Healthy Petrochemical Markets Helping Kirby Recover

The inland barge market hasn't fully recovered yet, but it is definitely on its way back, and that has helped drive a good performance from Kirby's (KEX) shares. Between a recovering inland market, a bottoming coastal market, and healthy demand for energy equipment, Kirby should be looking at significantly improving EBITDA, earnings, and free cash flow over the next few years.

I thought Kirby's valuation looked a little full at the time of my last update, and the shares are down a bit since then, underperforming the Dow Jones Transports by about 10%. I do expect Kirby to benefit from ongoing strength in the economy in the short term as well as growing petrochemical production capacity in its core operating area over the medium term, and I do see mid-to-high single-digit annual return potential here, but slowdowns in Permian activity could have a bigger short-term impact on sentiment.

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Healthy Petrochemical Markets Helping Kirby Recover

NuVasive Boosted By Renewed Confidence, But Follow-Through Will Be Critical

The last couple of years have certainly highlighted that NuVasive (NUVA) has yet to outgrow its volatility, but the stronger than expected second quarter results were the sort of confidence-building results I thought these shares would need to get back some of their luster. Now the question is whether or not the company can leverage recent new product introductions to maintain that momentum and whether procedure volumes in the spine market at large can support a stronger growth outlook.

With the shares back into the high $60s, it’s tougher to make a call on NuVasive. While there are still opportunities to gain share in the spinal market, NuVasive doesn’t have the operating track record of a company like Stryker (SYK), and I certainly wouldn’t criticize investors who bought shares in the $40s thinking about cashing in and moving on. If NuVasive can deliver another quarter or two of better than expected growth, though, a fair value in the mid-$70s could very well come back into play.

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NuVasive Boosted By Renewed Confidence, But Follow-Through Will Be Critical

FormFactor Looking At Increasingly Challenging End Markets

Shares of FormFactor (FORM) have fallen about 6% since my last update, which I actually consider a pretty restrained response to what has been a stream of bad (or at least weak) news about the chip market, including weakening NAND prices, delays in architecture transitions, and what seems to be a general slowing trend across the sector. Investors even shrugged off a fairly weak guide from FormFactor with second quarter earnings that led to a greater than 10% drop in the average EPS estimate for 2018 and a roughly 10% drop for the 2019 estimate as well.

I like FormFactor as a business, and I like the company’s leverage to increasingly sophisticated chip architectures that make the company’s MEMS-based probe card technology even more compelling and competitive. I don’t like the idea of potentially reaching into to a woodchipper to grab a bargain, though, as there is probably still more downside risk in chip volume expectations than upside risk. For those not afraid of earning the nickname “Stumpy”, there appears to be value in FormFactor today and even I admit wondering whether expectations are low enough to buy in now.

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FormFactor Looking At Increasingly Challenging End Markets

Adecoagro Has Its House In Order, But The Neighborhood Is On Fire

Although I had some concerns back in April about Adecoagro’s (AGRO) exposure to volatile commodity markets, particularly the oversupplied global sugar market, the shares have done better than I’d expected since then, with a 10% rise that not only beats Sao Martinho, but trounces Cosan Ltd. (CZZ). I believe Adecoagro has helped up better in part because of its low-cost sugar/ethanol operations, as well as its greater capacity to shift production toward ethanol at a time when sugar prices are so weak.

Looking ahead, the ongoing trade disputes between the U.S. and China should continue to help crop prices in Brazil and Argentina, while Adecoagro is also able to take advantage of weaker local currencies and a pretty solid hedging position. Moreover, I think the share price doesn’t reflect the progress the company has made over the years in improving its operations, nor the potential leverage to a larger dairy business. The commodity exposure increases the risk of this stock, but I do think the valuation remains relatively attractive.

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Adecoagro Has Its House In Order, But The Neighborhood Is On Fire

Still Not Much Momentum At Accuray

Small-cap oncology system manufacturer Accuray (ARAY) reported a decent fiscal fourth quarter, but it’s hard to see much momentum in the business or any real sign that this company is becoming a more disruptive force within the radiation oncology market. Although I continue to give management high marks for improving the underlying efficiency of the business and cleaning up the balance sheet, I just don’t see signs that Accuray is really gaining on Varian (VAR) (or even Elekta (OTCPK:EKTAY)) in any meaningful way, and I don’t see anything on the horizon that would drive a sudden shift in sentiment among customers.

Valuation remains undemanding, and I still believe the acquisition of Accuray by a Chinese or Japanese company is conceivable, but med-tech stocks most often trade on the basis of revenue growth and it looks like Accuray has a long row to hoe to generate enough revenue growth to get investors excited about the shares.

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Still Not Much Momentum At Accuray

Two Encouraging, But Not Convincing, Quarters From Lenovo

Once again Lenovo (OTCPK:LNVGY) (992.HK) has delivered a better-than-expected set of quarterly financial results and once again many sell-side analysts are reacting with “yeah, well … I still don’t believe it”. That skepticism isn’t completely unfair, as Lenovo has struggled for some time now to translate its strategic and R&D decisions into real financial upside and quite a bit of the recent outperformance has been driven by cost reductions.

I remain in the “skeptical optimist” camp with Lenovo, and I continue to hold a relatively small position, as I believe the company still has leverageable brand value in PCs, not to mention an efficient product development and manufacturing system, and long-term upside in its Data Center Group business. I’m still looking for roughly 2% long-term revenue growth, sub-2% FCF margins, and high single-digit FCF growth as the company stabilizes the Mobile group and drives better results from its PC business.

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Two Encouraging, But Not Convincing, Quarters From Lenovo

Exact Sciences: Overreaction Achievement Unlocked

When I last wrote about ever-controversial Exact Sciences (EXAS), I said that I preferred to wait for another inevitable overreaction to news. The shares are pretty much the same price now as they were then, and there’s the advantage of getting another two quarters of financial data in hand, not to mention some encouraging clinical data on new biopsy tests under development.

Although there’s more volatility here than I normally like, and management’s execution hasn’t been flawless, the long-term opportunity is pretty interesting. I’m still a little concerned about the med-tech sector re-rating down off of historically high levels, but that’s a “you pays your money, you takes your chances” sort of boilerplate risk. Given that I see upside into the $50’s, I’d say this is a name to consider, but do bear mind that this stock is quite a bit more volatile and controversial than you might otherwise think based upon the product, market, and financials to date.

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Exact Sciences: Overreaction Achievement Unlocked

Taking Another Look At AxoGen After A Nasty Post-Earnings Tumble

With great multiples come great expectations, and institutional growth investors can be merciless and indiscriminate in selling out of high-multiple growth stocks that don’t quite live up to expectations (or produce beat-and-raise quarters). This was one of my biggest concerns with AxoGen (AXGN) when I wrote about the company earlier this year, and the stock got hammered after what I believe was a quite modest second quarter shortfall that didn’t seem to have much to do with end-market demand.

