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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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Israel Chemicals Takes A Long-Term Potash Call Option

Seeking Alpha: Norcraft Executing Its Model To Good Effect

Even though the new housing market has yet to rebound as strongly as many have hoped, the remodeling market has been stronger. That, coupled with strong discipline to drive an improved mix and walk away from low-margin business, has helped Norcraft (NYSE:NCFT) post solid revenue growth and margin improvement in recent quarters.

Better sales and margins have also been good for the stock, which has risen about 38% since my last piece on this cabinet maker in May of 2014. To be sure, it hasn't been that hard to make money in stocks tied to remodel/renovation, as direct competitors like Fortune Brands Home & Security (NYSE:FBHS), Masco (NYSE:MAS), and American Woodmark (NASDAQ:AMWD) have risen 14%, 26%, and 101% respectively, and other plays on the space like Mohawk (NYSE:MHK), Headwaters (NYSE:HW) (a building materials company), and Armstrong World Industries (NYSE:AWI) have rise 33%, 41%, and 5% respectively over that same period of time.

There's still a lot to like about Norcraft, and next week's (March 30th) earnings report could be another opportunity for management to deliver further improvements in mix and margins. These shares don't look so cheap these days, though another beat-and-raise quarter will at least kick the argument about valuation down the road a little further.

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Norcraft Executing Its Model To Good Effect

Seeking Alpha: Core-Mark's Attractive Opportunity Reflected In The Share Price

I've liked Core-Mark Holding (NASDAQ:CORE) as an under-the-radar name in the consumer/retail sector and I still like the company's prospects. There are still a lot of independent convenience stores (or "C-stores") that could benefit from better distribution/delivery, a better assortment of fresh foods, and improved data-driven decision making. Better still, Core-Mark isn't limited to the C-store market, as the company's relationship with Rite Aid (NYSE:RAD) and there are a lot of potential sales channels outside of the C-store market for the company to target.

All of that said, the shares have done pretty well already. The stock has climbed about 70% from my initial write-up and more than 40% from my June 2014 update. While still not a household name from the perspective of sell-side coverage, a double-digit forward EV/EBITDA multiple does make it harder to argue that the shares are still notably undervalued.

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Core-Mark's Attractive Opportunity Reflected In The Share Price

Seeking Alpha: Stage Stores Taking A More Realistic Approach

Amidst a challenging retail environment, Stage Stores (NYSE:SSI) has been an interesting story to follow as the company has been challenged by internal execution issues and a changing retail industry. Stage still has some real issues with sales productivity and margins, but management seems willing and able to address these issues more directly instead of trying to grow its way past them.

I've run hot-and-cold on the shares (or rather bullish and "hold/wait") over the past couple of years as the shares have oscillated between the mid-to-high teens and mid-to-high $20's. I was bullish on the stock as of my last article and while the stock is up more than 20% since then, the shares spent the following six months trending down about 15% before a rally late in 2014. I'd also note that investors would have done much better with Kohl's (NYSE:KSS) and a little better with Dillard's (NYSE:DDS).

This is a challenging stock for me right now. On one hand, I do still see the potential for the company to meaningfully grow its footprint and improve its internal sales productivity by adding more cosmetics and home goods and refurbishing its store base. On the other hand, the company has become more dependent on credit-related income and there is a real risk that the retailing landscape has fundamentally shifted. I don't think these shares are necessarily expensive today, but further upside really is tied to real progress with comp growth and margins more than the Street regaining its enthusiasm for the name.

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Stage Stores Taking A More Realistic Approach

Seeking Alpha: Ahead Of Major Launches, GenMark Diagnostics Still Has Some Value

This is shaping up to be a very big year for GenMark Diagnostics (NASDAQ:GNMK) as this molecular diagnostics company looks forward to the launch of its new ePlex multiplex molecular diagnostics system. With over 5,000 potential hospital and lab customers and over $2 billion in addressable annual market revenue, adoption of the ePlex could turn GenMark into a legitimate multi-year growth story.

GenMark Diagnostics has done okay since my last article, rising 26% as the company has come through on instrument placements, consumables pull-through, and (most importantly) the development timeline for its new ePlex system. To put that performance in context, though, investors should note that Cepheid (NASDAQ:CPHD) is up close to 50% over that same time, and Fluidigm (NASDAQ:FLDM) is up more than 70% (while BioMerieux (OTCPK:BMXMF) is up about 16% and Luminex (NASDAQ:LMNX) is down) - so it's not as though molecular diagnostics stocks haven't been doing alright.

Although these shares don't appear all that cheap on a discounted cash flow basis, the Street has shown over and over again that it will pay up for growing med-tech stories - sometimes to the tune of 8x or higher forward revenue multiples. While GenMark has its work cut out to prove that it can grow from roughly $30 million a year in revenue to a number almost seven times that over the next five years, success would support a fair value today in the high teens.

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Ahead Of Major Launches, GenMark Diagnostics Still Has Some Value

Seeking Alpha: Pacific Biosciences Still Trying To Claw Out Its Own Niche

When it comes to sequencing, it's still pretty much Illumina (NASDAQ:ILMN) and then everybody else. Illumina has earned this place of prominence through consistent R&D productivity and opportunistic M&A, and it makes life difficult for would-be challengers to the throne like Pacific Biosciences (NASDAQ:PACB). That said, PacBio has continued to make solid progress, with the shares up more than 100% from when I first wrote on them as a Top Idea and up about 20% from my last update.

The challenge for PacBio remains what it has been for some time - build upon what is currently the best available technology for long DNA sequences and make it faster, cheaper, and easier to use. Wrapped within that, the company needs to continue to develop new systems and new technologies, as well as develop opportunities in areas like plant genomics, clinical diagnostics, and epigenetics where its technology can really stand out.

As a stock, PacBio remains highly speculative. It's partner Roche (OTCQX:RHHBY) has continued to pursue its own alternatives in sequencing (while remaining at least outwardly committed to its PacBio partnership) and major rivals like Illumina, Thermo Fisher (NYSE:TMO), Oxford Nanopore, and 10X Genomics continue to work on technologies and systems that could ultimately capture some or all of PacBio's targeted markets. Still, 10% of the sequencing market and success with its Roche partnership could still support close to $1 billion in revenue well down the road and an $8 fair value today.

