lowered guidance on ongoing execution shortfalls. While the magnitude of the shortfalls was clearly a surprise relative to sell-side expectations (and mine), the root causes are all too familiar to long-suffering shareholders in this now-poorly-run company.

Management’s announcement that it is pursuing strategic options, including a potential sale of the company, confirms the rumor, but doesn’t really add much of a backstop. I don’t really see a strategic acquisition as all that likely, though a financial buyer (private equity) could perhaps be attracted by the possibility to clear out inefficiencies and low-return lines of business in the hope of cutting costs, boosting margins, and restarting the growth-through-consolidation engine before putting the company back on the public market.

I certainly regret not selling more of my holdings at higher prices, and I’m not going to tell anybody reading that this that they have a good reason to trust this management team to deliver/create value for them as a shareholder. That said, the shares do now look undervalued on what I believe (or perhaps “hope”) should be attainable targets for organic revenue growth and operating efficiency and there could be upside if the company can find a buyer.

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With Another Miss-And-Lower, Multi-Color's Credibility Is In Shreds

nVent Hitting Its Growth Goals, And Margins Should Eventually Catch Up

At the time of its separation from Pentair (PNR), nVent Electric plc (NVT) had two key goals - accelerate its historically poor organic growth rate and drive margin leverage. This is still a very new story as an independent public entity, but so far so good - nVent has indeed being outgrowing its end-markets (and peers like Eaton (ETN)), and while the margin leverage isn’t there yet, there’s still a longer-term case for that.

I wasn’t all that impressed with the company’s valuation back in September and the shares have fallen about 6% since then, more or less keeping pace with industrials as a group and outperforming some of its peers like Eaton, Hubbell (HUBB), Schneider Electric (OTCPK:SBGSY), and Thermon Group (THR). The valuation is more interesting now, though, and although nVent doesn’t really look poised for huge short-term outperformance, it’s not a bad small/mid-cap industrial name to consider now.

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nVent Hitting Its Growth Goals, And Margins Should Eventually Catch Up

Emerson Not Expensive, But Slowing Growth Is A Concern

Emerson Electric (EMR) hasn’t been left behind in the recent industrials rally, but it also hasn’t really distinguished itself as an outperformer, as it seems that the Street is concerned about the risks of slowing non-residential spending (particularly in China) and weaker process automation spending in the face of weaker oil prices. My concerns have more to do with the fickleness and short attention spans of institutional investors; Emerson has most likely passed through its point of peak growth, and I have some concerns that the shares could underperform as investors look for more exciting stories.

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Emerson Not Expensive, But Slowing Growth Is A Concern

As Cyclical Headwinds Rise, Rexnord Not Getting Much Love

Between the rally in industrial stocks from December and what appears to be rising headwinds in many end-markets, I don’t think investors are exactly spoiled for choice for great ideas in the industrial sector, but Rexnord’s (RXN) case stands out a bit for me. I wasn’t crazy about the shares back in May of 2018, and the stock has lagged the sector by about 10% since then, but the shares seem oddly valued relative to a decent motion control business and growing water business. I am worried about a slowdown in factory capex spending as well as shrinking growth in U.S. commercial construction, but those concerns seem magnified in Rexnord’s valuation.

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As Cyclical Headwinds Rise, Rexnord Not Getting Much Love

Fanuc Beaten Down On Sharp Order Declines

Japanese automation leader Fanuc (OTCPK:FANUY) (6954.T) has a loyal shareholder base that can lean toward the fanatical, but the last couple of quarters underline that for all of Fanuc’s quality, it’s not immune to macro-driven cyclicality. What’s worse, competition has ramped up in many of the company’s businesses and management’s projections that conditions won’t get significantly worse may prove too optimistic.

From where I sit, the argument that Fanuc is too cheap now only works if you expect a pretty dramatic reversal (basically a V-shaped recovery) in recent machine tool and automation demand trends in China and a quick return to double-digit ROEs. I don’t believe that’s going to happen, and I think Fanuc has more vulnerability to traditional rivals like ABB (ABB) and Yaskawa (OTCPK:YASKY), non-traditional rivals like Teradyne (TER) and local Chinese automation companies, and shifting market trends than its more bullish supporters acknowledge.

