Seeking Alpha: The Market Seems To Think Chart Industries Is Back To Square One

That shiny new natural gas economy that was a rock star in the markets a few years ago and supposed to lead us into the next decade has wound up where sadly all too many rock stars of the past have - floating face down in a pool. In this case, it was a pool of cheap oil, as the sharp drop in oil prices has led many would-be users of LNG to table those plans for the time being, leading to much slower progress on LNG export terminals, and filling stations.

This hard stop in the natural gas industry, combined with much tougher conditions in China, has hammered the shares of Chart Industries (NASDAQ:GTLS), with the stock down over 40% in the past 12 months and nearly 60% since my last piece on the company.

While I had thought expectations were still a little elevated back in May, little did I suspect that activity across LNG would shrink so far so fast. At this point, it would seem that Chart Industries is being valued only on the basis of its industrial gas business, a good business where the company has long enjoyed #1 or #2 share in most of its primary markets, and arguably even undervalued just on that basis. While the timelines for large-scale U.S. LNG exports and wider usage of LNG as a transportation fuel have certainly stretched out, to give the shares no value for them at all seems unduly harsh to me.

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The Market Seems To Think Chart Industries Is Back To Square One

Seeking Alpha: Komatsu Lacking A Spark

There's really not much good news to celebrate among the makers of heavy machinery for construction and mining. Joy Global (NYSE:JOY) has been pummeled over the last year, and Komatsu (OTCPK:KMTUY), Caterpillar (NYSE:CAT), Sany, Hitachi Construction (OTCPK:HTCMY), Sandvik (OTCPK:SDVKY), and Atlas Copco (OTCPK:ATLKY) all pretty much occupy the same real estate in the down 20%-30% range. In fact, most of these companies' shares have pretty closely tracked the CRB Index down over the past 12 months.

I continue to think that Komatsu is a strong company within the heavy machinery sector, but it rarely makes a lot of sense to buy the best house on the block when the entire neighborhood is in flames. To that end, it's hard to look past the ongoing declines in machine utilization in Japan, China, and North America and the grim outlook for mining capital spending. While Komatsu shares do seem undervalued based on prior valuation ranges, it's hard for me to see what drives better earnings and more investor interest in the near term.

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Komatsu Lacking A Spark

Seeking Alpha: WESCO Hammered Down, But Margin Questions Linger

Finding a beaten down industrial stock takes no effort these days, and WESCO (NYSE:WCC) certainly qualifies. These shares have fallen about 45% over the past year, surpassing the declines in other distributors like Grainger (NYSE:GWW), Rexel, HD Supply (NASDAQ:HDS), and Anixter (NYSE:AXE). Given the company's higher exposure to energy, perhaps it is not entirely unfair that WESCO would see a sharper drop, but I find it interesting that WESCO is also the only name on that short list that is expected to see revenue declines in both 2015 and 2016.

The North American industrial sector has weakened a lot more than I expected back in May of 2015, and that has led me to reduce my fair value estimate by about 25%. While I do believe that WESCO's core markets will recover in time, I still have concerns about the company's long-term margin leverage. Although WESCO is very efficiently-run from an SG&A perspective, I think gross margin leverage will likely disappoint the bulls and I don't see what will shake WESCO out of its long-term status as an average grower. So while WESCO does look undervalued today and should have more leverage to an industrial recovery, it wouldn't be first pick for a long-term holding.

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WESCO Hammered Down, But Margin Questions Linger

Seeking Alpha: F5 Networks In Growth Purgatory

"My son, Here may indeed be torment, but not death" Dante Alighieri, Purgatorio Canto XXVII

As far as many tech investors are concerned, a company that cannot generate double-digit revenue growth might as well just take itself private. I could talk a lot about the double-digit growth in F5's (NASDAQ:FFIV) service business, as well as the strong margin it generates, but none of that is really going to matter unless and until F5 can perk up its product growth rate and its overall reported growth rate.

Unfortunately, that's not a simple process. The company's core application delivery controller market has most definitely slowed, software ADCs are worth less to the company than its traditional hardware ADCs, and product offerings in areas like security and diameter routing can't yet offset the impact. I can run numbers indicating that F5 is undervalued even if growth never again reaches double-digits (and, in fact, if long-term product growth is below 5%), but investors could have a frustrating wait before the Street embraces the value argument and/or the company restores its product growth performance.

