Seeking Alpha: Wabtec Looking To Leverage Mandates And Grab Foreign Share

Value investors have nightmares about stocks like Westinghouse Air Brake Technologies (NYSE:WAB) (or Wabtec). The shares are expensive by most conventional metrics, but the company has roughly doubled its margins over the past decade and only scratched the surface of its market share opportunities outside of North America. Skilled at both product development and M&A, Wabtec has tied itself to the ongoing growth and use of both freight and transit rail - arguably as close as you can get to a sure thing in the industrial world.

Valuation remains a challenge when it comes to this stock. On one hand, projecting double-digit annualized revenue growth for a company that is already generating more than $3 billion a year in revenue and has more than 50% share in its core market is aggressive. On the other hand, while replicating such impressive share outside of North America is by no means guaranteed, getting only half that would still be more than enough to support 10%-plus revenue growth.

Read more here:
Wabtec Looking To Leverage Mandates And Grab Foreign Share

Seeking Alpha: Dana Holding Needs To Ride Multiple Cycles

As someone whose body type is more manatee than mako shark, I've never had that much interest in surfing, but I do appreciate the skill that goes into finding the right wave and then riding it all the way in to shore. Maybe I'm stretching the metaphor a little too far here, but I think Dana Holding (NYSE:DAN) needs to do the same now, as investors are clearly concerned about the risk that supportive light vehicle and commercial vehicle cycles in North America are peaking, and other sectors are not in a state to pick up the slack.

I was lukewarm on the stock back in September, and the performance since then hasn't been great (down about 7%). Plenty of other auto and truck components companies have seen their stocks struggle to make much headway (let alone outperform), and I don't think there's anything particularly wrong here. While some of its valuation multiples suggest a relative bargain, and the company does have more going on in terms of product development than it often gets credit for, I don't see so much of a discount here to make this a must-own at a time when a lot of investors appear nervous about the sector.

Read the full article here:
Dana Holding Needs To Ride Multiple Cycles

Seeking Alpha: Cummins Is Alluring... But Is It A Trap?

By and large nature teaches you to be wary of pretty things - they don't taste good, they have fangs, and so on. That may be an odd segue into a discussion of Cummins (NYSE:CMI), but it captures how I feel about the shares. I think Cummins is a great company, but as attractive as the shares seem, I do wonder how they will fare as the North American truck cycle peaks and many emerging markets continue to struggle.

I think investors forget that trucks and truck components are cyclical markets at their own risk. But I also think that the company can still generate long-term revenue and cash flow growth in the mid-single digits, and that the shares are trading below the value of those cash flows. I'm wary about buying into a peaking North American market, but the underlying strength of the components business, the opportunities in China, and the overall quality of the business make this a tough stock to ignore.


Read more here:
Cummins Is Alluring... But Is It A Trap?

Seeking Alpha: 2015 May Be Tough, But BorgWarner Is Tougher

All in all, BorgWarner (NYSE:BWA) hasn't really gone anywhere since I last wrote about this high-quality auto parts supplier. While the shares have traded between $48 and $68, the net change since that last article has been virtually zero. That's not too surprising relative to the performance of Cummins (NYSE:CMI), Allison (NYSE:ALSN), or Tenneco (NYSE:TEN), but it is enough to have me reconsidering whether this is a buying opportunity for a stock that is rarely cheap and a company that is well-placed to leverage the seemingly inexorable drive toward more efficient vehicles.

With increasingly demanding fuel economy and emission requirements potentially adding more than $1,000 in vehicle content by 2020 (and continuing on after), I like the prospects for BorgWarner to deliver strong revenue growth and at least decent margin leverage. This year could be dicey given foreign exchange headwinds and uninspired European production expectations, and the valuation is not a screaming bargain on a cash flow basis, but few comparables seem as well-placed to generate multiple years of double-digit growth as BorgWarner.

Continue here to the full article:
2015 May Be Tough, But BorgWarner Is Tougher

Seeking Alpha: Allison Transmission Hits Pause

As I have written in prior pieces, stocks like Allison Transmission (NYSE:ALSN), Cummins (NYSE:CMI), and BorgWarner (NYSE:BWA) get more interesting to me during those periods where investors start worrying about the near-term growth environment. All of these companies are, at least in my opinion, proven winners in the vehicle components space by virtue of a long-term focus on innovation and responsible year-to-year management of the business.