To be sure, AxoGen is still in many respects a “story stock”, and a story with above-average risk at that. The addressable market opportunity is large and poorly-served today, and AxoGen’s clinical results have been pretty impressive, but driving adoption of new surgical procedures is not simple (or fast), competition may yet become an issue, and expectations aren’t exactly low. Still, when factoring in the incremental opportunities from future applications like total joint replacement, this is looking more and more like a risk worth taking.

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Taking Another Look At AxoGen After A Nasty Post-Earnings Tumble

Euronet: DCC Uncertainty Remains, But So Do Growth Opportunities

Euronet (EEFT) is still waiting for resolution on regulatory changes to dynamic currency conversion (or DCC) in Europe, a significant source of high-margin revenue, but the company continues to execute a multi-armed growth strategy that still has room to run. While the shares have done pretty well since my last update, rising 13% against a 10% rise in Paypoint (PAY.LN), an 8% rise in the NASDAQ, and 4% rise in the S&P 500, Cardtronics (CATM) has done even better and further upside is tied at least in part to a relatively benign DCC proposal from the EU Parliament later this month or early in September.

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Euronet: DCC Uncertainty Remains, But So Do Growth Opportunities

Inconsistency Continues To Offset HollySys's Potential

China’s HollySys Automation (HOLI) remains a frustrating stock, as the company’s inconsistent operating performance makes it a difficult name for investors to trust. Now take explicit guidance for the next year out of the mix and it becomes an even murkier situation, particularly as there is not a lot of visibility as to rail order/contract win timelines.

HollySys still has attractive opportunities. The company is gaining share in China’s process automation market and is starting to make a bigger push into factory/discrete automation. Rail orders remain consistently inconsistent, but opportunities in subways/metro should offer upside, and the M&E business could still benefit from China’s long-term One Belt One Road initiatives. Valuation really doesn’t look very demanding, but consistent execution has never been a strong point to this story, and I can understand why investors would stay clear.

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Inconsistency Continues To Offset HollySys's Potential

Wafer Worries Weighing On Shin-Etsu

When the stock of a well-run company that you’ve long admired gets to a point where the apparent annualized returns are in the double-digits, it’s a good time to refresh your due diligence. Such is the case with Shin-Etsu (OTCPK:SHECY) (4063.T), where management continues to execute at a high level and where the company’s core markets are healthy, but where recent fears relating to the semiconductor market seem to be having a disproportionate impact on the share price.

The risk of a sudden drop in semiconductor demand is not trivial, as Shin-Etsu’s wafer business generates about 30% of total operating profits today, but I also don’t think it’s particularly likely given the tight current supply situation and the relatively constrained capacity expansion plans across the industry. I also don’t think my modeling assumptions are all that ambitious, as I’m looking for long-term revenue growth of 4% and high single-digit FCF growth from a company exposed to global construction growth, semiconductor production, and EVs.

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Wafer Worries Weighing On Shin-Etsu

Solid Pricing Boosting Braskem's Free Cash Flow, But A Buyout Is The Best Outcome

I thought Braskem (BAK) had so-so prospects back in the spring of 2018, as the company was likely to face tougher spreads and a wobbly Brazilian recovery but improving free cash flows. Although the local shares have done better than I expected on persistently higher prices, with the BRKM5.SA shares up almost 20%, the unsteady Brazilian situation and the resulting currency weakness have depressed the returns on the ADRs to just a bit over breakeven.

A tight U.S. polypropylene market could continue to help Braskem, and chemical spreads should remain favorable, but management has guided toward weaker utilization and demand and spreads outside of the U.S. and Mexico could be vulnerable. Braskem appears to have a little bit of upside from here as is, but the ongoing discussions between LyondellBasell (LYB) and Braskem's controlling shareholders Odebrecht are likely the best source of upside for shareholders, as a buyout in the low $30s would offer a clean outcome with a decent premium.

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Solid Pricing Boosting Braskem's Free Cash Flow, But A Buyout Is The Best Outcome

Parker Hannifin A Curious Mix Of Value And Cycle Risk

By and large, investors seemed to come out of the second quarter earnings cycle feeling better about industrial stocks and the amount of room left for the cycle to run, although that seems to be wavering a bit lately on worries that Turkey’s troubles could weaken already unimpressive demand in Europe. In the case of Parker-Hannifin (PH), though, the shares have continued to lag the industrial sector as a whole by a pretty noticeable amount year to date, as investors seem worried about the risk of “general industrial” and mobile equipment demand rolling over relatively quickly.

I’ll admit to being a little flummoxed by this stock right now. I thought there was some risk of underperformance (due mostly to perception/sentiment) when I last wrote about the stock, and the shares have underperformed the sector by about 5% since then. It is getting late in the game for a short-cycle name like Parker-Hannifin, but then, underlying trends in most of the company’s markets are pretty positive, and the valuation looks pretty undemanding even if there’s a noticeable slowdown in the reasonably near future.

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Parker Hannifin A Curious Mix Of Value And Cycle Risk

Kemper's Self-Improvement Plan Is Generating Strong Results

I liked Kemper (KMPR) earlier this year and saw strong potential as the company continued its turnaround efforts and moved toward the completion of its acquisition of Infinity, but I frankly underestimated the scope of near-term growth and underwriting improvement potential for the company’s core non-standard auto insurance business. And so while I liked the stock back in April, I wasn’t counting on a 33% move in the stock in such a relatively short time – then again, neither was the Street, and analysts have been moving their estimates higher pretty steadily.

Although I do think Kemper shares are a little pricey now on a core discounted earnings basis, a mid-teens P/E (in line with post-merger EPS growth prospects) to 2019 earnings can support a fair value in the $80’s and I wouldn’t be quick to assume that Kemper doesn’t have a few more beat-and-raise quarters up its sleeve. Higher cat losses remain a risk and the company has work to do in areas like commercial auto, but this is still a pretty interesting growth insurance stock.

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Kemper's Self-Improvement Plan Is Generating Strong Results

Everest Re Dented, But Not Permanently Damaged

Reputation carries a lot of weight with insurance investors, and Everest Re’s (RE) recent adverse developments from the 2017 catastrophe season have dented the company’s reputation as an above-average risk manager. Even so, the total impact on the business hasn’t been that unrecoverable, and I think the company is showing that it still has opportunities to grow in both its core reinsurance and insurance operations.

Everest Re shares appear to be trading at roughly a double-digit discount to my estimate of fair value, implying solid double-digit annualized return potential from here. With a low-cost model and an attractive size/share opportunity in the reinsurance space, I think this is a name worth considering today.