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Pacific Biosciences Still Trying To Claw Out Its Own Niche

Seeking Alpha: More Of The Same From Microsemi ... And That's Just Fine

As chip companies go, Microsemi (NASDAQ:MSCC) generally flies under the radar while executing on a fairly predictable list of corporate priorities. Between last week's analyst day and the not-so-surprising announcement of another acquisition, management has showed yet again that it's sticking with a script that has served the company relatively well.

I believe that the arrow is still pointing up for this company and this stock. Management spoke of improving backlogs in defense, communications, and satellites and reiterated its goal of 60% gross margin and 30% operating margin by the end of fiscal 2016. Adding in the contributions of Vitesse (NASDAQ:VTSS), the shares are still modestly undervalued and if management is able to drive better synergy from this deal (particularly in terms of product development/growth), addition upside is still in play.

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More Of The Same From Microsemi ... And That's Just Fine

Seeking Alpha: These Are Tougher Times For Brazil, But BRF Still Offers A Bright Future

BRF (NYSE:BRFS) is certainly not the only quality Brazilian company to see its ADRs trading well below its highs, but I continue to believe this is a good stock for investors looking for long-term exposure to emerging market consumers. BRF is looking at more challenging domestic conditions this year, but the company continues to pursue a vision of gradual transition from its reliance on commodity proteins and becoming a global packaged/branded food company.

When I last wrote about BRF, I thought the shares had gotten a little pricey and that investors could wait for what I thought was an inevitable pullback in Brazilian stocks. That pullback has happened, taking the ADRs down more than 20%. It seems early to blow the "all clear" on Brazil, but I do think investors can start to think about initiating positions in this well-run food company.

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These Are Tougher Times For Brazil, But BRF Still Offers A Bright Future

Seeking Alpha: AGT Food And Ingredients Is An Underappreciated New Growth Story

I've liked AGT Food and Ingredients (previously known as Alliance Grain Traders) (OTCPK:AGXXF)(AGT.TO) for a while now, but I didn't expect to see the 40%-plus move in the stock since my last article in May of 2014. Since that article, though, management has taken some noteworthy steps to further the company's ambitions in value-added processing, food, and ingredients - all of which does improve the company's future growth prospects and current fair value.

There are still some fundamental truths about AGT that some investors won't like - the ADRs aren't very liquid (and even the Canadian shares aren't highly liquid), this is still a competitive commodity-like business with thin margins, and issues like weather, international trade policy, and logistics can all influence results. All of that said, I think this is an underfollowed and undervalued story in the food space and I think the new direction of the company can lead to worthwhile returns for more aggressive investors for years to come.

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AGT Food And Ingredients Is An Underappreciated New Growth Story

Seeking Alpha: Old Dominion's Performance Argues For Paying Up For Quality

It has been a while since Old Dominion (NASDAQ:ODFL) has looked cheap by conventional valuation standards, but then the company has logged a strong stretch of better-than-average performance. Almost a year ago, I thought that Old Dominion was a good stock to consider despite its valuation and the company's strong operating performance has led to better than 30% appreciation since then - well ahead of other trucking peers like Con-way (NYSE:CNW), ArcBest (NASDAQ:ARCB), YRC Worldwide (NASDAQ:YRCW), and Saia (NASDAQ:SAIA).

Old Dominion remains what it has been for some time - an exceptionally well-run trucking company that still has the opportunity to take share from less efficient rivals. The same is true on the valuation side, as this is a stock that is more challenging to argue is undervalued. Paying a low teens multiple to EBITDA doesn't seem unreasonable if expectations of mid-teens EBITDA growth prove accurate, but I can understand why some investors may hesitate to pay a premium for a company that is in a competitive, regulated, and cyclical industry.

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Old Dominion's Performance Argues For Paying Up For Quality

Seeking Alpha: Can NuVasive 2.0 Take The Shares To New Highs?

The market for implants and tools used in spinal surgery hasn't been immune to some of the challenges that have beset other large orthopedic markets, but NuVasive (NASDAQ:NUVA) has continued to reap the benefits from its leverage to faster-growing minimally invasive procedures. Up more than 25% from my last article, NuVasive has been not only outgrowing the spine market but also showing at least some of the long-awaited operating margin leverage that management had promised.

NuVasive hasn't always (or even often) looked cheap by the more conservative DCF valuation approach, but the shares could still trade higher if management continues to deliver margin improvement and above-average growth and the market rewards the shares with a valuation more in line with its revenue growth and margin potential. Although there are better bargains in small and mid-cap health care, NuVasive has a stronger market share position than most and a clearer runway to market share, revenue, profit, and cash flow growth.

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Can NuVasive 2.0 Take The Shares To New Highs?

Seeking Alpha: ON Semiconductor Talking The Talk, But Still Has To Walk The Walk

Near a 52-week high, things have been going fairly well for the shares of ON Semiconductor (NASDAQ:ONNN). Like so many other semiconductor companies, ON Semiconductor is looking to lean more heavily on the auto and industrial markets to generate above-average growth with more stability. Like so many others, ON is also looking to higher utilization, an improved mix, and internal efficiencies to generate the operating margin leverage that semiconductor analysts (and investors) prize so highly).

I can't say that I'm disappointed with how ON Semiconductor has been performing. The shares are up more than 40% from my last article and about 70% from when I wrote about the shares as a Top Idea. Relative to peers/rivals like Fairchild (NASDAQ:FCS) (up 42%), STMicroelectronics (NYSE:STM) (up 7%), and Diodes (NASDAQ:DIOD) (up 5%), that's not too bad, and it also stacks up well against stocks like Texas Instruments (NASDAQ:TXN) and Linear Technology (NASDAQ:LLTC).

Even with those positives, I'm not quite as bullish about ON as I have been in the past. The Sanyo deal is a lemon and management has its work cut out to prove that the Aptina deal will be better. Likewise for the company's bold projections for 2017 margins when past projections have proven too ambitious. Although the company's margins can support a EV/revenue multiple that would generate a $15 fair value, my blended fair value (EV/revenue and DCF) is closer to $13.50; making the shares a decent hold but maybe not such a compelling buy unless you are really confident in the potential for above-average growth and strong margin leverage.

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ON Semiconductor Talking The Talk, But Still Has To Walk The Walk

A little good news

I'm happy to report that my wife's condition has improved.

She is responding well to this new round of chemotherapy, and it is definitely shrinking the tumors. With that, her liver enzymes have improved (though they're still too high), her pain has pretty much gone away, and she's back to a more normal life.

This is all good news. The bad news is that this regimen is notorious for having a relatively short window of efficacy (six months or so) before the cancer develops a resistance to it. What's worse, after resistance the cancer tends to grow even more aggressively than before. We'll worry about that later, though and there are still other therapies to try.

