Seeking Alpha: Microsemi Bigger And Better, But Has Work To Do

Microsemi (NASDAQ:MSCC) won the bidding competition for PMC-Sierra in 2015 and closed the deal early in January. Now the hard work really starts. While PMC-Sierra brings attractive diversification, growth potential, and expense synergies, it falls to Microsemi management to prove that they can not only successfully integrate the deal (something they have a lot of experience with), but fully leverage the growth opportunities that PMC-Sierra was building towards before the deal.

I believe that Microsemi will get the job done and emerge a better, stronger, faster-growing company after this deal. This deal pushes my modeled fair value on Microsemi into the low $40's, and I think investors will pleased to see the company leverage growth opportunities in defense, aerospace, and communications while many chip companies try to navigate through a weaker smartphone and industrial environment.

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Microsemi Bigger And Better, But Has Work To Do

Seeking Alpha: Summer Infant's Slow Road Back

Progress in Summer Infant's (NASDAQ:SUMR) turnaround remains slow, but there have at least been signs of progress. Revenue growth has been disappointing, but the company's core revenue continues to grow despite price reductions in the monitor line and an ongoing restructuring of the company's core product line. Likewise, the company has made meaningful progress working off obsolete inventories and reducing its working capital.

Having a bigger presence in Europe may improve Summer Infant's long-term revenue growth prospects, but it will cost money to support. Moreover, Summer Infant is still a small player in a market that includes huge retailers like Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and the Toys/Babies R Us chains and large competitors like Mattel (NASDAQ:MAT), Newell Rubbermaid (NYSE:NWL), and Dorel (OTCPK:DIIBF). While there would seem to be 25% to 50% upside from here on the basis of mid-single-digit, long-term revenue growth and low-to-mid single-digit FCF margins, the execution risk here is very high and management really needs to deliver better revenue and gross margin numbers over the next few quarters.

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Summer Infant's Slow Road Back

Seeking Alpha: AEIS Starts Its New Life

With the wind-down of the solar inverter business now complete, Advanced Energy Industries (NASDAQ:AEIS) is free to refocus itself around its expertise in power conversion and control systems. That's a pretty good business in its own right, and one capable of supporting operating margins in the mid-20%'s, but the real deciding factor for this company and stock will likely be the extent to which management succeeds in branching out from its historical reliance on the semiconductor industry.

What happens next in the semiconductor capital equipment space is anybody's guess, as major fab operators like Taiwan Semiconductor (NYSE:TSM), Intel (NASDAQ:INTC), and Samsung have generally been spending less than expected (or maybe "hoped") during this transition to next-gen architectures. While the cyclicality of its core semiconductor market will create volatility in reported results, I believe that mid-single digit growth can nevertheless support a fair value in the neighborhood of $29 to $30 per share for this stock.

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AEIS Starts Its New Life

Seeking Alpha: Miller Industries Is No Wreck

Although I thought the valuation of Miller Industries (NYSE:MLR) was getting a little stretched in the spring of 2015, I'm still a little surprised that the shares have fallen close to 20% despite a generally decent performance. Perhaps that's the price of toiling in obscurity (as Miller is uncovered) or maybe investors were spooked by the surprisingly weak gross margin in the first quarter and the generally unimpressive margin trajectory seen this year. After all, if Miller can't generate good margins when volumes are high and input costs like steel and aluminum are low, isn't that a problem?

I am inclined to think that things are fine at Miller. Given that the Tennessee plant is running two 10-hour shifts a day, I don't think lack of demand is the problem, and the eventual smoothing out of plant construction and reorganization should help. I think Miller is undervalued, but I'm also looking for levels of cash flow production in the future that have been difficult for the company to maintain in the past. Investors should also note that the liquidity and float are too low here for this to ever be a well-covered stock on the institutional side.

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Miller Industries Is No Wreck

Seeking Alpha: The Dell And Market Pessimism For EMC Is Too Much

Buyouts are generally supposed to produce upside for the shareholders of the company being acquired, but that hasn't been the case for EMC (NYSE:EMC) since the company announced its merger agreement with Dell back in October of 2015. While it has indeed been a lousy market for a few months now, EMC's 12% drop since the time of the deal is worse than the performance of the Nasdaq, as investors have grown increasingly worried about the weak performance of EMC's storage business, the poor performance of VMware (NYSE:VMW), and concerns that the deal may not go through at all.

I believe that the deal gets done, but even if it does not, I believe EMC would walk away with at least $4 billion in cash in its pocket and an underestimated PaaS business in Pivotal. I wouldn't expect EMC's reported storage results to improve much until mid-2016, but with a stand-alone value above today's price and very low implied value to VMware, I believe there's still upside in these shares that is worth the risk that the deal unravels.

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The Dell And Market Pessimism For EMC Is Too Much

2016 Performace

Apologies for being so late to post this, but regular readers know how things are...