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Everest Re Dented, But Not Permanently Damaged

Could Check Point Be Looking At Improving Momentum?

The 15% move in Check Point (CHKP) shares over the last three months looks pretty good against other security stocks like Palo Alto (PANW) and Proofpoint (PFPT), but stretch the time period out to just a year and Palo Alto, Proofpoint, Fortinet (FTNT), and CyberArk (CYBR) continue to outperform Check Point by wide margins, as Check Point continues to bumble along with low single-digit revenue growth and little-to-no near-term momentum in profits or free cash flow.

Check Point’s chronic problems with top-line growth remain a sticking point with me, and I don’t find the valuation as forgiving as I did six months ago (the shares are up 13% since then, beating the NASDAQ). On the other hand, Check Point’s issues may be more cyclical than appreciated and the company may be in the early innings of a cyclical upswing that has seen annual contract values peak roughly every two years going back about a decade. The old boilerplate warning about past performance not guaranteeing future results certainly applies (particularly with the different revenue model with Infinity Total Protect), but I think this name merits a little closer watching now.

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Could Check Point Be Looking At Improving Momentum?

Nokia On The Edge Of The Ramp

The last few years haven’t been all that much fun for Nokia (NOK), or its shareholders, as this telecom equipment company found itself sandwiched between more aggressive competitors and more conservative customers, and stuck in a place where customers have scaled back investments in older network technology but haven’t yet started spending on 5G. Now, though, the company appears to be just at the starting edge of a ramp-up in network spending that should drive meaningful cash flow generation in the coming years.

I don’t believe 5G will be transformational for Nokia in the sense that the company will suddenly see breakout revenue growth, but I do believe the company’s end-to-end solution could drive some share and revenue upside. I also believe there could be more long-term opportunity in the optical networking and IP routing businesses from recently-introduced technologies. Given all of that, I think Nokia is worth considering into the $6’s.

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Nokia On The Edge Of The Ramp

Medidata Solutions: Attractive Addressable Market, But More Work Is Needed

Large addressable markets are all well and good, but delivering on those opportunities isn’t always so easy. That’s a key challenge for Medidata Solutions (MDSO), as this company has an excellent electronic data capture platform for pharmaceutical clinical trials and has built out a strong suite of ancillary products, but must continue to cross-sell and get customers to subscribe to those additional products to maximize revenue and margins. Likewise, while Medidata has the ingredients in place for strong data analytics offerings, designing the products and getting customers onboard will take time.

I liked the opportunity I saw earlier this year with Medidata and the shares are up more than 10% since then. The valuation is somewhat less compelling now; although there is still some decent upside at today’s price, I’m a little concerned that slowing subscription growth and the need to spend more on sales and marketing to revitalize growth could weigh on sentiment. Still, given the long-term cross-selling and data-driven product opportunities, I’d keep an eye on this name in case the stock price and underlying valuation diverge again.

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Medidata Solutions: Attractive Addressable Market, But More Work Is Needed

Veeco Hit Hard As LED Orders Disappear

In the eight months or so since I last wrote on Veeco Instruments (VECO), this semiconductor and LED tool manufacturer has been on a wild ride. While the shares did spend about a month earlier this year above the fair value estimate of $17.50 I offered in that piece, the shares have since sold off sharply as my concerns about a peaking MOCVD market and inconsistent performance from the Ultratech acquisition seem to be coming to fruition.

My position on Veeco isn’t really all that much different now. I do believe the shares are undervalued, but I believe the traditional MOCVD market is only going to get more challenging and I’m not sure that opportunities like ion beam etch, MOCVD for VCSEL, and Ultratech’s advanced packaging, LSA, and metrology will be enough to fully compensate. Although I think there’s a valid case to be made that Veeco shares should trade in the mid-teens, I’d rather own stocks like Advanced Energy (AEIS) or VAT (OTCPK:VACNY) if I had to own something in the tool/semi equipment space today.

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Veeco Hit Hard As LED Orders Disappear

IPG Photonics Tripped Up By Some Familiar Themes

Advice like “wait for a pullback” or “buy the dip” is easy to write, but harder to follow. That’s particularly true for growth darlings like IPG Photonics (IPGP) that don’t so much pull back as tumble out of bed when they come up short on growth. And that’s where IPG Photonics sits today – down almost 40% from its 52-week high as the company guided to single-digit revenue growth for 2018; the first year in a long time that the company won’t produce double-digit growth.

Is it the end of IPG Photonics as a growth story? I don’t think so. The competition has continued to improve its own fiber laser offerings, and IPG is looking at weaker demand in some market segments, but the arguments for fiber lasers remain compelling and there are still opportunities for IPG to benefit from new market entry/conversion and ongoing upgrades to new technology. Chinese machine tool demand could be problematic in the short term, but if IPG can leverage mid-single-digit revenue growth into double-digit FCF growth, today’s price looks like an interesting opportunity.

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IPG Photonics Tripped Up By Some Familiar Themes

Emerson Playing A Hot Hand

Emerson Electric (EMR) is a significant player in two of the strongest verticals within industrials today – process automation and HVAC. What makes Emerson’s better performance so far this year (up about 3% versus a sector that’s down about 2%) a little more interesting is that the company’s performance in the HVAC business hasn’t been all that impressive so far. Assuming that the Climate segment picks up later in 2018, Emerson should be looking at one of the better revenue growth and margin leverage outlooks within its peer group.

I can’t really say that Emerson is undervalued. Even with a more forgiving/aggressive EV/EBITDA methodology that rewards Emerson for its healthy margins, the shares look more or less fairly valued. That said, investors often pay for performance and pay up for growth and I’d be leery of assuming that just because Emerson looks a little pricey today it can’t continue to outperform if the results from the Automation business remain this strong and Climate picks up.

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Emerson Playing A Hot Hand

After Restructuring Optimism, Weak Second Quarter Results Bring BRF SA Back Down

Investors in troubled Brazilian food producer BRF SA (BRFS) got a brief respite from a year of terrible performance when the market responded favorably to the hiring of Pedro Parente as CEO and the subsequent broad restructuring initiatives he announced late in June. That honeymoon was short-lived, though, as challenging production costs, a trucker strike in Brazil, lack of market access in Europe, and tougher conditions in Asia all combined to produce a rather weak set of second quarter results.

To some extent, the quarterly results over the next year aren’t critically important – the bigger concerns are reducing leverage and making progress on restructuring efforts aimed at making BRF a leaner, more competitive global protein player in the years to come. Still, the results do underline some of the ongoing operating challenges and the basic reality that this is not going to be a smooth or easy process. While today’s price is arguably fair relative to the likely near-term performance, a successful turnaround should drive a substantially higher fair value in the coming years, but there’s really no visibility (let alone certainty) as to when that will start to materialize.