Seeking Alpha: Atmel Still Needs To Execute Better

Atmel (NASDAQ:ATML) still looks to me like a "couda, wouda, shouda" story. There are a lot of good and/or attractive things about this company - its leadership in MCU, its potential in the Internet of Things (or IoT) market, its margin self-improvement potential. Unfortunately, there are also legacy issues like strategic/execution missteps (xSense, for one), past failures to identify/execute good deals, disappointments relative to prior margin improvement goals, and ample competition.

I'm not sure why I want to like Atmel (maybe it's because Atmel was one of the first stocks I ever bought), but I still do. Certainly the NXP Semiconductors (NASDAQ:NXPI)-Freescale (NYSE:FSL) deal and the relative scarcity of good MCU assets helps the valuation proposition, but Atmel doesn't jump out to me as an obviously cheap opportunity. There is definitely self-improvement potential here (and the possibility for better revenue/margins to drive a higher value), but Atmel has frustrated investors with its unrealized potential in the past and I'm not sure management has earned the benefit of the doubt it takes to be really excited about the shares at this level.

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Atmel Still Needs To Execute Better

Seeking Alpha: IoT Continues To Support The Silicon Labs Story

Almost a year ago, I thought Silicon Labs (NASDAQ:SLAB) looked like an interesting, albeit not completely compelling, pick in the semiconductor space due to its position in microcontrollers, tuners, sensors, timers, and RF. Since then, the shares have done alright relative to comps like STMicroelectronics (NYSE:STM) and Atmel (NASDAQ:ATML), but not so well relative to the likes of NXP Semiconductors (NASDAQ:NXPI), Broadcom (NASDAQ:BRCM), or Texas Instruments (NASDAQ:TXN).

My primary issues with Silicon Labs continue to be competition, the pace of market growth, and valuation. I like the company, and I think its capabilities in MCU, RF, and sensors give it a good chance of gaining/holding share in the growing Internet of Things (or IoT) market. The "but" is that competing with companies like the aforementioned NXP, Broadcom, and Texas Instruments is no picnic, there is still valid uncertainty as to the real size of the IoT opportunity, and the valuation doesn't seem all that low to me.

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IoT Continues To Support The Silicon Labs Story

Further bad news

I'm sorry to report that my wife's condition has continued to worsen, with extensive metastases to the liver and lungs. While neither she nor the oncologists are giving up, and she will be starting a new chemo regimen very soon, there is not a lot of cause for optimism.

I will probably write on a here-and-there basis, as it can be a welcome respite from this and relaxing in its own way, but I can't imagine I'll be writing on a reliable/consistent basis.

Seeking Alpha: Headwaters Sending Better Results Downstream

Still not all that widely followed, Headwaters (NYSE:HW) has strung together an impressive series of better than expected quarterly results. This has come despite the failure of new residential or commercial construction to really accelerate into the full-blown dramatic recovery that many have been expecting. With leverage to improving construction and growing market share for its products, not to mention ample financial leverage, Headwaters should still be looking at several years of above-average growth.

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Headwaters Sending Better Results Downstream

Seeking Alpha: Advanced Energy Industries Powering Up

About nine months ago, I thought that Advanced Energy Industries (NASDAQ:AEIS) had been sold down to an interesting value level as the potential of the company's precision power supply business was being overshadowed by growing worries about the solar inverter business. Since then, AEIS has seen significant management turnover and improving demand from semi customers and announced its intention to find new options for the inverter business; all of which has helped fuel a roughly 60% rise in the shares.

Valuation on AEIS shares isn't so compelling now, though there is near-term upside potential from front-end semiconductor equipment demand (particularly for advanced architectures) and longer-term potential from the company's diversification into adjacent end markets and product markets like high-voltage. Finding an honorable exit from the inverter business would be an incremental positive as well.

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Advanced Energy Industries Powering Up

Seeking Alpha: Natural Grocers' Comps Recovering, But Can It Last?

Natural Grocers By Vitamin Cottage (NYSE:NGVC) ("Natural Grocers") had a rough time of it in 2014 as competition, particularly from Trader Joe's, had a very real impact on same-store growth and investors' previously boundless enthusiasm for natural/organic finally found some boundaries.

The underlying story at Natural Grocers hasn't changed all that much, though, and the company has still penetrated less than 10% of its theoretical footprint. Investors can rightly question whether shoppers will continue to flock to stores like Natural Grocers, Whole Foods (NASDAQ:WFM), and Sprouts (NASDAQ:SFM), particularly as conventional grocery stores/supermarkets increase their organic/natural product selections, but the same can be said for many aspirational/luxury goods (nobody *needs* a Coach bag or Starbucks latte). If Natural Grocers can continue to create a shopping experience that resonates with its core target market, I don't see the shares as unreasonably expensive.

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Natural Grocers' Comps Recovering, But Can It Last?

Seeking Alpha: Check Point Software Still On Point

I've liked Check Point Software (NASDAQ:CHKP) as a good risk-reward play on the IT security space for some time and the stock worked reasonably well since my last article. The roughly 20% appreciation since then absolutely pales next to the performances of other security firms like Palo Alto (NYSE:PANW) and Imperva (NYSE:IMPV) (which have more than doubled), as well as Fortinet (NASDAQ:FTNT) and FireEye (NASDAQ:FEYE), but relative to old school tech stocks like EMC (NYSE:EMC), Cisco (NASDAQ:CSCO), and Oracle (NYSE:ORCL), the comparison is more favorable to Check Point.

I continue to like Check Point as a Goldilocks tech stock, but I don't think it is significantly undervalued today. Mid-single digit long-term growth supports a fair value close to $80, but Check Point doesn't seem structured to generate the sort of absolute revenue growth or relative share growth that would support major reratings.

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Check Point Software Still On Point

Seeking Alpha: Carpenter Technology Feeling The Pain Before The Gain

Specialty alloy producers haven't had a great run over the last year, with Carpenter Technology (NYSE:CRS) down about 30%, Universal Stainless & Alloy (NASDAQ:USAP) and Precision Castparts (NYSE:PCP) down more than 20%, and Allegheny Technologies (NYSE:ATI) up 3% (but still lagging the S&P 500). Inventory destocking of higher-value components has played a role, but so have concerns about the near-term future of oil/gas spending and nickel prices.