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Fanuc Beaten Down On Sharp Order Declines

Roper Getting Its Due As A Differentiated Value-Creator

Exclude valuation from the conversation, and I’m not sure how many negatives you can really come up with for Roper (ROP). Not only has Roper shown that it can identify, execute, and integrate acquisitions just as well as peers like Danaher (DHR) but management has used M&A to transform the business into a self-funding, niche-focused, asset-light multi-industrial with a very strong recurring revenue component driven by a diverse SaaS and medical/healthcare business. Although the ROIC is lower than you might otherwise expect, that doesn’t trouble me much given the strong demonstrated cash flow generation ability.

Roper isn’t cheap by any approach I use, but I do like the company’s end-market exposures and business model for this point in the cycle, as well as the “dry powder” the company has to make further value-enhancing acquisitions. And while the shares aren’t cheap, they’re not too far from my DCF-based fair value and this would be a very tempting name on another market sell-off.

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Roper Getting Its Due As A Differentiated Value-Creator

Parker Hannifin: Long-Term Opportunity At The Cost Of Short-Cycle Risk

I thought the valuation at Parker Hannifin (PH) was getting interesting back in August, and the shares outperformed a bit relative to multi-industrial peers until reporting fiscal second quarter (calendar fourth quarter) earnings. Not unlike Eaton (ETN), Parker Hannifin offers some challenging trade-offs between a relatively bullish management team, further opportunities for margin improvement, and interesting valuation against what I think is a tricky short-cycle set-up that could see weaker results and expectations as 2019 rolls on. I think investors will sleep better in general with names like Honeywell (HON) and Emerson (EMR) (and maybe Ingersoll-Rand (IR) ), but the valuation on Parker Hannifin could make those short-term risks worth taking for investors with a longer-term orientation.

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Parker Hannifin: Long-Term Opportunity At The Cost Of Short-Cycle Risk

Eaton Hitting Its Marks, But Still A Controversial Name

This fourth quarter earnings and guidance season has gone a little better than expected, with many companies having fine-tuned their guidance before the end of 2018 and defanging some of the potential disappointment here in January and February. Even so, there is still a lot of uncertainty regarding the health of the U.S. and global economies, with multiple multi-industrials (including Honeywell (HON), Illinois Tool Works (ITW), and 3M (MMM) ) establishing some rather low numbers for the low end of their 2019 growth outlooks.

I continue to like Eaton (ETN), even if more on a relative, “it’s not that bad” basis. I am definitely concerned about the risk of slowing demand in “general industrial”, trucks, off-road machinery, and non-residential construction, but management’s guidance for the year was fairly encouraging and markets like aerospace and data center are still looking healthy. With skepticism already seemingly built into the valuation, Eaton is a name that could surprise if 2019 proves to be better than expected for the U.S. and global economies.

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Eaton Hitting Its Marks, But Still A Controversial Name

Friday, February 8, 2019

BB&T Shifts Gears In A Huge Way, Announcing A Value-Creating Mega-Merger With SunTrust

For a company that had repeatedly said it wasn’t all that interested in whole bank M&A, BB&T (BBT) shifted direction in the biggest way possible, announcing on Thursday that it had reached an agreement with SunTrust (STI) to combine in a true merger of equals that will create the sixth-largest bank in the U.S. and a major force in the Southeast.

There are heightened execution risks to this deal, but I basically like it. Cost savings should exceed initial targets, and the combined company will not only see significant synergy in areas like commercial banking and fee-generating operations (like insurance and investment banking), but also be better-able to compete with far larger banks like Bank of America (BAC), Wells Fargo (WFC), and JPMorgan (JPM) when it comes to investing in the technology and digital services that seem likely to drive the next wave of banking.

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BB&T Shifts Gears In A Huge Way, Announcing A Value-Creating Mega-Merger With SunTrust

Weak Growth And Robust Expectations Create Headwinds For Illinois Tool Works

Quality is all well and good, and Illinois Tool Works (ITW) certainly has that, but growth and margin leverage tends to drive share price performance and ITW looks to be in shorter supply where those are concerned. Meaningful exposure to softer end-markets like auto, “general industrial”, non-residential construction, and electronics are headwinds to me, and I’m not sure there’s a lot that ITW management can do to repeat the meaningful past improvements in operating margins. On top of all that, the valuation is not all that cheap at this point.

