Pacific Biosciences Flying High On HiFi Enthusiasm

Long-read sequencing specialist Pacific Biosciences (PACB) (“PacBio”) may have come up a little short in the third quarter where revenue was concerned, but it hasn’t dented the Street’s renewed enthusiasm for this emerging sequencing story. With long-read sequencing finally “ready for primetime”, PacBio is well-placed to leverage growth through expanded instrument and consumables sales as the approach finally starts fulfilling some of its potential.

Execution remains a risk, particularly with management looking to dramatically expand the scale of the marketing effort. I believe this is absolutely the right call, but it will accelerate the cash burn, leaving PacBio somewhat more vulnerable to the whims of investor enthusiasm, as additional future capital raises seem almost certain.

 

Click here for the full article: 

Pacific Biosciences Flying High On HiFi Enthusiasm

Lexicon Buoyed By Renewed Enthusiasm For The Pipeline

It’s been an interesting 30 days for Lexicon Pharmaceuticals (LXRX), with positive data from the company’s cardio studies of sotagliflozin (“sota”) presented at the American Heart Association virtual meeting, a Fast Track designation for LX9211, and some renewed love from the sell-side. With that, the shares have shot up from a little over $1.00 at the time of my last piece to over $3.30 before recently settling back down around $3.00.

Positive clinical data are never a bad thing, but I continue to believe that Lexicon faces a sizable challenge in differentiating sota from other drugs in the SGLT-2 group and securing a partner who can help the company maximize the value of this drug. While the FT designation for LX9211 is certainly welcome, and should shave off about a year in the development timeline, we still have yet to see efficacy data in humans.

With the share price move, I believe Lexicon is fairly valued on the basis of its LX9211 pain asset. Whether sota has meaningful value is once again a key question; while I still believe that Lexicon faces a steep uphill climb with this drug, the size of the market opportunities are large enough that even a token chance of success can shift the valuation argument.

 

Read more here: 

Lexicon Buoyed By Renewed Enthusiasm For The Pipeline

Graco Is A Top-Tier Industrial Name, But The Price Is Not So Compelling

As I said in my prior piece on Graco (GGG), investors don’t often get a chance to buy into this top-notch industrial company at a traditionally attractive (or even reasonable) valuation. When that happens, as it did in March and April of this year, it’s usually because there’s abundant fear, if not outright panic, about the industrial sector. Since the spring, though, investors have returned to industrials with enthusiasm, with valuations pushed up by low rates and a fear of missing out ahead of what should be some good recovery numbers in 2021.

Graco is not only once again trading at a robust valuation, it’s trading at a pretty rich multiple on a historical basis. Then again, it’s not so out of line with other top-quality industrials, so I suppose investors more comfortable with relative valuation (or just less sensitive to valuation in general) may still find something to like here. While I can’t fault the quality of this name, and I’ve long advocated for the notion that valuation is not itself an impediment to further rerating, investing in high-multiple stocks like Graco really isn’t within my comfort zone or core focus.

Click here to continue reading: 

Graco Is A Top-Tier Industrial Name, But The Price Is Not So Compelling

Work-From-Home Has Boosted MaxLinear, But Execution Is Still A Question Mark

Developments at MaxLinear (MXL) have been quite interesting since my last update on the company in mid-May. The acquisition of Intel’s (INTC) Home Gateway business has provided a bigger-than-expected boost, helped at least in part by pandemic-driven work-from-home demand in broadband, and the company has both seen an uptick in communications demand and improved its IP portfolio. On the other hand, performance in PAM-4 has largely lived down to my relatively bearish expectations, and there’s still a lot to prove here.

I liked MaxLinear back in May, and the shares have nearly doubled since then, outperforming the SOX by a wide margin. I believe stronger-than-expected residential bandwidth demand has helped, and I likewise believe that acquired gateway business has proven to be a better one that the market originally thought (part of my bullish thesis back in May). At this point, though, I see the shares as more fully-valued; there’s still appreciation potential, but I don’t see the “low-hanging fruit” I saw before, and I think management has more to prove now with areas of the business like PAM-4.

 Read more here: 

Work-From-Home Has Boosted MaxLinear, But Execution Is Still A Question Mark

Steak Or Sizzle? Nidec Offers Both

Plenty of stocks have recovered from pandemic-driven weakness earlier this year, but Nidec (OTCPK:NJDCY) (6594.T) has done a little better than most, rising about 50% since my last update and the ADRs have outperformed the average U.S industrial by a healthy margin over the past year. I believe this renewed bullishness is being driven not only by strong near-term performance in the small motor business, but also increasing enthusiasm over the company’s long-term opportunity in motors for hybrids and electric vehicles.