My performance for 2015 was okay, and given all of the other things going on in my life I'll look at it as a decent year.

Portfolio A: +8%
Portfolio B: -10.5%
S&P 500: +1.38%

Nasdaq: +5.73%
Russell 3000: +0.48%

Seeking Alpha: Check Point Software - Solid Performance, Familiar Worries

The more things change, the more they stay the same for Check Point Software Technologies (NASDAQ:CHKP). While this Israeli IT security company still has a leading presence in enterprise IT security and margins that many CEOs could only dream of, a segment of the investing world remains steadfast that the company is doomed to lose share to Palo Alto (NYSE:PANW), Fortinet (NASDAQ:FTNT), and other relative newcomers over time.

To be fair, Check Point has lost market share ... but the erosion seen in recent years has been less than the bears predicted. What's more, while Check Point's "fast follower" strategy means it will always arrive after the party has started, the company seems to have a credible platform for advanced threat detection, endpoint security, and cloud. The shares aren't dramatically undervalued, but they do trade below fair value, and I still think this is a quality idea in the tech space.

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Check Point Software - Solid Performance, Familiar Worries

Seeking Alpha: Dover Probably Undervalued, But Where's The Spark?

There's a pretty broad universe now of beaten-down industrial conglomerates that would seem to offer attractive upside for patient investors. Dover (NYSE:DOV) would seem to be among them, as the sharp decline in the energy business has mauled the company's financial results but not so much that the company couldn't still generate double-digit FCF margin in 2015.

Dover has never been the most exciting of the conglomerates, but I don't think mid-single digit long-term growth in free cash flow should be out of reach, and that still supports a fair value in the high $60's. The problem is that it's hard to see what gets investors interested in owning the shares in the next few quarters. Dover doesn't have meaningful exposure to popular end markets like aerospace, construction, healthcare, or passenger vehicle production, so unless energy starts recovering sooner than most expect, this stock will probably require some patience.

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Dover Probably Undervalued, But Where's The Spark?

Seeking Alpha: Finisar At Risk Of Profitless Prosperity

I've written in the past that Finisar (NASDAQ:FNSR) is best looked at as a fleeting engagement for active investors, and the last nine months underline why - the shares have lost about 40% of their value as the company has underwhelmed on revenue growth and found no traction with margins. To that end, revenue estimates for FY2016 are now about 6% to 10% lower than they were back in May and earnings estimates have fallen even farther.

The basic bullish driver for Finisar, increasing data traffic growth and increasing demand for 40G (and, eventually, 100G) equipment in the data center, is still valid but the current environment is challenging. Finisar doesn't have a good record of generating meaningful economic profits and the optical sector badly needs consolidation. What's more, the adoption of silicon photonics remains a significant long-term risk. These shares could still see the low-to-mid $20s on a renewed wave of bullishness on the data center upgrade opportunity, but that valuation is predicated in part on the market once again forgetting that this is a cyclical business with a bad record of full-cycle profitability.

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Finisar At Risk Of Profitless Prosperity

Seeking Alpha: Cavium Still Navigating Lofty Expectations

As I recently wrote in reference to F5 (NASDAQ:FFIV), growth investors are unforgiving when growth erodes, and Cavium (NASDAQ:CAVM) shares have not done well lately as this chip company's revenue has continued to decelerate ahead of what bulls hope will be significant product ramps. While Xpliant, LiquidIO, and ThunderX could add about $2 billion to Cavium's addressable market relative to 2015, companies like Intel (NASDAQ:INTC) and Avago (NASDAQ:AVGO) are hardly pushovers and the adoption of ARM servers has been disappointing so far.

It takes ambitious growth expectations to support a fair value in the $60s and the company's margin prospects over the next couple of years really don't support a corresponding EV/revenue multiple. That said, Xpliant, LiquidIO, and ThunderX are really just getting started and the company could be in a position to exploit M&A-related disruptions in its sector. This is by no means a safe stock, or one with low expectations, but the company's technology offers high performance, programmability, and cost of ownership attributes that could grab meaningful share in markets that can support multiple billions in long-term revenue.

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Cavium Still Navigating Lofty Expectations

Seeking Alpha: Steel Dynamics Grinding Through The Lows

I continue to believe that Nucor (NYSE:NUE) and Steel Dynamics (NASDAQ:STLD) are extremely well-run steel companies, but it's hard for even the best-run companies to make a lot of headway when imports help push prices down almost 40% in a year. Likewise, weakness in energy, off-road machinery, and "general industrial" is an ongoing concern going into 2016.

The good news is that Steel Dynamics has some internal efforts that can help, including ongoing improvements at the Columbus facility and efforts to improve its market penetration in categories like auto production. It also looks as though the government is going to help, as there seems to be a lot more momentum behind efforts to punish artificially cheap steel imports.

