Maxim Integrated Looking Ahead To Improving Growth Prospects

Having moved aggressively to prune channel inventory, Maxim Integrated (MXIM) looks better-placed than many of its peers to return to growth as the semiconductor cycle bottoms out. I also think it’s very relevant that Maxim’s margins bottom out at levels (mid-60%’s for gross margin, around 30% for operating margin) that many semiconductor managements would love to have in their best quarters. Last and not least, Maxim has some attractive company-specific drivers in areas like autos (ADAS and EVs) and industrial (automation) that should propel above-market growth.

Valuation remains a sticking point for me, particularly as Maxim’s management has what seems to be bullish expectations for demand in 2020. I’m not as excited about analog at this point in the cycle (given valuations, mostly), and I like names with better leverage to data center and 5G, though Maxim’s content growth potential in autos is not trivial. I believe Maxim’s quality merits some premium, but I think there are better options today.

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Maxim Integrated Looking Ahead To Improving Growth Prospects

Manitex - New Management And A New Year, But Old Problems

Management matters, and that’s been proven over and over again in the market. Manitex (MNTX) has a new CEO now, one with directly relevant industry experience and success, and the company still has growth opportunities with its articulated/knuckle-boom crane business that is kinda-sorta new to the U.S. market. But the company also has very familiar old problems including cyclical end-markets, weak margins, and not much evidence of real value-creating momentum in the business.

Do I think Manitex can be run better than it has been? Absolutely. Do I think there’s a credible market opportunity for the company’s straight mast and articulated cranes that can support meaningfully higher revenue, margins, cash flows, and share prices? Yes. Do I think it’s worth the risk to own the shares and find out? That’s a harder call.

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Manitex - New Management And A New Year, But Old Problems

AllianceBernstein Continuing To Out-Execute Its Peers, But Not Fully Rewarded For It

Asset manager AllianceBernstein Holding L.P. (AB) has always required an above-average level of patience, and it doesn’t help that the company’s legal structure limits institutional ownership and can create headaches for individual investors. That said, for investors who can be bothered to deal with the higher level of complexity (which, depending upon your specific circumstances may not be that significant), I continue to believe that AB is worth a look, as management has established what I believe to be a differentiated strategy that can continue to drive above-average inflows, revenues, profits, and distributions.

Market risk is always a concern – whatever can undermine assets under management can undermine revenue, profits, and distributions. Likewise, execution and performance remain risks, as money continues to flow from active to passive, there’s an even greater need to generate strong results from actively-managed funds. AB is doing this, and I think the shares remain undervalued below the mid-$30’s.

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AllianceBernstein Continuing To Out-Execute Its Peers, But Not Fully Rewarded For It

Mellanox And Nvidia One Step Closer, But Mellanox Still Fine If The Deal Doesn't Happen

There’s been a meaningful “will they or won’t they” discount with Mellanox (MLNX) shares since the announcement of Nvidia’s (NVDA) offer for the company. While discounts to bid prices are normal, Mellanox had until recently been pretty much stuck in a band between $106 and $115 (below the $125 bid price) as investors wondered and worried if the deal would get all of the necessarily regulatory approvals.

Whether China approves the deal is the big remaining unknown, as Nvidia and Mellanox together will have a significant influence over China’s data centers and AI developments. Likewise, the Chinese government may view the deal approval as a point of leverage in ongoing, often contentious, discussions with the U.S. regarding trade policy (including restrictions on Huawei and on technology sales more broadly. While Mellanox shares would certainly fall if the deal were to collapse, I think support isn’t all that far away and Mellanox could well attract another buyer.

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Mellanox And Nvidia One Step Closer, But Mellanox Still Fine If The Deal Doesn't Happen

Lexicon Needs More Than Incremental Positive Clinical Data

This has been a hard year for Lexicon Pharmaceuticals (LXRX), and I can understand why any good news would be welcome. Unfortunately, the three positive trial read-outs the company has offered in December don’t really change the value proposition and don’t really represent any positive change in the outlook.

As is, Lexicon still needs to find a partner for its lead drug sotagliflozin and figure out how to manage its cash needs. More significant data from the TELE-ABC study in 2020 could certainly help, and maybe the company will be able to produce proof-of-concept data on its chronic/neuropathic pain drug LX9211, but for now a partner for sotagliflozin is far and away at the top Lexicon’s Christmas list.