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After Restructuring Optimism, Weak Second Quarter Results Bring BRF SA Back Down

Washed Out Expectations Should Help MaxLinear From Here

It tells you something about the level of confidence the market had in a company when it announces that the next quarter’s revenue will be 20% lower than expected (and 25% lower relative to expectations just a month or so before) and the stock basically shakes it off in a few hours. Such was the case with MaxLinear (MXL), a recent serial disappointer in the semiconductor space that has repeatedly lowered expectations in recent quarters, but where there’s still some measure of confidence that 2019 and 2020 will see a significant ramp in new advanced products.

As I’ve written in the past on MaxLinear, I expected 2018 to be a forgettable year (although not this bad), and I still see opportunities for the company to pick up business in MoCA, wireless backhaul, and DOCSIS 3.1 in 2019 and 2020, with hyperscale data center interconnects also chipping in late in 2019 and into 2020. I believe MaxLinear shares can support a low $20s fair value today, but a lot of management credibility is resting on this third quarter being the worst point of the cycle and revenue ramping up from there.

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Washed Out Expectations Should Help MaxLinear From Here

Sugar Prices Have Soured The Cosan Story

There's a lot more to Cosan Ltd. (CZZ) than sugar, but plunging global sugar prices are dominating the story at this Brazilian conglomerate and likely to continue to do so for the time being. Although the company is executing well in its fuel distribution, ethanol, gas, lubricant, and rail operations, sugar is a significant source of earnings, and there is only so much management can do to offset a global supply glut.

Even factoring in the weak sugar price outlook, Cosan Ltd. shares look significantly undervalued. Unfortunately, near-term sugar prices have long had a disproportionate influence on how Cosan Ltd. shares trade, and I'm not willing to just assume that's going to stop. Higher oil prices are supporting the ethanol business and the Rumo rail operations are performing much better, but it's going to take a more constructive market sentiment toward Brazil in general and sugar for these shares to get out of the doghouse.

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Sugar Prices Have Soured The Cosan Story

MTN Group Making Progress, But Not Fast Enough To Shift Sentiment

Between foreign currency weakness, resumed sanctions on Iran, local economic concerns, and competitive pressures, MTN Group (OTCPK:MTNOY) isn’t getting much credit for the progress it has made. New management hasn’t been in place long, but the renewed focus on cost-effective service quality and responsible portfolio management looks like the right strategy to drive long-term value.

Although MTN Group shares do look meaningfully undervalued, the troubles in Turkey show how quickly and how dramatically adverse currency moves can decimate the value of a holding. While that’s an apples-to-oranges comparison for MTN Group, South Africa isn’t exactly in superior shape and the risk of ongoing economic and currency challenges in major markets like South Africa and Nigeria is likely to keep a lid on sentiment until MTN Group logs multiple better-than-expected quarters.

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MTN Group Making Progress, But Not Fast Enough To Shift Sentiment

Societe Generale Still Treading Water And Going Nowhere Fast

French banking giant Societe Generale (OTCPK:SCGLY) continues to post the sort of performance that puts the stock firmly in the “cheap for a reason” camp. Although second quarter results were better than expected pretty much across the board, the core results weren’t as strong and the company is falling short of its own modest targets. Although the stock sports a high yield, low multiples, and very low expectations, it’s tough to see what will break this company out of its malaise short of another turnover in management or a more serious merger approach from a company like UniCredit (OTCPK:UNCRY).

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Societe Generale Still Treading Water And Going Nowhere Fast

Prudential PLC Continuing To Build A More Profitable Business

Like their American cousins, European insurance companies have started to get a little more love lately as investors have gone bargain-shopping in the value bin. Although Prudential PLC (PUK) has chopped its way a little higher over the last month, I still don't believe the shares reflect the value that management is creating. With a fast-growing Asian business and efforts well underway to increase the cash flow of the U.S. business, I believe Prudential PLC is well placed for above-average growth and undervalued today.

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Prudential PLC Continuing To Build A More Profitable Business

Copa Buffeted By Macro Issues

Operationally, Copa Holdings (NYSE:CPA) continues to do well with those things it can control. The company’s planes are pretty full, non-fuel costs are well-controlled, and its hub-and-spoke system is well-placed to continue benefiting from traffic growth across Central and South America. Unfortunately, there are other parts of the operational picture that Copa cannot control, and those didn’t go so well for the company in the second quarter, leading the shares down to a new 52-week low.

There are always going to be macro worries with a company and stock like Copa. The company needs healthy economies in major operating areas like North America, the Caribbean, and South America, relatively stable currencies, and manageable fuel costs, not to mention reasonable and responsible competitors. While the market is clearly sour on Copa right now, and there are ongoing economic and currency risks in countries like Brazil and Argentina, I think the long-term value opportunity is pretty compelling if you can tolerate the near-term risk, volatility, and unpopularity.

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Copa Buffeted By Macro Issues

Wright Medical Getting Its House Back In Order

It’s tempting to make a “shot themselves in the foot” pun with respect to the problems Wright Medical (WMGI) got itself into over the last couple of years, but this extremities-focused orthopedics company does seem to be getting its house back in order. Not only should the approval and launch of the injectable form of Augment spur meaningful adoption growth, but the company’s shoulder business continues to perform very well, and it looks as though management has the traditional foot and ankle business back on track.

Wright Medical shares have given investors plenty of trading opportunities over the last few years, as the company has struggled to establish a consistent growth path after the Tornier deal. I believe the company is getting there, and I’ve been impressed with the company’s internal R&D engine. The shares do still seem to offer some upside, and over the long-term a buyout is still a possibility, but investors should appreciate that there is a history of inconsistent execution here.

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Wright Medical Getting Its House Back In Order

After A Wild Party, Lundbeck Wakes To A Nasty Hangover

I would argue that the reaction to H. Lundbeck’s (OTCPK:HLUYY) (LUN.CO) second quarter earnings highlights just how big of a role momentum and expectations, reasonable or otherwise, play in stock valuations. Lundbeck’s quarter wasn’t pristine, but it was a beat-and-raise quarter, but it wasn’t on pace with the recent beat-and-raise trend and it’s clear that the strong cost-cutting tailwinds that pushed Lundbeck along so strongly are now going to crash into the realities of serious patent/generic revenue drop-offs.

I probably got a little greedy holding on to Lundbeck, but I was pretty much playing with house money and I don’t really have too many regrets. I believe Lundbeck is on a good trajectory, and the company has added multiple compounds to its pipeline recently, but it is likely going to take some meaningful good news from the clinic to get excitement going again in these shares, as I think the party is over for the run of beat-and-raise quarters fueled by the prior administration’s cost cuts.