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Weak Growth And Robust Expectations Create Headwinds For Illinois Tool Works

Honeywell Still One Of The Best Options

I thought Honeywell (HON) was one of the best multi-industrial companies for 2018, and although it wasn’t the best performer (Roper (ROP) did better, to name one), I’m basically happy with the modest outperformance it delivered. Looking into 2019, I still have this as one of my top names, given its healthy exposure to longer-cycle sectors like aerospace and its relatively positive end-market mix. With growth opportunities across its existing businesses and more capital deployment options, this looks like a good long-term holding that still has some shorter-term undervaluation to add to the appeal.

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Honeywell Still One Of The Best Options

Margin Improvement Should Prolong The 'Slow Burn' FirstCash Growth Plan

FirstCash (FCFS) isn’t really a flashy growth company anymore, but the combination of a healthy growth runway in Latin America and improving margins in the cash-generating U.S. business is still a basically attractive one to me at the right valuation. With the shares priced for high single-digit to low double-digit annualized returns and the company well-positioned for the next economic slowdown in the U.S., my opinion is still that this is a “good, not great” idea for investors willing to take on a little risk and looking for a way to play the large consumer finance opportunity in Mexico and Latin America.

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Margin Improvement Should Prolong The 'Slow Burn' FirstCash Growth Plan

Roche Getting A Little More Due, But Could Still Have Some Surprises

It looks as though the market has come around to realizing that it's not all doom and gloom for Roche (OTCQX:RHHBY), as the Swiss drug giant has seen its shares outperform the sector by more than 20% over the past six months, with most of that coming since late October. That outperformance does soak up a lot of the undervaluation I've been seeing in the shares, but I do believe there is a case that expectations for Roche could still be too low, with the company perhaps not as vulnerable to biosimilars as feared and likewise perhaps having a little more long-term growth potential in its pipeline.

I can't call Roche cheap enough to be a table-pounding buy, but I'm happy to own it in the low-to-mid $30s, and I look at it as a solid dividend-paying GARP stock today.

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Roche Getting A Little More Due, But Could Still Have Some Surprises

Nucor Has The Right Mix, But Will The Market Cooperate?

I continue to prefer Steel Dynamics (STLD) among U.S. steelmakers, but Nucor (NUE) has been the better performer over the past year (they're tied over the last two years, and STLD wins the five-yr comp), and the shares are up about 15% since the Christmas Eve 52-week low on renewed enthusiasm over better steel demand and pricing in 2019. I do like Nucor's comparatively stronger leverage to long products and plate (where I think prices will be noticeably better in 2019 relative to hot-rolled coil), but I think investors will need to wait until 2021/22 to see year-over-year growth in EBITDA again (on a full-year basis), and I see more that can go wrong with pricing and demand at this point than what can go right.

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Nucor Has The Right Mix, But Will The Market Cooperate?

Different Mix, Same Results For Mellanox

Weak commentary from Intel (INTC) and Nvidia (NVDA) regarding high-end Ethernet NIC demand from data center customers wasn’t good news, but Mellanox (MLNX) showed again that they can deliver strong growth even in a period of “digestion” for major customers. Mellanox continues to do quite well in the high-end data center market, and I expect 2019 to be another year of double-digit growth with margin improvement. Getting another chance to buy Mellanox in the $80’s would be nice, certainly, but today’s price still offers enough upside to keep this on a buy list.

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Different Mix, Same Results For Mellanox

A Brutal Miss-And-Lower-Guide Has Silicon Labs' Growth Premium In Question

It’s generally accepted by most investors that you have to pay up for growth, but with the recent weak performance at Silicon Labs (SLAB), including an ugly guide-down for the first quarter, I’m concerned that these shares could be liable to investors asking “wait … why are paying up for this?” I had previously expressed my view that Silicon Labs was entering a rocky operational stretch, but this is a little worse than I’d expected, and the company definitely needs markets like IoT, isolation, and timing to start coming through in the second half of 2019.

