Seeking Alpha: A Metalworking Slowdown Creates An Opportunity With IPG Photonics

A lot of what I was worried about concerning IPG Photonics (NASDAQ:IPGP) back in December has come to pass in 2016, as the company has seen weaker manufacturing activity and greater competition in China squeeze the company's once-robust growth rates. The market has reacted pretty predictably too, tossing the stock around between the mid-$70s and $103 as investors try to weigh out the opportunities that double-digit underlying market growth and new product introductions offer against the specter of rising competition and a prolonged slowdown in major end markets.

I certainly can't promise that the third quarter won't bring another downward revision to guidance or that the stock won't see the $70s again. That said, I think IPG Photonics is well placed to maintain its leadership in fiber lasers and expand its addressable market opportunities. Low double-digit free cash flow growth is hardly a conservative projection in my book, but I think IPG Photonics can hit that mark and support a fair value in the mid-$90s.

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A Metalworking Slowdown Creates An Opportunity With IPG Photonics

Seeking Alpha: IPG Photonics Looking To Innovation And Integration

It's still pretty tough out there if you're in the laser business. While Newport (NEWP) and II-VI (IIVI) have come alive in the last three months and Coherent (COHR) and Rofin-Sinar (RSTI) are both in the green for the full year, only Newport has kept pace with the S&P 500. Even so, IPG Photonics (IPGP) has done even worse, as wobbly quarterly performance and weak end markets like industrial welding and automotive have discouraged investors in this volatile laser company.

Still, I think there are better days ahead for this leading fiber laser company. Fiber lasers continue to gain share in the growing laser market, and the number of applications for fiber lasers has only been increasing. Not only does IPG Photonics enjoy a strong IP position and a good reputation for innovation, but the company's vertical integration allows it to produce lasers at considerably lower costs than its rivals - leaving the company free to compete on features when it can, and price when it must.

On a cash flow basis, I believe these shares are about 25% undervalued today, and I do expect rather aggressive adoption and growth for the company over the next five and ten years. EV/EBITDA also supports the notion that these shares are undervalued, and though global industrial capex spending remains a major unknown, I believe the success of IPG Photonics is more weighted toward "when" than "if".

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IPG Photonics Looking To Innovation And Integration

Seeking Alpha: Is This A Chance To Pick Up II-VI For The Rebound?

Sometimes one of the best things an investor can do is pick up shares of a quality company on a temporary problem in the industry. For instance, investors who bought Lincoln Electric (LECO) below $40 are probably pretty happy that they did so. While the shares of laser optics and components maker II-VI (IIVI) have been volatile, they historically haven't stayed very cheap for very long. The question for investors now, though, is whether this is another buying opportunity or whether II-VI's addressable markets have changed in fundamental ways that will make this a disappointing stock from now on.

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Is This A Chance To Pick Up II-VI For The Rebound?

Investopedia: Rofin-Sinar Down On Power

Rofin-Sinar Technologies (Nasdaq:RSTI) has often been a quality small cap company that, despite a lack of institutional support (big-name sell side coverage), has often traded at pretty robust premiums. With key industrial markets in Germany and China struggling, though, these shares have had a rough go of it and have come down in value substantially. While investors should not ignore the downside of further global economic stagnation, now may be a good time to get up to speed on a stock that should be highly leveraged to a recovery in those markets.

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http://stocks.investopedia.com/stock-analysis/2012/Rofin-Sinar-Down-On-Power-RSTI-IPGP-COHR-NEWP0508.aspx

Investopedia: II-VI Still Taking Five

II-VI (Nasdaq:IIVI) is one of those quality small caps that tends to stay under the radar. There's not much sell-side coverage, and frankly not much institutional ownership by the standards of this market. While II-VI still has yet to recover from the Thai floods that disrupted business, the company's strong share in various laser optics markets makes it one worth watching.

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Danaher Assimilates Another Company

Scarcely any organization outside of Star Trek's Borg have taken the route of growth-by-acquisition quite like Danaher (NYSE:DHR). Fortunately, Danaher is quite a bit friendlier in its approach and typically makes very fair offers to the shareholders of the targeted company. They are at it once again, though, announcing on Wednesday that they would acquire electronic test equipment specialist Keithley Instruments (NYSE:KEI) for $21.60 in cash.  

What Danaher Is Getting?
In paying a net value of about $300 million, Danaher is acquiring a leading niche electronics company with trailing revenue of over $100 million. That is a pretty good premium for Keithley shareholders, at least relative to the current valuation of others in the "scientific equipment" space like Agilent (NYSE:A). Although some shareholders may lament that the company sold itself just as business seemed to be recovering, Danaher is giving them an exit price that has not been seen since 2004. It is entirely possible that Keithley might have had another run in it, but Danaher is offering a risk-free price that should satisfy almost any shareholder. 


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