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After A Wild Party, Lundbeck Wakes To A Nasty Hangover

With The Company Still In A Cyclical Downturn, AGT Management Gets Opportunistic

I believe it is possible for a deal to be both opportunistic and fair, and I think that is what AGT Food and Ingredients (OTCPK:AGXXF) (AGT.TO) shareholders are looking at today in the recently-announced management-led buyout offer of C$18/share. It is definitely possible to argue that this is a low point in the cycle and that investments AGT made in recent years will start paying off more significantly in 2020 and beyond, justifying a buyout price that should start at C$20. At the same time, though, you can look at the company’s poor liquidity/debt situation, its ongoing operational struggles, and the unpredictability of crop and weather cycles and conclude that, while this may not be full value for shareholders, it’s not a bad walk-away price for a company still likely a couple of years away from EBITDA leverage.

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With The Company Still In A Cyclical Downturn, AGT Management Gets Opportunistic

Aptose Now In 'Hurry Up And Wait' Mode

Drug development takes time, patience, and careful attention to detail, and if you follow biotech investor message threads, you’ll see that’s not exactly a perfect match between industry and its investors. While biotech investors want a steady stream of positive news and updates, the reality is that sometimes there will be dry patches as the companies do their work. Such may well be the case now for Aptose Biosciences (APTO).

These shares have pulled back about 40% from their post-ASCO peak, but without much in the way of real news. Aptose announced the expected lifting of the clinical hold on APTO-253, but since then I believe the shares have weakened on relatively weak prospects for meaningful incremental updates and worries that Aptose would raise substantial new capital. While second quarter results should put the capital-raising question temporarily to rest, investors need to accept that there likely won’t be a lot of news until later this year and into 2019.

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Aptose Now In 'Hurry Up And Wait' Mode

Manitex Continues To Benefit From Market Recovery And Self-Improvement

Healthy construction markets, complemented with recovering oil/gas and some strength in utilities, are putting some wind back into Manitex’s (MNTX) sails, and the company is complementing this end-market recovery with improved cost efficiency performance. While orders slowed in the second quarter, that’s normal on a seasonal basis and I don’t think much is changing in terms of end-market opportunities for the company (in other words, I don’t believe the second quarter order flow indicates that the window is closing).

Manitex shares don’t look particularly undervalued to me right now, even with a double-digit decline from its 52-week high. I believe there are still legitimate opportunities to grow the PM knuckle-boom crane business in the U.S. over the coming years and I think the Tadano relationship offers some upside in terms of product development, joint sourcing, and expanded market access in Asia, but that’s a multiyear opportunity that won’t even really start until next year. Even so, the share price seems to reflect a fair bit of that now.

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Manitex Continues To Benefit From Market Recovery And Self-Improvement

A Modest Step Back For Multi-Color

While you might think that tying yourself to consumer staples like laundry detergent, mouthwash, beer, and wine would insulate your business from volatility, that’s never really been the case for Multi-Color (LABL), and once again the company came up short of putting together a multi-quarter run of better-than-expected performance.

Organic growth improved in the first quarter of fiscal 2019, but growth is going to slow as the company sees the impact of weaker trends in its beverage label business, putting even more pressure on management to deliver on cost/efficiency synergies from the Constantia deal. Management does seem a little more focused on driving growth from its existing operations, and the shares do look undervalued if management can push FCF margins into the high single-digits, but business mix is going to remain a challenge for the foreseeable future.

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A Modest Step Back For Multi-Color

Execution Can Drive More Upside From PRA Group

PRA Group (PRAA) has been a fairly weak performer on balance since the company last updated investors on its earnings. While the shares did stay above $40 for most of June and July, they’re more or less back where they were a quarter ago, trailing the S&P 500 but at least doing better than peer/rival Encore Capital (ECPG) over that time. Given where the company’s report was relative to analyst expectations, I’d say the expectations reset period is over, putting more pressure on management to deliver execution-driven upside.

I do believe management can do this, as the company still has a large number of relatively new employees that should become considerably more productive over the next few quarters. PRA Group is taking a more conservative stance toward Europe, which is likely a good move over the long term, and continuing to invest in business-building efforts with a long-term payoff, including more compliance and government relations work. I continue to believe that PRA shares can and should trade into the low-to-mid $40’s.

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Execution Can Drive More Upside From PRA Group

Commercial Vehicle Leveraging The Peak Of The Cycle

Commercial Vehicle Group (CVGI) at long last has its ducks in a row, and the company is enjoying the fruits of a very healthy heavy truck cycle and a pretty strong cycle for construction and agricultural equipment as well. With labor and restructuring issues in its past, management is achieving strong incremental margins and making the most of a very strong production and order cycle for heavy trucks, medium-duty trucks, and heavy equipment.

These good times won’t last, they never do, but this unfollowed seating and components company could still have a few surprises left. There could still be some upside before the truck cycle ultimately turns, but late-cycle plays can be tricky and I’d also note that the lack of coverage tends to lead to more volatile performance here.

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Commercial Vehicle Leveraging The Peak Of The Cycle

A Better Quarter From Colfax, But Plenty Of Work Still To Do

Healthier demand in manufacturing and heavy industry is positive tide that is lifting a lot of boats these days, and Colfax (CFX) too is seeing some benefit. While the company continues to go through a painful adjustment process in its Air & Gas Handling business, the trend should start to improve relatively soon and there seems to be room for more growth in multiple end-markets. Management also seems to be more inclined to restructure and buy back shares rather than add a new business group, and that looks like a smart decision on balance for the time being.

I’ve been clear in the past that I have serious doubts about this business; I am not sold on the long-term value of the Air & Gas Handling business and I think the company will struggle to make real headway in welding. That said, low expectations, a relatively high short ratio, and improving end-market trends, coupled with what looks like responsible decisions on the part of management, does support value here even after a decent run over the past couple of months.

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A Better Quarter From Colfax, But Plenty Of Work Still To Do

Valeo Pounded Down On A Weak Transition Period

I had previously written that I thought Valeo (OTCPK:VLEEY) (VLOF.PA) shares could remain weak as the company stumbled through a weak transitional period, but I didn’t expect the shares to fall by a third on a year-to-date basis. Granted, the sector has been weak (BorgWarner (BWA) is down about 12% year-to-date, as is Schaeffler (OTC:SCFLF), and Continental (OTCPK:CTTAY) and Faurecia (OTCPK:FURCY) are down closer to 15%), but it seems like the shares have been hammered beyond what admittedly weaker-than-expected near-term results would other deserve.