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A Brutal Miss-And-Lower-Guide Has Silicon Labs' Growth Premium In Question

Ingersoll-Rand Can Still Outperform In 2019

I liked the Ingersoll-Rand (IR) story in the late summer of 2018, and I still like it now. The shares have modestly outperformed the industrial peer group (by about 10%) since my last update, and I think the company is still well-placed to benefit from later-stage commercial HVAC demand, as well as ongoing demand in industrial segments like compression. While I'd like to see better margins and FCF generation, I do see improvement here, and I think ongoing growth in areas like service attachment and controls can help improve the profile over time.

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Ingersoll-Rand Can Still Outperform In 2019

Easier Comps And A Reasonable Valuation For Check Point

Check Point (CHKP) remains an intriguing, yet frustrating, investment option in the security space for me. On one hand, I like the company’s strong cash flow and large installed base. On the other hand, I continue to believe that the company has under-invested in the business and allowed Palo Alto (PANW), Fortinet (FTNT) and others to grow at their expense. With management stepping up its sales and marketing investments and an easier set of comps in the first half of 2019, the time may be ripe for Check Point to post a little momentum and perhaps outperform in a market that could still be pretty dicey in 2019, even though underlying security spending should remain healthy.

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Easier Comps And A Reasonable Valuation For Check Point

Stryker Restores Its Growth Cred In A Big Way

Even though Stryker (SYK) had built an exceptional growth record, the shares had nevertheless underperformed going into the fourth quarter. I attribute that underperformance to worries about the company’s ability to maintain that impressive growth rate, with some investors choosing to view the supposed overtures toward Boston Scientific (BSX) as a sign of internal lack of confidence at Stryker, not to mention concerns about renewed vigor at rivals like Zimmer Biomet (ZBH). With strong fourth quarter results, and robust guidance for 2019, though, it seems like those concerns are at least momentarily moved to the back burner.

Stryker remains difficult to value, as I do believe the company’s high-quality growth deserves a premium, but arguably not that much of a premium. Healthcare tends to outperform later in the economic cycle and Stryker has a lot going on for it in 2019, but it’s tough for me to want to chase the shares around $180.

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Stryker Restores Its Growth Cred In A Big Way

High Expectations Mitigate Some Of Rockwell Automation's Outperformance

A lot is expected of Rockwell Automation (ROK), a seemingly perennial favorite in the industrial space, and those high expectations may be the biggest challenge for the company as 2019 looks to be a year of slowing capex investments across a range of industries. Although I think mid-single-digit revenue and free cash flow growth are attainable over the long term, I’m not sure Rockwell’s share price today really reflects the risk of slower spending as 2019 goes on.

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High Expectations Mitigate Some Of Rockwell Automation's Outperformance

When It Comes To Danaher, 'More Of The Same' Is Usually Pretty Good

With Danaher’s (DHR) strong leverage to life sciences and diagnostics, and recurring revenue, the company is in a good place as the economy goes through its cyclical shifts. Moreover, the company has the luxury to invest for growth without really compromising its core quality, and the balance sheet leaves open the possibility for further growth-driving M&A. The “but” is that the company’s shares are typically richly valued and today is no exception. Although Danaher’s valuation isn’t so unreasonably by the elevated standards of life science tool companies, investors should at least realize they’re paying a premium for Danaher’s perceived quality and cyclical resilience.

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When It Comes To Danaher, 'More Of The Same' Is Usually Pretty Good

Reputation Alone Won't Do It For 3M

As a long-term owner of 3M (MMM), there’s certainly a lot I like about this company, but the fact remains that 3M’s exposure to autos, electronics, China, and non-residential construction are not assets right now, and the company lacks the exposure of peers like Honeywell (HON), Danaher (DHR), and Emerson (EMR) to more attractive end-markets like aerospace, process automation, life sciences, and diagnostics. What’s more, I have some long-term concerns about the corporate strategy that I want to address later.

Weaker short-term growth performance and prospects have done their damage, with 3M lagging many/most of its industrial peers in 2018. Even so, the shares aren’t all that cheap on either a DCF or EV/EBITDA basis and there are other names with more interesting near-term stories in the industrial space.

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Reputation Alone Won't Do It For 3M

Strong Results And Good End-Market Make Dover More Of A Standout

This was a really strong quarter for Dover (DOV) in a period when investors really want to hear that conditions in the broader economy aren’t as bad as hoped. Between stronger than expected revenue, strong orders, and decent margins, Dover is in good shape, and the company should benefit from its better relative end-market exposures. A lot is riding on the company’s restructuring program (where expectations are already pretty high) and the valuation isn’t all that cheap, but Dover looks like it will emerge from this reporting cycle as one of the stronger names.