Carpenter has committed some unforced errors along the way, including unplanned outages and higher than expected costs at the new Athens facility, and those have been exacerbated by what sometimes feels like "death by a thousand papercuts" serial downward guidance revisions. On a more positive note, the Athens facility still holds the potential to significantly improve the company's premium alloy capacity and its peak margins and aircraft/aircraft engine manufacturers ought to be busy for many years delivering on their orders books.

The extent to which Carpenter looks like a good investment idea today really rests with your conviction that the company will start participating in the commercial aerospace ramp over the next few years and that this process will restore the company's margins and asset efficiency to prior levels. I'm more bullish on Universal Stainless, but I think stocks like Carpenter Technology and Alcoa (NYSE:AA) will be higher in a few years' time on the back of commercial aviation and an eventual oil/gas recovery.

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Carpenter Technology Feeling The Pain Before The Gain

Seeking Alpha: ABB Facing Power Outages In Multiple End Markets

The conditions for ABB (NYSE:ABB) today are different than those for other industrial conglomerates like Eaton (NYSE:ETN), Honeywell (NYSE:HON), 3M (NYSE:MMM) and Emerson (NYSE:EMR). On the negative side, ABB has sizable exposure to markets with weak (or very weak) near-term outlooks, including oil/gas, mining, and utilities and the company's Power operations still need work. On the positive side, ABB has more balance sheet flexibility than most peers, leverage to long-term growth in industrial automation, and at least the potential to improve its margins in the coming years.

There are still risks that ABB's expectations are too high and the company will be forced to guide down (both for the short term and long term) in 2015. Likewise, many companies talk about improving their cost structure, but many also fail to do so. All that said, ABB shares seem to be excessively discounted today and while I think there may be less near-term risk with Eaton or Honeywell, I still like these shares as an aggressive/risky long-term growth recovery play.

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ABB Facing Power Outages In Multiple End Markets

Seeking Alpha: Multi-Color Showing Better Margins With Improving Growth

Making labels for consumer products like dish detergent, food, and beverages is not exactly a sexy business, but Multi-Color (NASDAQ:LABL) continues to operate its plan to good effect. Although Multi-Color isn't widely followed on the Street and doesn't have huge liquidity, investors in this combo story of steady organic growth, serial acquisitions, and margin leverage have done well over the past year.

Better still, organic growth seems to be picking up and margins continue to develop nicely and the company is just starting to tap into incremental growth opportunities like healthcare labels. I don't think these shares are particularly cheap at this point, but I'm not in any hurry to sell out of a position where the underlying story appears to be getting better.

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Multi-Color Showing Better Margins With Improving Growth

Seeking Alpha: Alaska Air Thriving In More Crowded Skies

Alaska Air Group (NYSE:ALK) was supposed to get walloped in 2014, as Delta Air Lines (NYSE:DAL) aggressively expanded its Seattle-based operations, pressuring revenue and margins for the smaller regional carrier that relies upon Seattle as a major hub. As it happened, though, Alaska Air had a pretty good year from a revenue, margin, and stock performance perspective as careful cost management, revenue enhancement, and competitive efforts paid off.

It's tough for me to call Alaska Air a great bargain today. I think it is an exceptionally well-run airline and I like the prospects for higher payouts as the company returns surplus cash to shareholders. While the shares do seem undervalued on the basis of next year's projected EBITDAR, it takes an averaged double-digit FCF margin over the next decade to support a low-to-mid $70's fair value by discounted cash flow and that's more aggressive than I'm comfortable with from an airline. That said, investors don't seem to often buy or sell airlines on the basis of long-term cash flow, so more aggressive investors may still find a good trading opportunity here.

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Alaska Air Thriving In More Crowded Skies

Seeking Alpha: The Wait Drags On With Ultratech

If FinFET-related annealing orders eventually do appear in 2015 and the 3D advanced packaging opportunity develops as management hopes, Ultratech (NASDAQ:UTEK) will likely look like a study on the rewards of patience. If the trends seen throughout 2014 continue, it's going to be an experience in death by hundreds of papercuts.

Ultratech still isn't seeing the orders for its LSA systems that it needs to generate attractive margin leverage and get Wall Street enthusiastic about the shares. 2015 is shaping up as a make-or-break year, but then 2014 was supposed to be that way and leading chip producers like Taiwan Semiconductor (NYSE:TSM), Intel (NASDAQ:INTC), and Samsung delayed orders in response to FinFET yield issues. While a strong LSA cycle and growing interest in the company's advanced packaging and metrology products could eventually support a much higher share price, the high teens to low $20's is probably as good as it gets until/unless those orders start to show up in the company's books.

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The Wait Drags On With Ultratech

Seeking Alpha: Although Undervalued, Lundbeck Likely Stuck Until New Drugs Start Ramping

H. Lundbeck A/S (OTCPK:HLUYY) (or "Lundbeck") is running out of time to convince investors that its new drug launches will meaningfully offset sales erosion due to patent expirations and competitive product category launches. I continue to believe that the potential is here for Lundbeck to be a much more interesting company (and a better-performing stock), but absent better execution that potential is all but worthless.

This will likely be a year defined by how well management addresses the challenges with Brintellix, Abilify Maintena and Northera. The data are there to support differentiation and sizable sales potential, but FDA cooperation and sales execution is critical. The company's choice of new CEO will also be telling and represents another opportunity to demonstrate an attractive long-term vision for the company. While I believe the shares are more than 20% below fair value today, a better sales trajectory is the real driver for these shares.

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Although Undervalued, Lundbeck Likely Stuck Until New Drugs Start Ramping

Seeking Alpha: Weatherford Fixing Its Credibility Gap, But Now Market Conditions Weigh Heavily

Things were going pretty well for Weatherford (NYSE:WFT) six months ago. Management was making real progress with its efforts to streamline the business and reduce costs and talk of substantial free cash flow generation was just what Wall Street wanted to hear.

And then it all went south. Management communication issues over its free cash flow guidance brought back bad memories for a lot of investors and the steep fall in oil prices has gutted E&P budgets for 2015 and expectations for earnings in the oil services sector.

I continue to believe that Weatherford is a legitimate self-improvement story. While the sharp decline in oil prices will lengthen the timeline to meaningful cash flow, management has continued to make good decisions with respect to the company's cost base and business mix.

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Weatherford Fixing Its Credibility Gap, But Now Market Conditions Weigh Heavily

Seeking Alpha: Has All The Bad News Been Baked Into RPC's Price?