Valuation is a head-scratcher. The shares look about 10% undervalued on 2016 EBITDA, but closer to 20% undervalued on 2017 EBITDA and the company has continued to generate cash flow throughout this downturn. I'm not sure there is such a thing as a buy-and-hold materials company, but if you think the outlook for the U.S. economy is going to improve as 2016 goes on, Steel Dynamics could be a name to consider.

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Steel Dynamics Grinding Through The Lows

Seeking Alpha: Eagle Bancorp Flying High

Eagle Bancorp (NASDAQ:EGBN) has done well since I spotlighted the bank as a Top Idea back in mid-2013, with the shares up more than 90% in that time and basically matching super-performer Bank of the Ozarks (NASDAQ:OZRK). Like Bank of the Ozarks, Eagle is now in that tough grey zone where I love the growth and love management's strategy, but I don't love the valuation. I am generally loathe to tell investors to get out of a good growth story just because of valuation, and that's the case here, but I don't see enough valuation upside to recommend it as a new investment.

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Eagle Bancorp Flying High

Seeking Alpha: Commerce Bancshares Has A Strong Core, But Needs More Cardio

Analyzing and writing about a bank like Commerce Bancshares (NASDAQ:CBSH) can be a frustrating exercise, because there's nothing really wrong with this conservatively-run Midwestern institution, but the upside in the shares, absent a new growth driver, just isn't impressive. Like U.S. Bancorp (NYSE:USB), though, Commerce Bancshares knows what it is, and the management is not going to change course just to make the shares a little more exciting for short-term speculators.

I continue to believe that CBSH can leverage its low-cost deposit base in Kansas and Missouri, along with rising rates and good fee income growth, to generate mid-teens ROE down the road, supporting cash earnings growth of around 7% for the next five years. That's not enough to drive a compelling fair value today, but Commerce looks like a safer bet for investors who believe interest rate hikes will be slow to arrive and that credit conditions could get a little hairy in the short term.

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Commerce Bancshares Has A Strong Core, But Needs More Cardio

Seeking Alpha: First Horizon In Good Shape, But Looking At A Hard Slog

I thought Tennessee's First Horizon (NYSE:FHN) was more or less fairly valued a year ago, and I haven't missed out on much, as the shares of this regional bank are pretty much where they were a year ago. Of course, there's been movement in between, as bullishness on the prospect of rate hikes and loan growth saw these shares exceed $16 back in the summer before getting caught in the general downdraft.

I'm a little torn on First Horizon. On one hand, I applaud the management for being quite transparent with its plans and goals, but I don't think it's necessarily going to be able to reach all of those goals. Likewise, while I don't see much undervaluation in the shares on an "as is" basis, the stock should definitely do better if rates start heading up and/or if management deploys more of that surplus capital toward M&A. With all of that in mind, I'd call this a "high-quality hold"; I don't see enough undervaluation to buy these shares when BB&T (NYSE:BBT) and Regions (NYSE:RF) both look more undervalued, but there are definitely worse places for a bank stock investor to hang out while waiting for better conditions.

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First Horizon In Good Shape, But Looking At A Hard Slog

Seeking Alpha: Nektar Therapeutics Going Into The Decline With A Better Profile

I have no idea how long this downturn in the biotech sector will last, but Nektar Therapeutics (NASDAQ:NKTR) has survived its share in the 20-plus years of the company's existence. I also believe that the company is going into this downturn in the best shape it has been - Nektar can look forward to meaningful royalty streams from two drugs with $1 billion-plus potential, and the company has a more credible and focused pipeline.

My model suggests that the shares should be worth over $18 today, with royalties from approved drugs (AstraZeneca (NYSE:AZN)/Movantik and Baxter's (NYSE:BAX) Adynovate) making up about $9 of the valuation. Nektar's pipeline remains high-risk, but the potential of abuse-resistant painkillers and differentiated immuno-oncology drugs is meaningful, and the company seems to be making better decisions with regard to its R&D capital allocation.

It's certainly important to note that this is an ugly stretch in the biotech space and it could get worse (if not much worse) before getting better. My valuation is predicated in part on what the market has been willing to pay for approved drugs in the past, and the market can certainly undershoot those multiples during pullbacks.

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Nektar Therapeutics Going Into The Decline With A Better Profile

Seeking Alpha: Cosan Ltd Looks Like Value The Hard Way

The shares of Cosan Ltd. (NYSE:CZZ) are hardly unique in being Brazilian shares that have done poorly over the past year, as Brazil's ongoing economic struggles and currency weakness have badly hurt many stocks. Cosan has a host of its own challenges, though, as investors wrestle with the prospects for Cosan SA's (CSAN3.SA) Raizen joint venture to improve profits and cash flow in the sugar and ethanol operators, as well Rumo's (RUMO3.SA) very weak share price and its prospects for raising much-needed capital on acceptable terms.