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Strong Results And Good End-Market Make Dover More Of A Standout

Kone Already Getting Ample Reward For Its Quality

Quality deserves a premium, but the market seems to be going overboard with Kone (OTCPK:KNYJY) (KNEBV.HE) (also spelled “KONE”), as this Finnish elevator and escalator company is indeed a high-quality company, but one that seems unlikely to grow enough to justify the valuation. Future service growth in China is a valid driver, as is equipment growth in India and other markets, and I don’t dismiss the possibility of a value-building mega-merger, but the share price already seems to contemplate nearly double-digit free cash flow growth from a company serving a market likely to grow in the low-to-mid single digits.

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Kone Already Getting Ample Reward For Its Quality

Atlas Copco's Better Fourth Quarter Offset By Ample 2019 Uncertainties

The past year (2018) was a relatively rare year where Atlas Copco (OTCPK:ATLKY
) underperformed its industrial peers, as worries mounted throughout the year about the company's semiconductor-exposed Vacuum Technique business. Performance has improved on a relative basis over the last few months, though, as investors start considering whether semiconductor orders may recover in 2019 and whether other industrial markets may not slow as much as feared.

I'm still in the camp that thinks economic growth will slow more noticeably in North America, Europe, and China as 2019 goes on. Atlas Copco may well outperform in that environment (it certainly did in the fourth quarter), but investors considering the shares have to accept the risk of conditions getting worse before they get better. Atlas Copco isn't a clear-cut bargain today, but it's close enough (and seldom gets truly cheap) that I'm tempted to take the risk.

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Atlas Copco's Better Fourth Quarter Offset By Ample 2019 Uncertainties

Neurocrine Turns To Gene Therapy To Bolster Its Movement Disorder Franchise

I have been pretty consistently bullish on Neurocrine (NBIX) for a while, but one of my more frequent criticisms has been a relatively spartan pipeline. Where some biotechs will throw numerous compounds into trials in the hopes that something "sticks", Neurocrine has been far more selective in what it brings into human studies. While that almost certainly saves the company some money, it also leads to a thin pipeline and that weakness was brought back into focus recently with the failure of Ingrezza in a pivotal study of pediatric Tourette.

Neurocrine has taken a significant step to change that, with the announcement on January 29 of a partnership with Voyager (VYGR) for potentially four gene therapy programs in the CNS space. The most advanced program likely wouldn't be approved until 2024 (assuming the data are good enough), but Neurocrine could be acquiring some high-potential compounds in areas that are increasingly core to the company.

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Neurocrine Turns To Gene Therapy To Bolster Its Movement Disorder Franchise

Better-Than-Feared Numbers Boost Crane

Crane’s (CR) fourth quarter performance and guidance for 2019 were by no means flawless, but Wall Street is an expectations machine in the short term, and with the shares having sold off about 20% since my last update (underperforming industrials in general), it’s pretty clear that expectations for this conglomerate were deteriorating. I do have some concerns still that management may be too bullish about the prospects for the “general industrial” end-markets in 2019, but healthy chemical, process, and aerospace end-markets should help and I think expectations are at a reasonable level now.

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Better-Than-Feared Numbers Boost Crane

South State Bank Still Grinding Through Some Repositioning

“Ground and pound” may be effective, even necessary, as a strategy, but it’s not a lot of fun to watch, and I believe the sluggish near-term results (and expectations) for South State Bank (SSB) continue to explain this bank’s relative underperformance to broader bank indices, as well as regional peers/rivals like BB&T (BBT), Bank of America (BAC), First Citizens (FCNCA), SunTrust (STI), and Wells Fargo (WFC). Although loan growth has perked up a bit and deposit costs remain low, real earnings acceleration is probably more of a 2H’19 event and the shares aren’t comparatively all that cheap now.

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South State Bank Still Grinding Through Some Repositioning

Chemical Financial About To Double In Size With An Unexpected Merger Of Equals

I’ve been bullish on Chemical Financial (CHFC) for a little while now, as I liked the prospects for this community banking-oriented financial company to gain deposit share in Michigan and surrounding states as larger banks looked elsewhere for growth. Although I thought M&A was certainly going to be a part of the company’s future, I was surprised to see the merger of equals with TCF Financial (TCF) announced in tandem with fourth quarter earnings.