Superior quality can help a company through hard times, and energy services provider RPC (NYSE:RES) has held up better than companies like Basic Energy (NYSE:BAS), Key Energy (NYSE:KEG), and C&J Energy Services (NYSE:CJES), but a 40% drop in six months is still harsh. What's more, I think it's anybody's guess as to whether estimates have gone low enough to accurately reflect this downturn in the cycle - even RPC's management doesn't believe it has much visibility as to the depth or duration of the downturn.

I expect that RPC will emerge from this downturn in good condition and maintain its reputation as one of the highest-quality small cap service providers. While RPC shares should do better if/when the market believes it has overcorrected (and/or if the company's Permian-centric pressure pumping business holds up better than expected), but I don't expect RPC to offer the same sort of leverage to improving sentiment as Basic Energy or Key Energy would. On the other hand, I am confident in RPC's ability to withstand a prolonged downturn while its more debt-laden peers may not.

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Has All The Bad News Been Baked Into RPC's Price?

Seeking Alpha: Realistic Expectations And Improving Performance At Eaton

Based on fourth quarter results, I would argue that Eaton (NYSE:ETN) belongs on that list of diversified industrials that are doing pretty well given the circumstances (a list that includes 3M (NYSE:MMM), Honeywell (NYSE:HON), and arguably Parker-Hannifin (NYSE:PH)). The company's exposure to off-road vehicles and oil/gas will be liabilities in 2015, but exposure to aerospace and vehicles should offset it and Eaton's leverage to construction should also be a net positive.

I don't expect to find large, well-covered stocks like Eaton trading at major discounts to fair value and I don't believe that is the case here. That said, I like Eaton's prospects for "self-help" through margin leverage and asset leverage and I think these shares are slightly undervalued today.

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Realistic Expectations And Improving Performance At Eaton

A Personal Life Update

I'm sorry to say that the news is not good. My wife is experiencing further metastases, suggesting (albeit not proving) that her initial chemotherapy did little or nothing to stop her disease. She's not giving up and she is in generally good health, but a whole new round of treatments is around the corner.

I'll be working/writing as circumstances allow.

Seeking Alpha: Lenovo's Strong Operating Results Likely Won't Quiet The Doubters Yet

I expect that for any sufficiently large company, there will inevitably be analysts and investors who are negative on the stock. In the case of Lenovo (OTCPK:LNVGY), though, I continue to be surprised at the conviction expressed by the bears that Lenovo will fail to successfully integrate and improve the x86 server business it acquired from IBM (NYSE:IBM) and the Motorola phone operations it acquired from Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and somehow lose its touch in the PC business along the way.

Skepticism is fine; healthy, even. In the case of Lenovo, I think it also points to an ongoing opportunity for the shares to perform. I believe that Lenovo can continue to leverage its leading position in PCs and use its extensive operating leverage to reduce costs in the IBM server business. I'm less certain that Lenovo can break out from the pack and become a #3 smartphone player with enough leverage to seriously threaten Samsung (OTC:SSNLF) or Apple (NASDAQ:AAPL), but I nevertheless do believe that the company's mobile operations are a long-term growth opportunity.

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Lenovo's Strong Operating Results Likely Won't Quiet The Doubters Yet

Seeking Alpha: Universal Stainless & Alloy Products Looking To Ride An Improving Mix And Strong Aerospace

I thought Universal Stainless & Alloy Products (NASDAQ:USAP) shares looked pricey in April of 2014. While the shares have lost about a quarter of their value since then, the truth is that virtually every specialty alloy producer this side of Outokumpu saw a big decline over that stretch.

While the shares were selling off the company was making progress. Full-year revenue rose 14% for 2014 and gross margin more than doubled. USAP still has work to do in growing the high-ASP vacuum induction melted (or VIM) product business, but even after adjusting for the slower VIM ramp and the potential impact of lower oil prices and weaker off-highway vehicle demand, these shares are looking quite a bit more interesting at today's price.

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Universal Stainless & Alloy Products Looking To Ride An Improving Mix And Strong Aerospace

Seeking Alpha: Steel Dynamics May Have Underappreciated Growth Qualities

It remains a bad time to be a steel stock, as most of the major North American and global names are within 10% or so of their 52-week lows. The global market remains oversupplied in most types of steel, with sluggish non-residential construction demand leading the way, while lower input costs have allowed non-integrated mills to continue churning out product.

Like Nucor (NYSE:NUE), Steel Dynamics (NASDAQ:STLD) can only do so much to stand apart from its peers. Steel Dynamics has an enviable record of generating well above-average EBITDA per ton and is well positioned to take advantage of growth opportunities, but concerns about steel prices, end market demand, and import competition linger. The shares do seem undervalued, particularly taking into account improvements in mix and cost structure, but calling any steel (or any commodity) company a "bargain" has to come with the warning that estimates could easily head lower and take notions of "fair value" with them.

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Steel Dynamics May Have Underappreciated Growth Qualities

Seeking Alpha: New Headwinds For Nucor, But Still Some Value

Steel continues to be a tough place to make money as an investor on the long side, as well-run producers like Nucor (NYSE:NUE), Steel Dynamics (NASDAQ:STLD), and ArcelorMittal (NYSE:MT) have seen share price movements of -9%, +4%, and -41% over the past year. While input cost inflation has eased, the supply/demand balance has kept a lid on price realizations as major markets like non-residential construction and autos can't absorb enough steel to push up capacity utilization.

In some respects, conditions are arguably more challenging for Nucor now than six months ago. In addition to weak oil prices reducing demand in the energy end market, foreign currency markets now make the U.S. market an even more attractive destination for imports. I do like Nucor's leverage to the improving non-residential construction market, as well as the company's internal margin improvement initiatives. I think Nucor's shares are trading below what would normally be fair value for this point in the cycle, but experienced commodity company investors know that these stocks can stay weak for extended periods and trade with above-average volatility.

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New Headwinds For Nucor, But Still Some Value

Seeking Alpha: This Atlas Doesn't Shrug, But Atlas Copco Still Not Cheap

Like 3M (NYSE:MMM), Atlas Copco (OTCPK:ATLKY) is one of my favorite industrial companies and one where valuation is a real concern to me. Atlas Copco has a fantastic compressor business and good leverage to construction and auto markets, as well as leverage to a mining business that is currently bumping along the bottom. I like the prospects for Atlas Copco to continue generate mid-single digit organic revenue growth, and being one of the strongest organic revenue growers in the diversified conglomerate space, but even with mid-to-high single-digit FCF growth it is hard to get comfortable with today's price.