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F5 Networks In Growth Purgatory

Seeking Alpha: Lincoln Electric A Lion In A Very Harsh Winter

There are some questions investors learn not to ask, and "how much worse can it get?" is most definitely at or near the top of the list. Operating conditions for Lincoln Electric (NASDAQ:LECO), the leading producer of welding equipment and consumables in North America, were already looking rough in the middle of 2015, but conditions have gotten even worse on a deeper plunge in overall manufacturing activity.

Many industrial companies, particularly in the machinery space, have gotten the snot knocked out of them since the summer of 2015 and I think there are some long-term values in the sector. Lincoln Electric looks like one of them, but I can't state with any real confidence that my estimates are finally low enough. I think a buyer of Lincoln Electric shares today will be happy to own them in three years' time, but I can't say that they'll be happy to own them in six months, and that is a key issue with any buy recommendation in the machinery space - while I think many high-quality names are attractive for the long term, things can certainly get worse in the meantime.

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Lincoln Electric A Lion In A Very Harsh Winter

Seeking Alpha: Mueller Water Still Waiting For Orders To Really Flow

Construction activity has been getting better in the U.S., but you wouldn't really know it by looking at the performance of water infrastructure supplier Mueller Water Products (NYSE:MWA), nor other related stocks like HD Supply (NASDAQ:HDS) and Rexnord (NYSE:RXN). On the other hand, it's hard to say that Mueller's shares ought to be outperforming as the company has racked up three straight quarterly revenue misses and sell-side estimates have been moving lower.

I'm still optimistic that municipal spending will pick up, but it's not all going to materialize in 2016 for Mueller. What's more, investors are still concerned about the impact of the profound weakness in the oil/gas markets and the lack of traction in Mueller's water technology businesses. Mid-single digit revenue growth and operating leverage-driven margin improvements can still support a double-digit fair value, but the shares definitely need to see some beat-and-raise quarterly performances.

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Mueller Water Still Waiting For Orders To Really Flow

Seeking Alpha: Bank Of The Ozarks Offers Rare Growth, But It'll Cost You

Watching Bank of the Ozarks (NASDAQ:OZRK) continue to climb higher is a little like standing outside of a restaurant and watching people eat your favorite food. I have tremendous respect for this bank's management and its business plan, but I've never been able to construct a model that makes me comfortable with the valuation. That's particularly true given that the bank hasn't exceeded my financial performance expectations by all that much, suggesting to me that Wall Street is simply willing to pay more for the company's growth than I am.

Not much has really changed in any of those respects. I like the company's 2015 acquisitions and I believe OZRK can generate more than 25% earnings growth per year (CAGR) for the next five years. But even with the 20% pullback in the shares from its 52-week high, I just can't make the numbers work from a value perspective. Painful experience has taught me not to stick my neck out in situations where I can't make sense of the valuation, but more aggressive and/or valuation-insensitive investors could see more on offer here.

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Bank Of The Ozarks Offers Rare Growth, But It'll Cost You

Seeking Alpha: Diworsification Messing Up Middleby's Growth

Among the many nuggets to be found in Peter Lynch's books, the concept of "diworsification" is one of my favorites. The term refers to companies that eventually expand or acquire beyond their core competencies and end up ruining their business in the process. With Middleby's (NASDAQ:MIDD) struggles in its Viking business leading to real pressure on growth and margins, it's fair to ask whether this company's foray into residential cooking equipment is destroying the value created by the strong commercial operations.

These shares have lost about a quarter of their value since I last wrote about them, as a slowdown in food processing sales and the mess in the residential business has led to disappointing quarters (including organic revenue contraction in the second quarter), downward revisions, and a re-examination of whether these shares still merit such a robust premium. I've cut back my growth expectations, but I believe Middleby is still well-placed to take advantage of growing demand for labor-saving automation in commercial kitchens. There's elevated risk right now, and I'd be nervous about buying ahead of fourth quarter earnings, but there's still above-average growth potential in the core business.