TCF has never been my favorite bank, but I like this combination, and particularly as there will be a lot of Chemical Financial executives still in positions of authority in the combined company. I believe this is a good blending of relative strengths, and it may well be a blueprint of deals to come in the Northeast and Midwest as larger banks no longer seem so interested in sizable whole bank acquisitions in those areas. Modeling the new combined entity takes a little more guesswork than I’d like, but I believe this combination is undervalued today and well worth consideration.

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Chemical Financial About To Double In Size With An Unexpected Merger Of Equals

Does KeyCorp Really Deserve To Be So Unpopular?

What do you do with a stock that seems too cheap when you’re not all that fond of the company? That’s the question I have with KeyCorp (KEY), as this is definitely not my favorite bank, but I can’t really get a good handle on why it is trading so far below what would otherwise seem to be a normal valuation range. KeyCorp’s long-term track record isn’t the best, and there are issues with its deposit base and branch network, but it seems like the Street is really down on this name relative to the underlying fundamentals.

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Does KeyCorp Really Deserve To Be So Unpopular?

Applied Industrial Technologies Starting To See The Slowdown

Wall Street hates uncertainty and there’s plenty of that when it comes to distributors in general and Applied Industrial Technologies (AIT) in particular. With two-thirds of Applied Industrial Technologies’ verticals still growing and macroeconomic metrics like manufacturing capacity utilization, PMI, and industrial production still favorable but weakening, there’s plenty of uncertainty as to just how well the U.S. (and global) economy will perform in 2019.

AIT has done a lot to build up its business, and particularly its higher-margin fluid power business, and this a company with a strong ROIC record. I’m concerned about slowing momentum in 2019 and the possibility of further revisions to near-term guidance, but I do see a path for mid-single-digit revenue growth and double-digit FCF growth that can support a higher share price from here.

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Applied Industrial Technologies Starting To See The Slowdown

Strong Growth In Niche Commercial Lending Taking PacWest Into 2019

Loan growth has been relatively disappointing across the banking sector during this rate cycle, but several banks have reported improving momentum in the fourth quarter, and with better than 20% growth in originations in the fourth quarter, I’d say PacWest (PACW) certainly qualifies. Rising deposit costs are going to be an issue in 2019, but PacWest’s low expense ratio and niche commercial lending franchises should offer some cover.

The attempted acquisition of El Dorado Savings didn’t work out, but I fully expect this highly acquisitive bank to remain on the hunt for opportunities to grow its core deposit base and/or expand its footprint beyond its Southern California base. PacWest isn’t wildly undervalued, but I like the risk/reward/quality combination and the company’s position in niche commercial lending.

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Strong Growth In Niche Commercial Lending Taking PacWest Into 2019

Weaker Shipments Sap Insteel's First Quarter, And Margin Threats Remain

It didn’t take long at all for Insteel (IIIN) to show some divergence from my expectations for fiscal 2019, as the company’s first quarter came in meaningfully lower than I expected on weather-related shipment weakness in the quarter. Even so, the conditions in the market remain quite challenging, and it sounds as though the company will be sacrificing margins to maintain volume with customers in 2019 and hoping for some tariff relief.

I’m still comparatively less bullish on non-residential construction in 2019 than many, and I think that presents some risks to volumes and overall earning expectations for Insteel. While I believe this company is fundamentally well-run, the reality of competing against cheaper imported product is a difficult one, and the possibility of weaker-than-expected demand doesn’t help. I saw the possibility of 25% or more downside in my last update, and the shares are down about 15% from there. I do believe that has de-risked the investment case somewhat, but my confidence in the acumen of Insteel’s management is tempered by the ongoing risks presented by macro factors outside of their control.