The positive spin on Cosan Ltd. is that it gives investors a one-stop exposure to one of the largest sugar and ethanol producers in the world, as well as a leading operator of gas stations in Brazil, a large natural gas distribution business, and a growing rail and port operator. The negative spin is that those sugar and ethanol operations have never generated great returns on capital and that the logistics operations need very large amounts of capital in the coming years. There's also a negative argument for complexity here - this is a tough business to model and the holding company structure creates risks and inefficiencies.

When it's all said and done, I believe that Cosan Ltd. is undervalued, but this is a good example of a stock where investors may find the return prospects significantly overshadowed by the risk and complexity. These shares can definitely outperform on a Brazilian economic recovery, but there are significant commodity, macroeconomic, and operational risks to consider.

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Cosan Ltd Looks Like Value The Hard Way

Seeking Alpha: Xenoport Arguably Undervalued, But Low On Options

The days of talking about XenoPort (NASDAQ:XNPT) as a biotech are pretty much over, as the company has given up developing '829 and '279 on its own and refocused its efforts on maximizing the potential of its restless leg and postherpetic neuralgia (or PHN) drug Horizant. Unfortunately, XenoPort also really isn't a specialty pharmaceutical company either, as the company has no other marketed products and still lacks the scale (and the resources) to market Horizant to full effect.

The best outcome for XenoPort would appear to be a sale of the company to another pharmaceutical company with the primary care sales infrastructure to make Horizant a lucrative "drag and drop" addition. I believe such a transaction is worth about $6.50 to Horizant today, but I believe the shares would be worth far less in a go-it-alone scenario due to a slower revenue ramp and a lack of operating leverage. I don't presently see any meaningful value in out-licensing the portfolio.

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Xenoport Arguably Undervalued, But Low On Options

Seeking Alpha: Cresud And The Cost Of Complexity

With so many stocks out there for investors to choose from, I have never believed that investors are obligated to put up with confusing, complicated, or unfavorable situations just to generate a little extra return. That point has really been driven home at Cresud (NASDAQ:CRESY) in recent months, as investors have grown concerned about the relationship between Cresud's majority-owned IRSA (NYSE:IRS) and Israeli holding company IDB Holding (OTC:IDBZF) (IDBD.TA).

Given that IDB's debt is non-recourse to IRSA and/or Cresud, I'm not worried about IDB "ruining" CRESY, but I am concerned that management is stretching itself far and wide and really becoming much more of a diversified holding company. I suppose that's fine if that's what you want to invest in, but as a vehicle for investing in Argentina (and particularly Argentina's farmland), I'm not sure Cresud really fits the bill for me anymore.

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Cresud And The Cost Of Complexity

Seeking Alpha: Can Better Policies In Argentina Take Adecoagro Higher?

Agricultural and ethanol company Adecoagro (NYSE:AGRO) has been one of the few companies with significant operations in Brazil to do reasonably well over the last six months or so, although most of that outperformance has come since September. I've liked this company for a while, particularly because of its efficient sugar and ethanol operations in Brazil and its undervalued land assets in Argentina, and now it looks as though at least some of the macro factors influencing the company are pointing in a more positive direction.

Brazil's weak economy and weak currency remain real issues for the company, but Argentina's adoption of agriculture-friendly tax and policy reforms should offer a real boost to Adecoagro's farming results in the coming years. Weak global commodity prices remain a challenge, and it may take longer for Argentine land values to appreciate, but Adecoagro still looks modestly undervalued today.

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Can Better Policies In Argentina Take Adecoagro Higher?

Seeking Alpha: SLC Agricola Closer To Dirt Cheap

Like most equities in Brazil, reaching out to grab SLC Agricola (OTCPK:SLCJY) (SLCE3.SA) has been like grabbing a falling knife. While the local shares haven't done quite as bad (SLCE3.SA's shares down about 12%), the ADRs have fallen another 35% or so since I last wrote about the company, as the shares have been hit hard by a weak Brazilian real, some productivity challenges, and ongoing concerns both about Brazilian equities and farming companies in a lower commodity price environment.

The performance of Brazilian equities over the last year or so has been an abject lesson that things can always somehow manage to get worse. Even so, SLC Agricola's share price seems to reflect a level of pessimism that seems out of line with the real fundamentals. Although the company's land is consistently more productive than U.S. cropland when it comes to cotton and soy and not too far out of the running with corn, the market values SLCJY's land at nearly half the value of U.S. cropland. Even allowing that the challenges of the Brazilian market (including higher logistics costs) should demand a discount to U.S. values, I have to wonder whether the market isn't overly discounting the long-term value of SLC's farmland, and by extension, the shares of the company.

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SLC Agricola Closer To Dirt Cheap