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Diworsification Messing Up Middleby's Growth

Seeking Alpha: Wärtsilä Down On Power ... For Now

These are challenging times for Wärtsilä (OTCPK:WRTBY) (WRT1V.HE), one of Finland's largest and oldest industrial companies. Orders for drillships, semi-submersibles, and supply ships have cratered alongside oil prices, and the demand for new cargo ships is hardly better. With that, the company's leading position in marine engines, automation, and propulsion doesn't look all that impressive. Likewise in the energy business, as emerging market orders for flexible baseload gensets has plunged on currency and commodity weakness.

It looks too early to be bullish on these shares, but I think this is a good time to get up-to-date with due diligence on companies like Wärtsilä. The company's biggest original equipment markets are weak, but the lucrative service business will help tide it over, and cyclical markets don't stay down forever. When demand for large ocean-going vessels and flexible electrical gensets recovers, Wärtsilä's niche leadership and operating leverage should serve investors well.

U.S. investors should note that Wärtsilä's ADRs are not especially liquid. Many brokers now support international trading, and there is more liquidity to be found buying these shares on the Helsinki Stock Exchange.

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Wärtsilä Down On Power ... For Now

Seeking Alpha: GKN Gets Interesting If They Can Get The Margins Up

Britain's GKN (OTCPK:GKNLY) is the kind of stock that can break an investor's heart. On one hand, the company's strong share in aerostructures and engine structures looks attractive as significant programs move forward at Airbus Group (OTCPK:EADSY) and Boeing (NYSE:BA). Likewise, the company's leadership in driveline components is appealing as penetration of all-wheel drive and hybrid vehicles grows. The problem is that aerospace and autos are cyclical businesses where OEMs habitually lean hard on suppliers and GKN doesn't have the best record of attractive sustained operating margins, free cash flow, or returns on capital.

If things go right, meaning that the aerospace and auto markets remain healthy, key programs ramp as expected, and GKN achieves better operating leverage, the shares could do very well over the next two to four years. If GKN drops the ball on margins, though, or if demand for aircraft and/or autos disappoint, the shares aren't likely to do so well.

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GKN Gets Interesting If They Can Get The Margins Up

Seeking Alpha: Talgo's Rail Opportunity Looks Frustratingly Binary

By and large, I think investors do well to stay away from binary investment outcomes where the stock is liable to be a big winner or a big loser, with not much ground in between. That may be an unfair assessment of Spain's Talgo (TLGO.MC), but the success of the company (and its shares) rests upon securing multiple high value rail bids, bids that Alstom (OTCPK:ALSMY), Bombardier (OTCQX:BDRBF), CAF, CRRC, and Siemens (OTCPK:SIEGY) will be competing for as well.

Talgo certainly has some technology in its favor, but companies like Alstom, Bombardier, and Siemens didn't build multibillion-dollar order books on the basis of blatantly inferior offerings.

I've tried to value Talgo on weight scenario basis that incorporates high win-rate, low win-rate, and moderate win-rate scenarios. Altogether, I come up with a fair value of EUR 6.70 per share today, and most of my bearish scenarios produce fair values in the EUR 3 to EUR 4 range, versus a current share price of EUR 4.50.

Readers should note that there is no ADR available for Talgo, so any investors who wish to purchase these shares will have to do so on the Madrid Stock Exchange (Bolsa de Madrid). Most of the larger brokers can and will handle these trades, but investors certainly need to ask themselves whether the added risk and hassle is worth it.

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Talgo's Rail Opportunity Looks Frustratingly Binary

Seeking Alpha: BB&T A Little Poky, But Can Build From Here

The overall theme for most bank earnings reports this quarter has been "good enough, but not great", but BB&T (NYSE:BBT) broke from the pack a bit in the wrong way. BB&T's results were a little light, as weaker fee income weighed on revenue and drove a slight operating profit miss. Management was a little more upbeat about 2016 than fourth quarter results might have suggested, though, and there is scale to accelerate lending and drive operating synergies from the company's recent acquisitions.