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Weaker Shipments Sap Insteel's First Quarter, And Margin Threats Remain

Alcoa Looks Undervalued, But With Some Significant Asterisks

There are some investors who simply refuse to consider highly cyclical stocks like Steel Dynamics (STLD) or Alcoa (AA), and a quick look at the recent chart outlines some of the reasons why. With Alcoa’s high sensitivity to alumina and alumina prices (a roughly 5% change in aluminum prices can move EBITDA by close to 10%), and the ongoing volatility of the commodity markets, it’s a tough company to model accurately beyond a few quarters. Making matters worse, the valuation norms for the shares seem to have broken down over the least year or so, making it even more challenging to come up with a good sense of where the shares should trade.

When all else fails, I come back to free cash flow, and I do believe Alcoa is undervalued here. Current aluminum prices don’t appear to be sustainable, and Alcoa should see more capacity leave the market in response … though the timing there is of course uncertain. I believe the shares are undervalued below the mid-$30’s, but I’d never consider this as more than a trade.

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Alcoa Looks Undervalued, But With Some Significant Asterisks

OceanFirst Looking To A Better 2019

For what I otherwise believe to be a promising, well-run small bank, OceanFirst’s (OCFC) last two quarters haven’t been all that great. The company hasn’t been doing poorly, but rather “less well” than I’d hoped. Looking into 2019, though, the company should be past the bulk of acquisition-related loan run-offs, and will be actively building new commercial lending businesses in the metro Philadelphia and New York City areas. Add in some further efforts to reduce to costs, and I believe the basic logic of OceanFirst as a small-cap bank investment with above-average growth potential but also above-average quality is still intact.

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OceanFirst Looking To A Better 2019

PTC's Long-Term IIoT Potential Is Attractive, But The Near-Term Macro Outlook Isn't

Considering that companies in the auto, electronics, and industrial categories make up about 60% of PTC’s (PTC) revenue base, I can understand why analysts and investors might be concerned about the near-term revenue growth outlook for the company, and particularly so considering the sizable shortfall in new subscription bookings for the first quarter. Management believes deal slippage, not macro issues, are the culprit, though, and it’s well worth noting that 2019 will be the year in which partnerships with Rockwell (ROK), Microsoft (MSFT), and ANSYS (ANSS) start to show some impact.

I wasn’t keen on PTC’s valuation back in July, and the nearly 20% drop since then doesn’t have me regretting that call, as these shares have lagged the market and rivals like Dassault (OTCPK:DASTY) and Autodesk (ADSK). I do like this business, though, and I’m still very bullish on the prospects for the company’s industrial IoT (or IIoT) platform to drive meaningful revenue growth and some synergistic sales with the legacy CAD/PLM/SLM offerings. Valuation remains a concern for me, though, and particularly with potentially building macro headwinds; it’s a toss-up call for me now, but definitely a name I’d revisit at a lower valuation.

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PTC's Long-Term IIoT Potential Is Attractive, But The Near-Term Macro Outlook Isn't

Alaska Air Doing Its Part, But Investors Seem More Nervous About Airlines

Alaska Air (ALK) did its part, and a little more, for the fourth quarter, and guidance for 2019 looked fine, but I suspect investors didn't like management's comments about recent volatility in fares, and I think concerns related to the ongoing government shutdown are playing into the stock as well. While I do believe Alaska Air is undervalued and well-positioned to generate above-average growth in 2019 as it leverages the benefits of the Virgin deal and pursues some new ancillary revenue opportunities, a weaker economy and a more competitive airline sector loom as risks, and investors shouldn't underestimate the challenge it can be to outperform a weaker sector.

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Alaska Air Doing Its Part, But Investors Seem More Nervous About Airlines

Guidance From STMicroelectronics Suggests A Stronger Second Half Than Many Expected

For better or worse, short-term stock price performance is mostly a game of expectations, and expectations going into this reporting cycle were for semiconductor companies to lower guidance for the first quarter. While Xilinx (XLNX) was a notable exception, that expectation has held true conceptually, with Texas Instruments (TXN), Intel (INTC), and STMicroelectronics (STM) all guiding down, but the magnitude of the revisions seem to be less severe than feared.

Specific to STM, I’m still bullish on these shares even after a double-digit pop post-earnings. The market is still not sold that the company’s cost structure and operating philosophy have really changed such that a downturn won’t hammer margins, and I believe that there is still room for the company to surprise. Although I’m a little concerned that management’s full-year targets for 2019 are aggressive and that the sector could see a second cut to numbers in three months, I like these shares below the high teens.