Valeo management is calling for double-digit revenue growth next year, but the sell-side’s stance seems to be more along the lines of “yeah, sure you will…” and the market is not giving much credit for a backlog that should drive meaningful growth in few years’ time, particularly in new hybrid and EV programs. Although Valeo’s performance is doing nothing to build confidence today, if management can deliver better results in the fourth quarter (the third quarter is not looking promising), maybe these shares will finally recapture a little investor support.

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Valeo Pounded Down On A Weak Transition Period

Rexel SA Showing A Little More Juice In Its Turnaround

It has been frustrating waiting for Rexel (OTCPK:RXEEY) (RXL.PA) to deliver on its turnaround potential, and the shares had been steadily sliding lower this year until strong second quarter results reversed the trend. Now it seems that the company’s major suppliers are seeing better trends in electrification and automation, and the company’s own plans to improve performance in the U.S. and Europe seems to be paying off a little better. With healthy trends in non-residential construction in Europe and the U.S. and signs of margin leverage, there should be more upside for Rexel from here.

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Rexel SA Showing A Little More Juice In Its Turnaround

With Sluggish Demand, Is Ternium Really So Cheap?

Just so there’s no confusion later, I’ll state my conclusion right off the top – I still like Ternium (TX) and I still think this Mexican steelmaker is trading too cheaply. But the shares haven’t done much this year and they’re down about 14% over the past three months, while other steel companies like Steel Dynamics (STLD), Nucor (NUE), Gerdau (GGB), ArcelorMittal (MT), and CSN (SID) have done better … though “better” is a relative term here, as only CSN has outperformed the S&P 500.

Are the glory days over for steel? Certainly that’s a popular question now, and the market seems to think it’s likely that the U.S. will eventually negotiate on some of its protectionist measures, opening the door to more imports and lower prices. For Ternium in particular, a new NAFTA agreement is more likely to help than harm, but it’s hard to be wildly enamored of a company where demand in its two largest markets is weakening on a sequential basis. I do still think that Ternium shares are too cheap, but the risk of lower estimates and multiples is real and it may be hard to coax investors back into the steel sector at this late point in the cycle.

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With Sluggish Demand, Is Ternium Really So Cheap?

K2M Gets A Boost From A Stronger Spine Market

Investors have been doing some bargain-shopping lately in the spinal care space, as these stocks have largely lagged a strong med-tech market due to ongoing concerns about weak U.S. volume growth and persistent price pressure. That bargain-shopping got a nice boost with second quarter earnings, as all but one of the four major independents (K2M (KTWO), NuVasive (NUVA), Globus (GMED), and SeaSpine (NASDAQ:SPNE)) saw a 10% or better pop on June quarter earnings (Globus being the exception, but that stock had been on a tear up into June).

I’m still a little concerned about the overall level of valuation in the med-tech space and the risk that spine procedure volume growth could disappoint again, but I also still like K2M. Although the company’s focus on complex/deformity helps to shield it somewhat from volume and price pressures, I also like the company’s expanding sales force and product line-up, as well as the potential for margin leverage as it scales up its operations. Although the shares are no bargain by discounted cash flow, they do appear to be trading at a lower forward revenue multiple than the growth rate would otherwise suggest is fair.

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K2M Gets A Boost From A Stronger Spine Market

Arch Capital Reports Another Good, Balanced Quarter

All in all, business continues to go well for Arch Capital (ACGL). The Street seems a little more rational about the company’s mortgage insurance business relative to just a month or two ago, while the insurance business continues to do well relative to an environment with rising claims expense. This wasn’t the sort of result that’s going to change minds on the stock though. If you liked it before, you’ll almost certainly still like it and if you didn’t like it before, I’m sure you’ll work up some justification for that too.

As far as valuation goes, the 15% or so move from recent lows takes it out of “can't miss” territory and more into “decent long-term hold” territory. At this price, I believe investors can expect a high single-digit total annualized return, which isn’t bad from one of the best-run insurance companies out there.

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Arch Capital Reports Another Good, Balanced Quarter

ams AG Suffering Through Growing Pains

Although ams AG (OTCPK:AMSSY) (AMS.S) shares have done better than peers/rivals like Lumentum (LITE) and Himax (HIMX) over the past year, the performance over the past three months has been quite weak as investors have worried about a variety of risks including slower adoption of 3D sensing by smartphone OEMs, lower near-term margins, the possibility of main customer Apple (AAPL) turning to a second supplier in 3D sensing, and management’s apparent willingness to consider additional M&A.

To some extent I’m not surprised that the shares have been this volatile (“volatility” has been one of the main risks I’ve noted in past write-ups), and revenue guidance has been healthy even if margin worries remain. This is not going to be a stock for the low-risk crowd, but I continue to believe mid-teens long-term revenue growth from growing 3D sensing adoption in smartphones and in non-consumer markets can support a fair value for the ADRs of around $50.

I would note that the U.S. ADRs are not especially liquid, and investors may wish to consider the Swiss listing.

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ams AG Suffering Through Growing Pains

Volatility And A Murky Near-Term Outlook Hammer Renesas Electronics

I had previously said that I thought this year could be a little shaky for Japan’s Renesas Electronics (OTCPK:RNECY) (6723.T), the global leader in microcontrollers (or MCUs) and one of the leaders in semiconductors for autos, but I didn’t expect the sharp declines in the stock since July, nor the significant underperformance to peers like ON Semiconductor (ON), Infineon (OTCQX:IFNNY), or STMicroelectronics (STM) in what has admittedly been a weakening market for many chip companies.

Between inventory corrections in the auto channel, a much weaker outlook for industrial automation in China, and less near-term leverage to strong auto segments, the next few quarters could still be rough for Renesas. The long-term outlook remains favorable for the company, though, and the market seems to be pricing in an ugly correction. It may take a little while for this stock to shake off these worries, but the potential value makes this a name worth watching.

Readers should note that Renesas’s ADRs are not particularly liquid.

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Volatility And A Murky Near-Term Outlook Hammer Renesas Electronics

Lead Times Are A Risk, But ON Semiconductor Seems Undervalued

Can I really complain about the performance of ON Semiconductor (ON) over the past three months or on year-to-date basis when the shares are up 50% over the past year and have thumped not only the SOX, but peers like Texas Instruments (TXN), Infineon (OTCQX:IFNNY), and STMicrolectronics (STM)? Even so, these shares haven’t done so well lately, and I believe that’s largely due to concerns that rising lead times are signaling some weak orders and weaker revenue in the not-so-distant future.

Maybe this time will be different and the industry will navigate back to more normal lead times without major order/revenue disruptions. I don’t like to count on “maybe it will be different”, though, and the awful performance of Renesas (OTCPK:RNECY) highlights how unforgiving the market can be when companies go through an “adjustment phase”. ON Semiconductor shares do look undervalued and I do like the company’s long-term position in markets like auto and industrial and parts of communications and computing, but the risk of near-term turbulence is something to consider if you’re the type of investor who hates short-term pain in the pursuit of long-term gain.