It would look as though Allison is heading into one of those pauses. The shares are up about 7% since my last piece, putting them in the same "meh" performance group as Cummins, BorgWarner, and Tenneco (NYSE:TEN), and management's guidance back in February for the full year was not inspiring, as revenue may decline this year. While there is certainly risk in buying these shares ahead of earnings (due in about two weeks), I think Allison still has attractive long-term growth potential and a price at or below the low $30's should be a good opportunity for long-term investors.

Read the full article here:
Allison Transmission Hits Pause

Seeking Alpha: Progress At Synergy Pharmaceuticals, But Not Enough To Really Please Investors

Synergy Pharmaceuticals (NASDAQ:SGYP) continues to be an unusual little biotech with almost as many weaknesses or concerns as strengths. On one hand, you have a company with what could be a best-in-class drug that addresses a market that may include millions of people in the U.S. alone. On the other hand, the drug will be second-to-market and may have difficulty differentiating itself, to say nothing of the difficulties of developing the market as a whole and securing good reimbursement.

Synergy shares have risen almost 20% since my last article on the company, but not without spending most of the intervening time down about 20%. Management has possibly secured enough cash to get its lead drug to market, but the company still needs a partner (or a buyer) and that financing didn't come cheap. The prospective dilution of the financing takes my fair value down, but the shares still look undervalued with two catalysts on the way that could improve the risk-adjusted fair value by almost 30%.

Read the full article here:
Progress At Synergy Pharmaceuticals, But Not Enough To Really Please Investors

Seeking Alpha: Ironwood Has Plenty Of Market-Development Work Ahead

Biotech investors love to speculate on the basis of what a drug could generate in future sales, but relatively few of them have the patience to stick it out and support a company as it transitions from an R&D enterprise to a commercial enterprise. In cases like Ironwood (NASDAQ:IRWD) where the company has a lot of market development work to do, patience can be even thinner.

To be fair to Ironwood, the shares have done quite well over the past year (up more than 50%), but over the trailing five years the shares are up just 5% (during a red-hot biotech market). For Ironwood to work well as a stock from here, management has to deliver on its efforts to drive patient and physician awareness and that's no easy task when a large proportion of the market can arguably be suitably managed with diet modifications or cheap OTC and generic options. While the potential is here for Ironwood shares to be worth considerably more in a few years' time, I think the potential rewards and risks are pretty well balanced right now.

Continue reading here:
Ironwood Has Plenty Of Market-Development Work Ahead

Seeking Alpha: Miller Industries Making The Most Of An Upturn

Miller Industries (NYSE:MLR) is well off the beaten path. Practically uncovered, this leading manufacturer of tow truck chassis has nevertheless been performing pretty well of late as the company has been leveraging improving domestic demand, a growing foreign operation, and internal cost improvements into a strong run of double-digit operating profit growth.

Now, though, it seems like a fair time to wonder how much upside is left. These shares have risen about 30% since my last article and almost 50% since I wrote on them as a Top Idea in the fall of 2013, and the valuation no longer looks as skewed to "high upside, low downside" as it once was. Although I expect Miller to improve upon its long-term track record of revenue growth and free cash flow generation and I may be underestimating the potential of the company's efforts overseas, it's hard for me to call the shares dramatically undervalued. I still think Miller could generate double-digit annual total returns for its shareholders, but reward and risk look more balanced now unless/until Miller can really outperform on the margins and generate even more cash flow.

Follow this link for the full article:
Miller Industries Making The Most Of An Upturn

Seeking Alpha: A Strong Order Book Can Drive MTS Systems, But Watch The Margins

Over the last six months or so, MTS Systems (NASDAQ:MTSC) has remained a consistent (and perhaps frustratingly consistent) story. The stock has done a little better than the S&P 500 since my last piece, and the company has been logging good order growth, but order growth has been slowing and the company's margin trajectory hasn't been strong.

It's hard for me to work up a lot of enthusiasm for the shares at today's valuation. A large backlog of custom orders will make margin leverage more challenging, and I have my doubts as to whether today's global economic environment is conducive to a re-acceleration of orders. I presently think that the mid-$70s is about where the shares ought to trade, but I will note that if management can hit its revenue growth and margin leverage targets (both of which are above my estimates), a fair value in the high $80s to low $90s comes into play.