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Guidance From STMicroelectronics Suggests A Stronger Second Half Than Many Expected

Grainger Looks For A Soft Landing As Industrial Headwinds Build

It was a very mixed year for Grainger (GWW) in 2018, as the company did well in the first half as the company reaped the benefits of a significant pricing adjustment, but the shares significantly underperformed rivals like Fastenal (FAST) and MSC Industrial (MSM) in the second half as worries mounted about the durability of the U.S. economic cycle, whether Grainger had meaningful levers to drive growth beyond price, and whether the company could drive margin leverage.

Unfortunately, fourth quarter results don’t offer easy answers. Grainger’s guidance for 2019 looks quite rational insofar as expecting modest market growth and little price leverage, but expectations of almost 4% relative outperformance in sales could be too bullish. Grainger’s profitability is solid, but I believe distributors are going to have a more challenging time in 2019 and it’s hard to get really excited about these shares.

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Grainger Looks For A Soft Landing As Industrial Headwinds Build

Teradyne Guidance Brings Relief, But The Near-Term Looks Challenging

Semiconductor test equipment typically follows a different pattern than other types of semiconductor equipment, but the market was in a “shoot first, ask questions later” mood on Teradyne (TER) going into the fourth quarter, concerned about an overall decline in the semiconductor sector and perhaps some company-specific risk tied to Apple (AAPL). On top of all that, I believe there were growing concerns that the weakness in China and auto customers expressed by Yaskawa (OTCPK:YASKY) and Fanuc (OTCPK:FANUY) would spill over into Teradyne’s fast-growing cobot-driven Industrial Automation segment.

All things considered, business is holding up a little better than feared. The first half of 2019 is going to be challenging, and the cobot business likely isn’t going to grow as fast, but investors were prepared for worse. With revenue growth potential in the mid-to-high single-digits and FCF growth potential in the high single digits, I believe these shares are undervalued, but market expectations of improving conditions for semiconductors and semiconductor equipment could still leave some perception risk, not to mention the risk of further deterioration in China and auto end-markets.

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Teradyne Guidance Brings Relief, But The Near-Term Looks Challenging

Xilinx Emerges As A Semiconductor Unicorn And Shivs The Shorts

Not too many semiconductor stocks have reported as of this writing, but with the Texas Instruments (TXN) and Intel (INTC) reports in, it looks like the market's fears of another round of downward guidance revisions for the first quarter are materializing. But then, there's Xilinx (XLNX) - quite possibly a true unicorn this quarter in not only reporting very strong growth (revenue up 34% yoy and 7% qoq) but also guiding UP for the next quarter.

With strong earnings and the 5G opportunity seeming to come through sooner than expected, Xilinx shares shot up almost 20% and set a new 52-week high. Xilinx has a legitimate, differentiated opportunity with its strong FPGA and FPGA/SoC portfolio, including near-term opportunities like 5G wireless and auto ADAS and longer-term opportunities like data center/AI and autonomous driving. Although I think Xilinx can generate double-digit long-term revenue growth and that today's DCF-based fair value isn't unreasonable, it's certainly not an overlooked opportunity at this point.

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Xilinx Emerges As A Semiconductor Unicorn And Shivs The Shorts

A Sharp Downturn In China Seizing Up Nidec's Growth Engine

Evidence continues to mount that conditions in China, and to a lesser extent other regions around the world, are not good. Nidec (OTCPK:NJDCY) (6594.T) has seen a withering decline in auto business in the last couple of quarters, with weakness spreading beyond autos into consumer appliances and various industrial markets. At the same time, though, Nidec continues to build for its future – globalizing its production capabilities and logging significant inquiries for its electric vehicle traction motors.

Nidec isn’t quite as cheap as I might wish, and I think this macro malaise could linger on a little while longer than the Street presently expects, but I think this is a very good company now trading at a reasonable valuation. In addition to a major opportunity in EV motors, I believe Nidec is leveraged to ongoing growth in brushless motors, robotics, and data centers, and could deliver meaningful operating leverage with this latest efficiency initiative. Looking past the rocky near-term, I think these shares could be 10% undervalued today and that the shares could re-rate meaningfully higher as 2019 moves on if and when the outlook for China improves.

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A Sharp Downturn In China Seizing Up Nidec's Growth Engine