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This Atlas Doesn't Shrug, But Atlas Copco Still Not Cheap

Seeking Alpha: Will 2015 Be A Real Growth Year For PCTEL?

PCTEL (NASDAQ:PCTI) has been a frustrating stock for some time now. While the company has refocused around businesses with credible addressable markets and growth potential in antennas and test equipment, the stock has gone nowhere fast over the last three years (though to be fair, equipment/component supplier JDSU (NASDAQ:JDSU) has done even worse).

Will 2015 be a different, better, year for PCTEL's shareholders? China Mobile's (NYSE:CHL) more aggressive roll-out of TD-LTE is a real opportunity for the company, given its relationship selling scanning receivers used to test LTE deployments. A strong contribution from this higher-margin business would indeed be welcome, but PCTEL really needs to see markets like WLAN, smart grid, fleet management, and so on pick up (and use their antennas) to maintain that momentum. If PCTEL can leverage these opportunities, a share price above $10 seems reasonable in the near-term.

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Will 2015 Be A Real Growth Year For PCTEL?

Seeking Alpha: Cameron's Parting Shot Before The Deluge

"There's a storm comin'; You'd better run." Richard Hawley, There's A Storm a Comin'

Maybe the nicest thing to be said by oil/gas equipment company Cameron (NYSE:CAM) is that it has finally managed to get its house in order … right as a hurricane bears down on the sector. If investors are worried about the exposure of companies like Dover (NYSE:DOV) and Honeywell (NYSE:HON) to oil and gas production companies, you can probably imagine the concern for the equipment manufacturers like Cameron, National Oilwell Varco (NYSE:NOV), and FMC Technologies (NYSE:FTI).

Cameron serves customers across a range of markets and their exposures to oil/gas prices are not all the same. With that, the company is going to be delivering revenue out of its backlog in 2015 and likely doing so at decent margins. Offsetting that is the risk that the cycle could drop even further before reaching bottom and could take away Cameron's ability to grow earnings for two or more years. It's probably too early to start dumpster-diving (unless you expect a significant turnaround in oil prices over the next six to twelve months), but if you've held on to Cameron shares at this point, the best strategy may be to ride it out as the company has been gaining share in unconventional drilling and can still drive meaningful long-term value out of its OneSubsea JV with Schlumberger (NYSE:SLB).


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Cameron's Parting Shot Before The Deluge

Seeking Alpha: Broadcom Staying On-Script And Still Undervalued

Broadcom (NASDAQ:BRCM) is certainly better loved by the Street now that it put its money-losing baseband efforts in the past, publicly declaimed "growth for growth's sake" M&A, and refocused on sustainable profitability. Now the question is whether management can strike that tricky balance between profit margins and revenue growth that it will take to maintain investor enthusiasm.

I continue to like the company's prospects in this regard. I don't expect the connectivity business to fall off as fast as feared, and I think the company's offerings in PON, DSL, and set-top boxes have more to offer than some seem to believe. Network virtualization should contribute to good growth prospects in the infrastructure business and opportunities like Internet-of-Things (or IOT), wireless charging, and auto networking should offer some upside.

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Broadcom Staying On-Script And Still Undervalued

Seeking Alpha: Patience With EMC Has Yet To Pay Off

Buying large-cap tech can be tricky, as investors are unforgiving in their demands for growth. I have long liked EMC (NYSE:EMC) and regarded it as a long-term play on the evolving enterprise IT world, but owning these shares has offered no particular boost to my portfolio returns.

I continue to believe that EMC is undervalued and that growth-oriented businesses like NSX, Pivotal, XtremeIO, and Airwatch offer good potential. I also think that ownership/control of VMware (NYSE:VMW) is an asset and not a drawback as some believe. That said, there are real questions as to whether the changes in traditional storage markets will take away growth faster than these new ventures can add it back. An acquisition offer from another enterprise player like Hewlett-Packard (NYSE:HPQ), Cisco (NASDAQ:CSCO), or Oracle (NYSE:ORCL) would be an easy exit opportunity, but I suspect that EMC's decision to stick to its guns regarding its outlook/prospects will make a deal too hard to reach and force investors to continue to exercise patience to see this stock deliver adequate returns.

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Patience With EMC Has Yet To Pay Off

Seeking Alpha: Little Clarity, But Ample Concerns, With Oshkosh

Investors in the industrial/machinery sector have quite a lot to mull over these days. The steep drop in energy prices has undermined the growth plans of many companies, while the persistently sluggish recovery in construction has taken its own toll. Add in concerns about Europe and China and it's not a terribly comforting picture.

In the case of Oshkosh (NYSE:OSK) it's arguably worse from an uncertainty standpoint. Oshkosh is logging good orders in access, but utilization rates aren't great and the ABI hasn't broken out. Add in the potentially enormous, but very uncertain, award for the JLTV vehicle contract and you can generate a wide spread between the bull and bear scenarios. I'm not a big fan of win-big/lose-big investment scenarios unless I've very confident that the conditions support the "win-big" side, and so it is hard for me to get enough comfort with Oshkosh to put my own money into these shares.

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Little Clarity, But Ample Concerns, With Oshkosh

Seeking Alpha: Stryker Offers Good Core Growth, But Not As Much Value

Investors who want to find high-quality med-tech names trading at meaningful discounts are going to have to hunt around, as there aren't a lot of obvious bargains on the high-quality shelves. Stryker (NYSE:SYK) remains a well-run and diversified med-tech player, and one with the flexibility to pursue value-creating M&A, but it's not trading at a valuation that would suggest that its prospects are overlooked by the market. I wouldn't sell the shares if I owned them, and there are worse things than buying a very good company at a fair price, but I can't call it a must-buy at this price.

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Stryker Offers Good Core Growth, But Not As Much Value

Seeking Alpha: Worries About Europe And Energy Seem To Weigh On Parker-Hannifin

A good general rule of thumb says that investors should look to buy high-quality companies when investor enthusiasm has waned, and it does seem as though sentiment has cooled on Parker-Hannifin (NYSE:PH) in recent months. It's not exactly a wash-out yet, as the shares are still up a bit over the past year and have outperformed Eaton (NYSE:ETN) and Rockwell (NYSE:ROK) while lagging Honeywell (NYSE:HON) and 3M (NYSE:MMM).