Read the full article here:
A Strong Order Book Can Drive MTS Systems, But Watch The Margins

Seeking Alpha: MSC Industrial Suffering From Weakening Markets And Execution Issues

I have been a shareholder of MSC Industrial (NYSE:MSM) for a long time, and with that comes the risk of papering over problems and telling myself "oh, it's not that bad" in the interest of holding on to a position that has done pretty well for me. To be sure, I still think that MSC Industrial has a lot of potential - I think the company's combination of e-commerce, vending, catalog, and vendor-managed inventory channels can drive meaningful share gains in what is still a fragmented (but essential) industrial wholesaling market.

The problem is that management's recent execution has not been sharp and the company may be in the midst of a one-two punch of self-inflicted disappointment and weakening core markets. I still believe that MSC Industrial can outgrow the industrial MRO market and generate mid-single digit revenue growth (and double-digit FCF growth), supporting a low-to-mid $80's fair value. I also acknowledge, though, that this stock may have further to fall before hitting bottom and investors looking here for value today may want to think carefully about what the next few quarters could look like.

Continue reading here:
MSC Industrial Suffering From Weakening Markets And Execution Issues

Seeking Alpha: Rofin-Sinar Making Progress, But Not Particularly Quickly Or Dramatically

I suppose you could approach Rofin-Sinar Technologies' (NASDAQ:RSTI) performance over the last year as something of a Rorschach test. A bear can point to the company's ongoing lackluster sales performance, bottoming margins, and lack of progress in really challenging IPG Photonics (NASDAQ:IPGP) in the growing fiber laser market. A bull could argue that the company has stabilized its revenue situation (and that currency moves make the comps worse than they really are), put in a bottom with margins, and can look to new product introductions in fiber and ultrafast lasers to help drive better results in the coming quarters.

For my part, my feelings haven't changed all that much since I last wrote on the shares. I do think that the market is still undervaluing the company's long-term growth prospects, but I don't think the undervaluation is all that great. I'm also concerned that it has taken this long for Rofin-Sinar to really get moving in fiber lasers and that the company is stuck as a legacy producer in an industry with a lot of R&D/product feature competition on the high end and growing price competition on the low end.

Follow this link for the full article:
Rofin-Sinar Making Progress, But Not Particularly Quickly Or Dramatically

Seeking Alpha: Slowing Growth Weighing On Tenneco

There has definitely been a split between the "have's" and "have not's" in the world of auto/truck parts and components. Companies like BorgWarner (NYSE:BWA), Dana (NYSE:DAN), and Cummins (NYSE:CMI) have been pretty unimpressive over the past year, while the likes of TRW (NYSE:TRW), Lear (NYSE:LEA), and American Axle (NYSE:AXL) have done quite well. With slowing growth across the last four quarterly reports, worries about a slowdown in North American and European demand, and weakness in commercial vehicle markets, it's not entirely surprising that Tenneco (NYSE:TEN) has found itself in the "have not" list of performers over the past year.

One of the challenges for Tenneco has been what has seemed like a constant "push to the right" with management's growth and margin improvement expectations. While Tenneco has been growing, and growing faster than underlying industry production rates, and posting better margins, the progress hasn't come fast enough to suit many analysts and investors. I was lukewarm on the stock a year ago, and I still am today. I like BorgWarner and Cummins better as long-term growth stories, but it's worth noting that Tenneco does look undervalued on what I think is a reasonably conservative DCF outlook (a rarity for auto/truck components companies) and would do likely well if off-road CV demand and/or forex headwinds were to come in better than expected.

Read more here:
Slowing Growth Weighing On Tenneco

Seeking Alpha: Ship Finance Needs To Skillfully Redeploy Capital

I continue to believe that the management team at Ship Finance (NYSE:SFL) is high quality and savvy, but they do not have the luxury of standing pat with the hand they're playing. The cash sweeps from the company's renegotiated charter agreements with Frontline (NYSE:FRO) have chipped in solid cash flow and give the company exposure to higher tanker rates in 2015, but those sweeps end after this year and front-loaded drilling contracts will reduce the cash to be reaped from the drilling rig assets.