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Lead Times Are A Risk, But ON Semiconductor Seems Undervalued

Alnylam About A Week Away From Its First Approval

With an FDA PDUFA date about one week away for its lead drug patisiran (which Alnylam (ALNY) will market as “Onpattro”), the value in the company’s second quarter earnings report was mostly in regard to its pipeline updates. Alynylam has ample cash to continue moving its deep clinical pipeline toward commercialization, and Alnylam could well be looking at meaningful new drug approvals in 2018 (patisiran), 2019 (givosiran), 2020 (lumasiran, fitusiran, and inclisiran), and 2021 (ALN-TTRsc02), with total peak-revenue potential in the multiple billions of dollars.

Alnylam shares have been weak of late, and there is some modest risk going into the PDUFA date – less so in terms of whether the drug will be approved, but rather what the label will look like. There will also be a more detailed presentation of data from Pfizer’s (PFE) tafamadis later this month, a drug that has more recently re-emerged as a potential competitive threat. All told, though, I believe Alynylam shares remain substantially undervalued today.

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Alnylam About A Week Away From Its First Approval

Eaton Outperforming And Still Undervalued, But Mind The Cycle

Calling out Honeywell (HON) and Eaton (ETN) as preferred names earlier this year has worked out alright, as these two diversified multi-industrials have continued to do well over the past year, year-to-date, and three-month periods, with both really standing out over the industrial sector over the past three months.

Despite Eaton’s outperformance, the shares still look undervalued. I share some of what I assume are the markets worries about the Vehicle and Hydraulics businesses (about 20% of sales), but the business as a whole seems to be on good footing and I believe the shares are undervalued on very modest long-term growth expectations.

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Eaton Outperforming And Still Undervalued, But Mind The Cycle

High-Flying Silicon Labs Gets Dinged As IoT Growth Hits A Lull

There are quite a few companies out there that would be more than happy to have a business where a slowdown to 11% year-over-year growth could be considered a lull, but then not many companies have enjoyed the sort of multiples and general growth enthusiasm as Silicon Labs (NASDAQ:SLAB). Although Silicon Lab’s multi-year track record relative to the SOX is still good, that gap has closed recently, and competitors like Integrated Device Technology (NASDAQ:IDTI) and Cypress Semiconductor Corp. (NASDAQ:CY) have pulled ahead on a one-year and year-to-date basis.

Silicon Labs is another one of those cases where I have liked the company for some time and been less comfortable with the valuation. I don’t think this slowdown in IoT revenue growth is an early sign of trouble to come, but I do think that high valuations carry high expectations, and Silicon Labs may have to deal with disappointed growth investors swapping out the shares for other semiconductor growth stories (like IDTI). Not yet at a buyable level for me, I suppose Silicon Labs’ current valuation is reasonable for a growth leader, but the reaction to second-quarter earnings underlines the risk of paying high multiples for high-growth stories.

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High-Flying Silicon Labs Gets Dinged As IoT Growth Hits A Lull

Integrated Device Technology Managing To Stay Ahead Of Expectations

Since my first write-up on the company for Seeking Alpha in September of 2017, Integrated Device Technology (IDTI) (or "Integrated Device") has done alright. The shares are up about 30% since then, outdoing the SOX by about 10%, more or less matching ON Semiconductor (ON), beating Silicon Labs (SLAB) by a bit, and handily outperforming Broadcom (AVGO) over that time. Better still, management has delivered performance that suggests that major drivers like server memory interfaces, wireless charging, and sensors, can, in fact, lead to significantly higher revenue and margins in the year to come.

Not surprisingly given the performance, the valuation argument is more of a stretch today. Trading at around 5x forward revenue, I'd argue the price today is a pretty reasonable reflection of the growth and margin potential at IDTI, but I also happily acknowledge that IDTI offers more near-term year-over-year growth potential than many other chip names and investors will flock to (and pay for) exceptional growth opportunities.

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Integrated Device Technology Managing To Stay Ahead Of Expectations

BorgWarner Doing Its Part, But Sentiment Remains Weak

Solid revenue growth, growing margins, and a growing backlog aren't getting it done today for BorgWarner (BWA), which leads to the question of just what exactly it's going to take for investors to want to own vehicle components companies again. Weak production rates and tariff/trade wars don't help sentiment, and rising material costs are still a threat to some extent, but valuations are getting interesting across the space.

As I've said before, stocks don't go up just because they're cheap - valuation alone really isn't much of a catalyst. Accordingly, while I do like BorgWarner both as a company and a stock, I can't say that the shares won't slide another 10% as they have since my last update (when/where I liked the long-term value opportunity). Longer term, I think this is a name to consider, but it will take patience and perhaps management pulling a few rabbits out of its hat at its upcoming September analyst day to get investors interested again.

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BorgWarner Doing Its Part, But Sentiment Remains Weak

One Quarter Doesn't Break, Or Make, Rockwell Automation

Even though I understand the demands of the world in which they work, sell-side analysts still amuse me from time to time (and I used to be one). When Rockwell Automation's (ROK) fiscal second quarter came up light on growth, you could hear the wails of anguish and the rending of garments that the cycle was doomed to roll over and crush Rockwell's multiple with it. Now Rockwell posts a stronger than expected fiscal third quarter and it's all party hats and conga lines. As I said, sell-siders serve a client base (institutional investors) where "long-term" sometimes seems to mean two quarters, but it does help explain at least some of the volatility in the share price.

For my part, I'm still a little concerned about the cycle. Many industrial CEOs have gone on record saying they think there's another 12 months or more left in this expansion, but I do think the pace is likely to slow and historically that's been a hard environment for Rockwell's share price performance. I do still like this company, and I like its partnership with PTC (PTC) and growing focus on software and services within automation. But "automation" is not a growth panacea and I have some concerns about a high-multiple stock in a possibly slowing sector that could see multiple reversion to the mean.

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One Quarter Doesn't Break, Or Make, Rockwell Automation

Healthy Markets And Price Leverage Bode Well For Ingersoll-Rand

Ingersoll-Rand (IR) has had a so-so run of late. Although the company has been reporting some good core revenue and order growth numbers and a general upward trend in margins, the shares have lagged peers/comps like Lennox (LII), Gardner Denver (GDI), and only just matched the industrials sector as whole (and Atlas Copco (OTCPK:ATLKY) had also been outperforming Ingersoll-Rand until a recent dip tied to its semiconductor-exposed vacuum business).