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BB&T A Little Poky, But Can Build From Here

Seeking Alpha: Wells Fargo Well-Positioned And Willing To Deploy Capital

While JPMorgan (NYSE:JPM) shrinks its balance sheet and expands its lending, BB&T (NYSE:BBT) works to integrate its M&A binge, PNC Financial (NYSE:PNC) works on improving its branch network, and Citi (NYSE:C) continues to run off past bad debts, Wells Fargo (NYSE:WFC) is keeping busy too. Not only has the company adjusting its rate sensitivity down a bit, the company has struck three deals with General Electric (NYSE:GE) to acquire commercial real estate loans, a railcar leasing business, and a sizable commercial lending and leasing operation that includes distribution and vendor financing and asset-based middle market lending.

Wells Fargo looks pretty attractive to me right now. Not only is the business simple enough to avoid the steeper G-SIB surcharges that will apply to JPMorgan and Citi, but there's a very attractive mix of commercial and consumer lending, a leading mortgage and auto lending business, growing card loans, and fee-generating businesses like the expanded leasing operation. I suppose I could ask for better reserves and faster NPA resolution, but those aren't huge negatives to me. This next year may not be the best in terms of reported results, but I believe Wells Fargo is well-placed for growth over the next three to five years and attractively priced below $60.

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Wells Fargo Well-Positioned And Willing To Deploy Capital

Seeking Alpha: Regions Financial Has Capital To Spare, But What About Quality?

The fact that the shares of Regions Financial (NYSE:RF) are only up about 15% since mid-2011 doesn't tell you everything you need to know about this Southeastern regional bank, but its relative performance next to the likes of BB&T (NYSE:BBT), SunTrust (NYSE:STI), and Wells Fargo (NYSE:WFC) does underscore some of the issues of this asset-sensitive bank over the past few years.

Although management has outlined a credible plan to reduce expenses and has ample capital to deploy, I'm still concerned about the underlying credit quality of the bank and its ability to earn its cost of equity. On the other hand, those concerns appear to be more than accounted for by the share price. If the U.S. economy stays healthy enough to support higher rates and the economy in the Southeastern U.S. stays healthy enough to support Regions' loan book, the rewards here could be significant when compared to what most other banking stocks are offering in terms of prospective returns.

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Regions Financial Has Capital To Spare, But What About Quality?

Seeking Alpha: With The Pullback, Silicon Labs' IoT Opportunity Looks More Interesting

There aren't many sectors doing especially well right now in the stock market, so the pullback in semiconductor stocks isn't exactly surprising, let alone unique. As about a quarter of the industry's revenue comes from industrial markets, and meaningful amounts come from computing, consumer devices, and phones, it is not so surprising that investors are worried about the outlook for 2016 even though multiple semiconductor CEOs have opined that the slowdown will be briefer and shallower than past downturns.

This brings me to Silicon Labs (NASDAQ:SLAB). The shares of this microcontroller, sensor, and RF chip company have fallen around 15% since my last update, more or less matching the decline in Microchip Technology (NASDAQ:MCHP) and outperforming NXP Semiconductors (NASDAQ:NXPI) over that period. While the company has definitely had some challenges with more commoditized competition in segments like TV tuners, the company's Internet of Things (IoT) business continues to grow nicely.

Valuation is still mixed, though the shares are now below both my cash flow and margin/revenue-based fair values. IoT is still a somewhat sexy topic in the chip space, and the company's combination of MCU/sensor/RF capabilities and relatively high operating expenses (fueled by aggressive R&D spending) could generate some potential M&A interest. Although there are other chip companies I like better (including Microchip and Microsemi (NASDAQ:MSCC)), I won't pretend that Silicon Labs is trading at a more attractive level if you believe in the long-term potential of IoT applications.

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With The Pullback, Silicon Labs' IoT Opportunity Looks More Interesting

Seeking Alpha: PNC Financial Still Biding Its Time

Caught up in the overall mass-selling of recent times, I wonder if PNC Financial (NYSE:PNC) also has a bit of an identity problem with investors. It's most definitely not a growth-oriented bank right now like Wells Fargo (NYSE:WFC), BB&T (NYSE:BBT), or Regions Financial (NYSE:RF), as management is taking a conservative view of lending growth and spending designed to transform the branch business model limits operating leverage. It's also not a rock-solid "come hell or high-water" story like U.S. Bancorp (NYSE:USB) where investors can rest relatively easy that the bank will always have a seat when the music stops playing.