On a positive note, the company has over $200 million that it can deploy into the vessel market and the company's comparative "platform neutrality" means that management can look for value in tankers, containerships, dry bulk, or drilling rigs as the market dynamics dictate. What's more, the shipping industry is still seeing a lack of high-quality (and affordable) capital, which should work in the company's favor.

Today's valuation is arguably fair if you do not believe that Ship Finance's management can successfully redeploy that capital into vessels/charters that will earn an attractive risk-adjusted return. Historically that has not been a good bet to make and while I can appreciate the appeal of other ideas in shipping like Euronav (NYSE:EURN) and Costamare (NYSE:CMRE), I think Ship Finance is undervalued and offers an attractive yield for those investors who prefer to generate their returns from dividends versus capital appreciation.

Read the complete article here:
Ship Finance Needs To Skillfully Redeploy Capital

Seeking Alpha: Air Transport Group Delivering On Schedule

Sane and rational competition is a good thing for most industries, but especially for the operators of aircraft. While domestic passenger airlines like Delta (NYSE:DAL) and Alaska Air (NYSE:ALK) have taken advantage of improved conditions to post some good results, so too have conditions improved for freight/air cargo operators like Air Transport Services Group (NASDAQ:ATSG). In the case of ATSG, though, it's not just about a better overall operating environment, as the company's internal expense and capital management efforts have started to pay off as well.

Air Transport's shares have done alright since my last article, boosted (I think) by more optimism around the air cargo space and growing expectations that the company would start returning cash to shareholders in 2015. The 11% move in the shares since that September piece has just slightly outdone FedEx (NYSE:FDX) and outpaced the S&P 500, but has lagged Atlas Air (NASDAQ:AAWW) which has climbed about 25% in that time. With the rise in Air Transport shares, I'm not as bullish as I was before. I still think there is room for the company to outperform and an argument for a share price in the low double-digits, but a mid-teens undervaluation isn't quite enough to get my wholehearted bullishness today.

Continue here:
Air Transport Group Delivering On Schedule

Seeking Alpha: Skidding Prices Have Brought Rare Sanity To Kirby's Valuation

Back in August, I reiterated what had become an all-too-familiar refrain for me in reference to leading barge operator Kirby Corporation (NYSE:KEX) - the company was a top-notch operator with strong share and a solid balance sheet, but the stock was just too expensive for my comfort. Since then, plunging oil prices and increased concerns about pricing and barge utilization, not to mention serious pressure in diesel engine services business, have more than a third of the stock's market cap away.

I still hesitate to call Kirby a clear-cut bargain. The shares are admittedly more in tune with historical valuation averages, but the market is still showing a willingness to pay more for Kirby's growth than it will pay for other transport companies. I'm not so bothered by this; I see no reason for "valuation equality" and I think companies that have established themselves as superior operators ought to get premium valuations and Kirby is one of those. So while hard-core value hounds may still balk at this price, and there certainly are reasons to worry that the shares could drop further before bottoming out, I think long-term investors who look to "buy the dip" on good companies ought to take a closer look here.

Read more here:
Skidding Prices Have Brought Rare Sanity To Kirby's Valuation

Seeking Alpha: ARC Document Solutions' Recovery Still Off Most Investors' Radar

ARC Document Solutions (NYSE:ARC) is still an unknown name to a large swath of Wall Street. Two sell-side analysts cover the stock and there has been no coverage on Seeking Alpha since my piece a year ago. During that year, though, these shares have climbed about 20% as the company has continued to make progress in transitioning from a heavy reliance on architecture/engineering/construction (or AEC)-based reprographics toward managed print services, color printing, and digital archiving.

I've been impressed with what I've seen in terms of the company's ability to offer an expanded array of services to its traditional customer base while also trying to expand beyond its roots in the AEC sector. I believe ARC is still poised to benefit from a recovering AEC sector and success in expanding outside of the AEC sector would offer some upside. I think the shares are undervalued below $10 but a disappointing fourth quarter did cost the company some credibility and management needs to rebuild confidence in the prospects for consistent high single-digit/low double-digit EBITDA growth.