I can’t really say that Nidec shares are cheap now, but I do see a strong growth story that can possibly carry the shares further. Not only does Nidec have a strong established business in small motors (and leverage to data center growth), the growth opportunity in EV motors has been getting better and better and Nidec also has some underappreciated opportunities in areas like appliance motors, robotics, and thermal management. I don’t really favor “forget valuation and focus on the story” stocks, but I do like the growth drivers here and I wouldn’t be in a rush to cash in here just yet.

Click here to continue: 

Steak Or Sizzle? Nidec Offers Both

With Organic Growth Under Pressure Huntington Bancorp And TCF Financial Agree To A Merger

Given the combination of limited near-term organic growth opportunities and healthy capital levels, I expect to see quite a bit of bank M&A activity in 2021. While the combination of Huntington Bancorp (HBAN) and TCF Financial (TCF) surprises me a little bit in that I saw both more as hunters, the logic of the deal in the context of both near-term operating conditions and longer-term opportunity makes sense to me.

For TCF shareholders, I believe this is a fair deal, and one that is structured in a way that gives them future participation in any upside. Huntington was not my favorite bank when I last wrote about it, and the shares have very modestly underperformed peers since then, but I still think this is a pretty well-run bank, and it’s a name where the valuation isn’t too aggressive.

 

Follow this link to the full article: 

With Organic Growth Under Pressure Huntington Bancorp And TCF Financial Agree To A Merger

BRF SA Goes Back To The Future With A Bold 10-Year Growth Plan

Everything old is new again, and so it would seem with BRF (BRFS). Management laid out bold growth targets for the next 10 years at its December 8 investor day, but the underlying concepts (expanded processed/packaged food offerings, international expansion) harken back to the goals and ambitions of prior management teams... goals that proved impossible for the company to reach then.

That BRF has tried this before and come up short does not invalidate this plan. BRF has a better management team today and my takeaway from the presentations is that this new effort will be driven more by internal innovation than M&A than in the past, and I think that’s an important differentiation. I also believe that the global market can support the growth that BRF is looking to achieve, but the goals are ambitious. The further you go out in time, the fewer the number of estimates, but BRF’s 2023/2024 revenue target is about a third higher than analysts previously expected, and I expect some “show me” skepticism.

When I last wrote about BRF, I was bullish on the long-term potential of the business but more cautious in the near term given weaker spreads and margins. The shares have since risen about 20%, but my basic thesis is the same – I do see a path to a higher share price over time, possibly a much higher share price, but the near term does offer risk as poultry spreads remain pressured.

 

Click here to continue: 

BRF SA Goes Back To The Future With A Bold 10-Year Growth Plan

New Leadership Enhances ON Semiconductor's Self-Help Story

Leadership matters, and I believe ON Semiconductor (ON) has made a good hire for its CEO position.

There is a lot of work ahead if the company is to deliver meaningfully better margins on a consistent basis, but the new CEO has a positive track record there, and the company’s efforts to upgrade its product/market mix should help. There are still real long-term concerns and challenges, including elevated substitution risk and fierce competition, but I believe the self-help story now has more credibility in the short term.

ON has done a little better than its semiconductor peers since my last update, and semis remain a comparatively hot sector relative to the broader market averages. I do like the cyclical tailwinds that the sector has, as well as prospects for better “value capture”, but I am still concerned about the level of overall valuation. For ON, I think the share price today is pretty fair, but with upside into the mid-$30’s if you believe that operating margins can move into the high teens in 2022/2023.

 

Read more here: 

New Leadership Enhances ON Semiconductor's Self-Help Story

Aptose Shares Sell Off As The Market Wanted More Than Further Signs And Portents

Once again Aptose Biosciences (APTO) has exited a major medical meeting leaving investors hungry for more and punishing the stock as a result. The data that Aptose did provide at this year's American Society of Hematology meeting weren't bad, but they also didn't add much to the positive side of the scale, leaving investors still wondering whether the company's lead drug (CG-806) is truly an up-and-comer in AML and B-cell malignancies.

I believe there are some positives to draw from the data provided by Aptose, but significant questions and risks remain. Between expanded dosing at 750mg in B-cell malignancies (CLL in particular) and the AML program, Aptose should have more information to offer investors in the first half of 2021. In the meantime, though, the shares may well struggle to regain the momentum they had going into the ASH meeting, as I don't see any thesis-changing events prior to those 2021 presentations.

 

Read more here: 

Aptose Shares Sell Off As The Market Wanted More Than Further Signs And Portents