I find that performance interesting given that the company continues to benefit from healthy cycles in the non-residential and residential building markets, has little meaningful exposure to sectors of concern like autos or electronics, and still has leverage to price/cost improvement and growing aftermarket/service sales. Although Ingersoll-Rand isn't cheap enough to call it a clear bargain (those are few and far between in the industrial sector), I wouldn't ignore the significant boost to guidance and the potential for IR to be one of the relatively few beat-and-raise stories in the second half.

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Healthy Markets And Price Leverage Bode Well For Ingersoll-Rand

Fortive On Target In The Second Quarter And Doing Yet Another Deal

Investors can’t say that Fortive (FTV) management doesn’t deliver on its promises – management at this diversified multi-industrial said they wanted to deploy at least $6 billion into M&A that would skew the company toward more higher-margin recurring revenue, and they have done exactly that. While second quarter earnings were a little choppy, they basically met expectations and the turbulence seen in some of the businesses wasn’t all that different than what comparable multi-industrials like Illinois Tool Works (ITW) and Dover (DOV) saw in their operations.

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Fortive On Target In The Second Quarter And Doing Yet Another Deal

Dialog Semiconductor Gets Rewarded For Walking Away From Synaptics

Battered power management semiconductor company Dialog Semiconductor (OTCPK:DLGNF

) (DLGS.XE) has done a little better since my last update on the company, as the market has reacted positively to a favorable second quarter pre-announcement, and now, the announcement that it has terminated merger discussions with Synaptics (SYNA).

Overpaying for Synaptics wasn’t going to help Dialog, but Dialog does still need a lot of self-help. The company is looking at a steep downward turn in power management integrated circuit (or PMIC) revenue from Apple (AAPL), and the company is a long way from solid traction in markets outside mobile (and/or with customers other than Apple). Although the shares no longer trade at a discount to zero value in the mobile business, there could still be upside if Dialog can grow its rapid charging, connectivity, and auto/industrial businesses and/or find a new M&A dance partner.

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Dialog Semiconductor Gets Rewarded For Walking Away From Synaptics

A Weak Xermelo Ramp Continues To Weigh On Lexicon

If Neurocrine’s (NBIX) launch of Ingrezza in tardive dyskinesia is a good example of an excellent new drug launch, Lexicon’s (LXRX) ongoing struggles with Xermelo reflect the other side of the coin, as the company continues to see lower-than-expected patient interest, compliance, and ability to pay. At the same time, while the data on the company’s lead diabetes drug sotagliflozin remain quite good and the company has the backing of a large player in diabetes (Sanofi (SNY)), the Street remains quite skeptical regarding the drug’s prospects for gaining meaningful share in the sizable Type 1 diabetes market, let alone the much larger Type 2 market.

Lexicon shares continue to look undervalued to me, but investors have to at least consider the risk that this is a “value trap” and that Xermelo and sotagliflozin will never live up to the commercial potentials.

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A Weak Xermelo Ramp Continues To Weigh On Lexicon

A Tale Of 2 FEMSAs

All in all, Mexico’s FEMSA (FMX) continues to perform relatively well, though there has certainly been a sharper distinction lately between the strong performance of the retail operations and the lackluster-to-disappointing results of Coca-Cola FEMSA (KOF). With improved profitability in the drugstore business, a good long-term growth plan for the core OXXO operations, and opportunities for Coca-Cola FEMSA to do better, I continue to believe this is a good core holding for investors who want exposure to Mexican/Latin American consumers.

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A Tale Of 2 FEMSAs

Neurocrine Biosciences - 2 Blockbusters Approved, And Likely More To Come

Mid-cap biotech Neurocrine Biosciences (NBIX) continues to rack up the good news, but the market is still reluctant to give full value to the shares. Not only will this company have two presumptive blockbusters-to-be on the market this year, but it will soon be profitable at the operating income line and it has two more potential blockbuster indications lined up relatively soon, as well as longer-dated and more speculative pipeline opportunities. Although the company continues to take what I see as a conservative approach with its pipeline, the switchover to positive free cash flow will create expanded opportunities for capital deployment for management.

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Neurocrine Biosciences - 2 Blockbusters Approved, And Likely More To Come

Turkcell Is Performing Well, While Turkey Wilts

Turkcell (TKC) is a great case in a point as to why you can never completely separate a company from the context of its home market. While Turkey’s leading cell phone service provider continues to perform very well from an operational perspective, the problems in Turkey (both economic and political) and the resulting pressures on Turkey’s stock market and currency have pulled these ADRs down for a greater than 30% drop over the past year. While the local shares have performed meaningfully better (down 5%), that’s really not much comfort to shareholders holding the ADRs.

Turkcell shares look significantly undervalued, and it doesn’t look like the economic issues in Turkey are really hurting the business yet, but there’s no way to say that the problems in Turkey won’t get worse before they get better. And it is likely a long road back for Turkey in terms of the currency and institutional interest in the stock market.

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Turkcell Is Performing Well, While Turkey Wilts

Schneider Electric Not Getting Much Credit For Share Gains

Sometimes you have to love Wall Street logic. Grow slower than your peers? Well, you’re losing share, so that’s a “hold”. Outgrowing your peers? Well, looks like you’re at peak growth. Better go with a “hold”. Tongue-in-cheek cynicism aside, I do wonder what it will take for Schneider Electric (OTCPK:SBGSY) (SU.PA) to please the market, as this company not only posted one of the better organic growth rates for the quarter, it saw some operating leverage, and also raised guidance.

I understand concerns about a short-cycle slowdown, but the results and guidance posted by industrials so far this quarter suggest less risk of an imminent downturn, and Schneider is looking to boost prices in the second half of the year. With the shares down another 5% or so from my last write-up (when I thought the valuation was borderline), this is starting to slide into my “buy” zone, though I will admit the negative sentiment is a little bit of a concern in the near term.

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Schneider Electric Not Getting Much Credit For Share Gains

FirstCash's High Valuation Bites The Stock As Operations Show A Few Hiccups

I’ve owned FirstCash (FCFS) for a long time (over a decade now), and over that time I’ve learned that this is a business that runs in streaks – operations will hum along nicely for multiple quarters, beating estimates and supporting a strong stock, and then the company will run into a few hiccups that hit the numbers and the stock before things get back on track. While second quarter results weren’t bad, they weren’t really any better than expected and there are a few concerns coming out of the quarter that investors will need to watch.

Given the high valuation on FirstCash shares and the apparent end (at least short-term) of beat-and-raise quarters, I’m not surprised the shares sold off after earnings. I still wouldn’t call the valuation a particular bargain, but I’m content to hold on the basis of what I expect will be high single-digit returns (based upon discounted cash flow) and the potential for expansion into Colombia and Peru to accelerate growth in a few years’ time.

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FirstCash's High Valuation Bites The Stock As Operations Show A Few Hiccups