Read more here:
ARC Document Solutions' Recovery Still Off Most Investors' Radar

Seeking Alpha: HollySys Needs To Ease Concerns Over Slowing Automation And Rail Orders

While I thought that the shares of HollySys Automation Technologies (NASDAQ:HOLI) might have been getting ahead of themselves back in August of 2014, the shares managed to go up another 10% or so before disappointing fiscal second quarter results and concerns about the outlook chopped off about one-third of the company's market valuation.

HollySys shares have rebounded about 20% from the recent low, but there are still some real questions about the near-term outlook. Investment in the company's largest automation sectors has slowed significantly and management's efforts to address higher-growth sectors and new markets will take time to bear fruit. Elsewhere, the potential of new rail products is matched against worries of substantially lower rail investment spending in the next couple of years.

Continue here:
HollySys Needs To Ease Concerns Over Slowing Automation And Rail Orders

Seeking Alpha: Lincoln Electric Facing A Tougher Year

Timing can be one of the most frustrating parts of investing. I don't have any real doubt that Lincoln Electric (NASDAQ:LECO) will continue to be a well-run and successful industrial company over the long-term, but I definitely have some doubts about how 2015 and 2016 might go and whether the Street has fully worked the risks into the valuation.

If you are the sort of investor who can see a holding go down 10% to 20% and not worry much about it, this could be a good time to consider Lincoln Electric. With headwinds like a weak oil/gas sector, weak demand in Brazil and Russia, and an uncertain outlook for U.S. exports, estimates may have to come down and that will likely pressure the stock. On the other hand, this is a company with consistent double-digit ROICs, growing share, and growth opportunities in areas like automation and I wouldn't try to get too precise with timing the low point in sentiment as this is a good long-term holding that likely won't hang out in bargain territory for all that long.

Read more here:
Lincoln Electric Facing A Tougher Year

Seeking Alpha: Is Gordmans Stores Pulling Out Of Its Tailspin?

It's funny how much easier it can be to walk when you stop shooting yourself in the foot. That may not be a completely fair opening line for discussing Gordmans Stores (NASDAQ:GMAN), as not all of the company's problems have been self-inflicted, but there have been more than enough missteps in merchandising, marketing, and supply chain management to suggest that the bullet-ridden shoe still fits.

Credit where due - new (or relatively new) CEO Andy Hall seems to be moving quickly to fix many of the serious issues at Gordmans. The market has certainly noticed, with the shares more than doubling since my last article in the fall of 2014. I don't see as much potential in the shares as before, but if Gordmans' new approach to merchandising can boost traffic more than I expect, if supply chain improvements lead to better margin leverage, and/or if the company can credibly re-accelerate its store opening schedule there could still be upside.

That said, investors would do well to remember that retail is savagely competitive and very few companies can establish a compelling brand identity or assortment that makes them a "must have" in the retail sector over the long term.

Follow this link for the full article:
Is Gordmans Stores Pulling Out Of Its Tailspin?

Seeking Alpha: Israel Chemicals Takes A Long-Term Potash Call Option

Friday's news that investment and marketing partner Israel Chemicals (NYSE:ICL) was bidding for the remainder of the shares of Canadian junior potash producer Allana Potash (OTCPK:ALLRF) shouldn't have come as a major surprise, though the 40%-plus move in Allana's shares certainly reflected the skepticism that had been worked into that company's share price. In many ways this is a marriage of convenience if not necessity - Allana was going to struggle to get its operations in Ethiopia into production on its own and Israel Chemicals increasingly needs to think beyond its home base of Israel if it wants to ensure its long-term future.

I had been bullish on Allana for some time (having written about it here, here, and here) and this buyout is a somewhat bittersweet endpoint. If the deal goes through, it will be at a price more than a quarter above where I first started writing on the stock … but I don't think investors should celebrate a 25%'ish return on such a risky name. On the other hand, fundamentals in the potash market have been getting worse and follow-up due diligence on Allana's Ethiopia project prominently includes words like "inhospitable", "unwelcoming", "difficult", and "challenging".

For Israel Chemicals, this is, at best, a long-term answer to a growing problem. The Israeli government is looking to take a bigger cut of the profits that the company generates from within Israel and labor difficulties are creating additional challenges. Buying Allana doesn't exactly make ICL a global conglomerate with a greater specialty chemical focus (something I think needs to happen eventually), but it does at least add a potential viable source of potash outside of Israel.

Read more here:
Israel Chemicals Takes A Long-Term Potash Call Option