Parker-Hannifin's exposure to an improving aerospace sector is a good thing, as is the company's leverage to trucks and cars and a solid track record of operating performance. With sizable exposure to Europe, though, forex has become a concern as has Parker's exposure to PMI-sensitive diversified industrial markets. I do think these shares are now at a level where long-term investors ought to be interested, but Parker-Hannifin's sensitivity to industrial growth is a risk if North America slows and/or Europe slips back toward contraction.


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Worries About Europe And Energy Seem To Weigh On Parker-Hannifin

Seeking Alpha: Poor Pipeline Productivity Has Left Roche More Vulnerable

I bought Roche (OTCQX:RHHBY) years ago because I thought that the Street was overly concerned about near-term threats to the company's oncology portfolio and was overlooking the long-term potential of a true giant in oncology and an underrated player in global pharmaceuticals and diagnostics. I really can't complain about the performance since my early 2011 purchase, as Roche's 90%-plus gain has outstripped Novartis (NYSE:NVS), Johnson & Johnson (NYSE:JNJ), Glaxo (NYSE:GSK), Pfizer (NYSE:PFE) and Novartis . Of the stocks I was looking at at that time (when I decided to sell Johnson & Johnson), only Amgen (NASDAQ:AMGN) and Bristol-Myers (NYSE:BMY) have done better.

Since then, though, Roche has underwhelmed me with its R&D productivity. The company has done fine with its oncology drug development, but its repeated failures outside of oncology have left the company with a gap in its pipeline and vulnerability to potential price competition in immuno-oncology. Absent a more comprehensive re-think of its approach to R&D, it may be time to think about taking profits in this Swiss drug and diagnostics giant.

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Poor Pipeline Productivity Has Left Roche More Vulnerable

Seeking Alpha: Dover Dealing With A Very Different Reality

Six months ago, things were looking pretty good for Dover (NYSE:DOV). The company was looking to leverage its supply chain for further margin expansion, while expecting growth from the retail adoption of "close the case" refrigeration equipment, further expansion of the downstream chemical and plastic capacity, and strong drilling growth across North American basins.

I thought Dover was a little too expensive then, but I had no idea what was in store for the company. Six months ago, oil was above $100, and the nosedive below $50 has radically altered the drilling plans of energy companies, leading to a major revision in Dover's growth expectations and the prospect of at least a couple of "lost years" in the growth/self-improvement story.

I don't believe Dover has suddenly become a bad company, but the company's heavy weighting toward energy for a significant percentage of its earnings leaves it vulnerable to feast-or-famine swings, and I don't think the other businesses are strong enough to compensate. Although I think it is possible to make a value call here, it's hard to imagine investors warming up to Dover so long as rig counts and capital budgets are still heading down.

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Dover Dealing With A Very Different Reality

Seeking Alpha: Honeywell Appears To Have A Lot To Offer

Having recently written that I'd be willing to sell 3M (NYSE:MMM) in the face of its take-no-prisoners valuation if I could find a good enough replacement idea, Honeywell (NYSE:HON) seemed like a logical place to look. I'm happy with what I found, as Honeywell offers broad multi-industry exposure but has built itself with a "be the best or be gone" mentality. Honeywell is also pursuing some fairly ambitious (but reasonable) margin and ROIC improvement targets that could have it near the top of the list of its peers in three to five years' time.

Now for the catch - investors aren't exactly getting a fallen angel or hidden gem here. Honeywell's quality and self-improvement plans are not secrets and even with some concerns about the company's exposure to falling oil prices, the shares aren't dirt cheap. Management could add value by a faster/better margin acceleration and/or by leveraging the balance sheet and acquiring more businesses. I haven't decided if I'm going to swap 3M for Honeywell, but Honeywell isn't a bad stock to consider in the industrials/conglomerate space.

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Honeywell Appears To Have A Lot To Offer

Seeking Alpha: 3M Delivers Once Again

The best antidote to an expensive stock is strong financial performance, and 3M (NYSE:MMM) continues to deliver that for its shareholders. The reporting season isn't over, but 3M's organic revenue and operating income growth will probably have it near the top of the list in the multi-industry sector and the company's performance makes management's long-term targets of 4%-6% annual organic revenue growth, double-digit EPS growth, and 20% ROIC seem credible.

While I'm a shareholder, I'm still concerned about valuation. I accept that high-quality companies will (and arguably should) trade at premiums and I look at my 3M shares as a long-term holding, but valuation always matters. I'm reluctant to sell shares in a company I really like, but it's hard for me to argue that a reader should buy 3M instead of Honeywell (NYSE:HON), Dover (NYSE:DOV), or other another high-quality industrial.

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3M Delivers Once Again

Seeking Alpha: Progress From Accuray, But Still No Big Turn

It's not hard to understand why investors could be bearish (or at least ambivalent) about Accuray (NASDAQ:ARAY). This company is well behind Varian (NYSE:VAR) in terms of market share and Varian has the financial wherewithal to spend on R&D in one quarter what Accuray spends in a year. What's more, there are still questions about whether Accuray can/will get an important product enhancement to market on time and just how much benefit the company can expect to see in terms of orders, revenues, and profits.

Although I believe I understand the bear arguments, I'm not bearish on these shares and I still see reason to own them. Yes, Accuray has a steep hill to climb to get radiation oncologists to view it, and its systems, as a true peer to Varian and Elekta (OTCPK:EKTAY). But, I believe there are advantages to Accuray's technology and products and I believe that management has made meaningful strides in improving its product quality and its marketing approach. All of that being said, orders have to materialize for Accuray's potential to be anything more than just words and figures on paper.

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Progress From Accuray, But Still No Big Turn

Seeking Alpha: Strong Loan Growth Not Enough For Wilshire Bancorp

Bank stock performance has been pretty "meh" of late and Wilshire Bancorp (NASDAQ:WIBC) is no exception. That Wilshire has done better than the S&P Regional Banking ETF (NYSEARCA:KRE) and other California-based banks like BBCN Bancorp (NASDAQ:BBCN) and CVB Financial (NASDAQ:CVBF) since my last article is cold comfort, as the shares are down slightly over that period.

Wilshire has been making some progress in important areas like reducing core operating expenses and diversifying the loan book, but modest sequential revenue growth and greater pressure on interest margins is perhaps the bigger takeaway today. I do believe that Wilshire Bancorp remains fundamentally undervalued, but small bank stocks can take time (and a lot of patience) to deliver their value.