While this almost indiscriminate sell-off has created a lot of bargains in the banking space, I'm still not all that enamored of these shares. The valuation is just okay on a relative basis and I think the company's middle-of-the-road asset sensitivity, underwriting history, and operating efficiency doesn't really argue for the stock as a must-buy.

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PNC Financial Still Biding Its Time

Seeking Alpha: U.S. Bancorp Still The Relatively Defensive Option

Since the middle of 2015, and particularly in the last month or so, investors have become more concerned about the health of the economy and the prospects for real growth in 2016. If that "lower for longer" scenario pans out, investors may want to take another look at U.S. Bancorp (NYSE:USB).

Much has been written (some of it by me) on the positive quality attributes of this large almost-national bank - the company's cost control is top-notch, as is the quality of the underwriting, and the bank has lucrative fee-generating businesses that chip in a substantial portion of revenue. U.S. Bancorp is also comparatively less asset-sensitive than peers like Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), Citigroup (NYSE:C), and JPMorgan (NYSE:JPM), let alone smaller players like Zions (NASDAQ:ZION) and Regions (NYSE:RF), and if the economy slows in 2016 this bank will like fare better.

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U.S. Bancorp Still The Relatively Defensive Option

Seeking Alpha: JPMorgan Performing Well, But Credit Risk Back In Play

Not a lot is supposed to change in a month when you're talking about bank stocks, but it has been anything but an ordinary stretch since I last wrote about JPMorgan (NYSE:JPM). In those three weeks, the U.S. Big Four banks (JPMorgan, Citigroup (NYSE:C), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC)) have seen their shares fall around 10% to 20% on increasing worries about the health of the U.S. economy, the prospect for higher credit losses, and the uncertain outlook for rates.

There's definitely an interesting dichotomy between what banks are saying (good loan demand from businesses, generally good credit developments outside of energy) and what a lot of manufacturing / industrial companies are saying, and that ups the risk for 2016. As an asset-sensitive bank, JPMorgan should be able to generate better margins and returns as rates rise, but those increases may take a little longer to materialize. In the meantime, the bank continues to do a good job of shrinking its balance sheet, reducing its G-SIB burden, reducing costs, and pursuing revenue streams outside of banking. I still believe these shares should trade closer to $70, and with the declines in the stock it is a more interesting buy candidate than just a month ago.

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JPMorgan Performing Well, But Credit Risk Back In Play

Seeking Alpha: Parker-Hannifin: Good Company Meets Bad Markets

Parker-Hannifin (NYSE:PH) isn't a flawless company, but this leader in motion and process control has a pretty solid record of generating attractive full-cycle margins. What's more, the company is uncommonly diversified across its end-markets and generally eschews splashy moves in favor of just consistently doing a good job.

Unfortunately, Parker-Hannifin is caught up in a global butt-kicking of industrial equities and the company is facing a lot of demand weakness across its many markets. I believe that the company can generate long-term growth of over 3% and that the shares are probably too cheap today, but investors considering buying on this pullback have to have patience and a long-term vision to offset the near-term risks that weakness in oil/gas, off-road vehicles, and general manufacturing will get even worse before turning around.

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Parker-Hannifin: Good Company Meets Bad Markets

Seeking Alpha: Illinois Tool Works Is A Growth Story Now

Before hardcore Illinois Tool Works (NYSE:ITW) investors light the torches and sharpen the pitchforks, I'll explain the title right away; my view on this industrial conglomerate is that the biggest swing factor in the company's stock market performance in the next one to three years is going to be the amount of organic revenue growth that it can generate. ITW has done a good job of boosting margins through streamlining, and management is quite willing to divest commoditized businesses, but its projections call for the company to perform on a level that has historically been out of reach.

I do believe we're in the middle of a promising buy-the-dip opportunity for a number of industrials, but I can't make the numbers work for Illinois Tool Works today. I believe management can generate mid-teens FCF margins on a sustained basis (a marked improvement over the past 10 years), but I just don't see enough organic revenue growth to drive an exciting fair value today.

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Illinois Tool Works Is A Growth Story Now