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Strong Loan Growth Not Enough For Wilshire Bancorp

Seeking Alpha: Plum Creek Timber Getting A Little More Respect

As Top Ideas go, my September 2013 call on Plum Creek Timber (NYSE:PCL) has been a dog. The stock is up from that initial report, but investors would have much better with Weyerhaeuser (NYSE:WY) or Potlatch (NASDAQ:PCH), let alone any number of stocks outside of the timber space. If there's a silver lining, it's that this dog has fewer fleas now, as the shares have rebounded more than 10% off the October 2014 low and continue to offer a decent yield.

This coming year is not likely to be dramatically better. Plum Creek's management is looking for growth in housing starts, but new household formation remains worryingly low and new opportunities like wood fuel pellets are not going to create major dislocations in the demand for pulpwood. On a more positive note, the public market valuations of companies like Plum Creek are starting to better reflect the value of timberlands indicated by actual transactions and management has expressed a willingness to sell non-core timberland at the higher private values and use the funds to repurchase shares below net asset value.

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Plum Creek Timber Getting A Little More Respect

Seeking Alpha: Multiple Headwinds Sapping First Cash Financial's Momentum

This was not the start to 2015 that I was hoping for from First Cash Financial (NASDAQ:FCFS). Although foreign currency moves are out of the company's control and same-store sales continue to improve in both the U.S. and Mexico, I don't expect the market to be at all pleased with the probability that reported revenue growth will stall in 2015 and that reported earnings per share will decline.

The outlook is not so bleak on a long-term free cash flow basis and First Cash still has multiple avenues of profitable growth to pursue. A roll-up strategy in the U.S. can still generate good margins and cash flow while the Mexican stores remain an underpenetrated play on Mexican consumers. Last and not least is the eventual/possible expansion into additional Latin American markets.

Double-digit EBTIDA growth could mollify investors, but I'm expecting 2015 to be a more challenging year for First Cash. Given that the stock is not hugely undervalued, I would say it looks more like a hold than a buy today.

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Multiple Headwinds Sapping First Cash Financial's Momentum

Seeking Alpha: Reality Has (Slowly) Caught Up With First Horizon Shares

I liked First Horizon (NYSE:FHN) about three and a half years ago and again a year ago, and though the stock has lagged Regions Financial (NYSE:RF) and SunTrust (NYSE:STI) since October of 2011, it has been a relative outperformer over the last year. First Horizon continues to make credible progress on running off its non-strategic loan book and reducing operating expenses while also slowly moving back to a growth footing.

The odds may still favor First Horizon becoming an acquisition target in a few years, but in the here and now, the company still has significant scope to improve its efficiency ratio and perhaps take advantage of higher rates. I think First Horizon is more or less fairly valued now, but I still see opportunities for the bank to outperform and start earning a bigger benefit of the doubt in analyst models.

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Reality Has (Slowly) Caught Up With First Horizon Shares

Seeking Alpha: Energy's Fall Creates An Opportunity At Prosperity Bancshares

Wall Street may not be a zero-sum game at all times, but I think it happens often enough to say that bad news in one spot is usually good news somewhere else. I'm not remotely happy that oil's freefall has created a crater in the energy portion of my portfolio, but that drop has taken down the shares of many Texas banks, including Prosperity Bancshares (NYSE:PB).

While an ongoing energy rout would eventually damage Prosperity's loan growth and credit quality, direct energy lending is less than 10% of the loan book and Prosperity has exceptionally clean credit metrics. I would expect Prosperity to return to its M&A ways at some point this year and although not a screaming bargain by conventional metrics, the value in these shares is getting interesting.

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Energy's Fall Creates An Opportunity At Prosperity Bancshares

Seeking Alpha: Is The Latest Stumble An Opportunity At Altera?

Altera (NASDAQ:ALTR) shares have gone nowhere fast. After a run that saw the shares double from May of 2010 to May of 2011, the shares have spent most of the following four years chopping around between $30 and $40. It hasn't really gone all that much better for Altera's chief rival, Xilinx (NASDAQ:XLNX), either - the shares haven't shown the same choppiness, but the five-year returns are almost identical.

I liked the shares around $34 back in June of 2014 and they did reach $38 before disappointing guidance and growing concerns about the health of the telecom/wireless business sent them back below the $35 midline. While I do think the shares are undervalued today, investors need to appreciate that the competitive dance with Xilinx is unlikely to ever result in a clear winner and that new entrants into the market could eventually chip away at market share and margins. I still like Altera relative to a lot of the analog players, but the stock likely needs the company to post strong margins in the second half of 2015 and no further pushouts of the 14nm plans to break out above the high $30's.

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Is The Latest Stumble An Opportunity At Altera?

Seeking Alpha: Without A Bigger Discount, Maxim Not So Interesting Today

Six months ago, I thought the Street had overreacted to disappointing results at Maxim Integrated Products (NASDAQ:MXIM) to such an extent that the stock looked like a good relative value in the space. Since then, the shares have done pretty well relative to its peer group - up about 15% while Linear (NASDAQ:LLTC) and Analog Devices (NASDAQ:ADI) were up in the single-digits and a stock I liked better, ON Semiconductor (NASDAQ:ONNN) rose about 16%.

Maxim is still facing the same basic set of challenges - finding new sources of growth now that Samsung is no longer likely to be a significant growth driver in the coming years. Maxim is saying and doing some of the right things, including getting out of low-margin businesses like consumer MEMS and touch and focusing on higher-growth opportunities in industrial and auto, but I'm concerned about the company's ability to truly differentiate itself. With the valuation looking pretty fair today, I don't dislike the stock but can't work up a lot of excitement to buy in today.

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Without A Bigger Discount, Maxim Not So Interesting Today

Seeking Alpha: Intuitive Surgical Set To Regain Momentum In 2015

With the exception of a run in the first quarter of 2014, the space between mid-2013 and mid-2014 was a dead zone for Intuitive Surgical (NASDAQ:ISRG) shares as it became clear that growth at this traditionally high-growth med-tech was slowing. System placements declined sequentially for five of six quarters starting in the first quarter of 2013 and procedure growth slowed as the medical community became less aggressive with prostatectomy procedures and daVinci penetration topped out.

Sentiment has been improving since mid-2014, though, helped by growing penetration in general surgery and optimism that the new Xi and Sp platforms and greater overseas sales efforts will reignite system placements on an extended basis. Although Intuitive will likely start seeing real competition relatively soon, this remains a pretty special company within the med-tech space. The trouble is how much to pay for those special qualities, as the Street is already back to expecting quite a lot of growth from this company.

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Intuitive Surgical Set To Regain Momentum In 2015