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Lexicon Needs More Than Incremental Positive Clinical Data

Marvell Has The Growth Story, But Valuation Seems Advanced

In downturns semiconductor investors often seek out and reward margins, while growth is more desirable when the cycle turns. I’m speaking in broad generalities of course, but I think that may be a useful way to look at Marvell (MRVL), as the shares of this networking and storage chip company seem pricey on the basis of margins and cash flows, but do seem poised to deliver well above average revenue growth over the next three to five years. Although I’d don’t really like Marvell at this price on a “core holding” basis, I can understand the appeal for growth/momentum investors who are less sensitive to valuation concerns.

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Marvell Has The Growth Story, But Valuation Seems Advanced

Illinois Tool Works Is A Margin Beast, But The Valuation Is A Little Scary

Maybe the worst thing I can say about Illinois Tool Works (NYSE:ITW) as a company is that it’s kind of dull and that it underinvests in R&D – something management likely would disagree with. Otherwise, we’re talking about an incredibly well-run conglomerate that is very diversified across the globe (albeit a little light toward China) and across end-markets (albeit a little heavy toward auto). Management’s 80/20 system has generated proven results for years and very very few companies can produce these kinds of margins and returns on a sustained basis.

I thought ITW had some “best of the rest” attributes back in April, largely on the strength of its margins, but the shares have done quite a bit better than its peer group since then – climbing more than 15%, handily surpassing the performance of the industrial sector as well as many other well-regarded (or formerly well-regarded) multi-industrials like Eaton (NYSE:ETN), Honeywell (NYSE:HON), 3M (NYSE:MMM), Parker-Hannifin (NYSE:PH). Dover (NYSE:DOV) and Danaher (NYSE:DHR) are among the few to beat ITW’s performance over that period, though Danaher really isn’t a true peer anymore.

At this point, I can’t really sign off on the valuation Illinois Tool Works is getting. Sure, I understand that investors are taking positions ahead of an expected 2020 rebound, and I also get that high-margin stocks get high multiples. I also understand that once the Street picks a favorite/safe haven, they’ll run it to unsustainable valuations (as happened with 3M). So, while I could maybe stretch my valuation methodology far enough to say it’s not hugely overpriced, a mid-single-digit prospective return is just too low for me.

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Illinois Tool Works Is A Margin Beast, But The Valuation Is A Little Scary

Ternium Caught Between A Valuation-Sentiment Tug Of War

Ternium (TX) shares have risen 20% since my last update on this Mexican steelmaker, a pretty respectable result next to Nucor (NUE), POSCO, (PKX), Steel Dynamics (STLD), but not so impressive when compared to ArcelorMittal (MT) or Gerdau (GGB), and more or less in line with Voestalpine (OTCPK:VLPNY), another steelmaker with above-average auto exposure. You almost wouldn’t know it, though, as sentiment on the sell-side is still very cautious, if not outright negative, due to weak near-term demand conditions in two of Ternium’s key markets (Mexico and Argentina).

Near-term versus long term is almost always a tough dyad to reconcile in investing, and particularly so in the “it’s always near-term” world of commodities. I do believe that Ternium is going to have a challenging 2020, and I likewise believe that some peers like Gerdau will have a much better time of it. Still, given the quality of the company and the valuation, both intrinsic and relative, I still think this is a stock worth buying and owning here.

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Ternium Caught Between A Valuation-Sentiment Tug Of War

GenMark Diagnostics Still Not Getting A Lot Of Love

I can understand why investors may be leery of GenMark (GNMK). Although management has done a much better job of late in hitting its own targets, that has certainly not always been the case. Worse, they’re a later entrant into the multiplex molecular diagnostics field, and both bioMerieux (OTC:BMXXY) and Luminex (LMNX) enjoy bigger footprints (particularly the former with its BioFire FilmArray platform. And if that weren’t all enough, as more multiplex MDx tests become available, it is likely that reimbursement will get more complicated (if not less generous).

That all may explain in part why the shares continue to slide, down another 10% or so from the time of my last article. While I don’t dismiss the competitive and reimbursement risks, the shares already trade below where med-tech companies with similar growth rates would normally trade and GenMark has offered some evidence that its blood culture panels are driving good growth.

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GenMark Diagnostics Still Not Getting A Lot Of Love

Sensata Technologies Has Gone Nowhere Fast As Key End Markets Weaken

Although I wasn't all that interested in the valuation opportunity presented by Sensata (NYSE:ST) back in May, I missed quite a ride as the stock dropped 15%, rose almost 15%, fell another 10%+, then rallied almost 25% to end up … around 5% higher than when I last wrote about the stock. While Sensata has benefited from the recovery in both industrial and semiconductor stocks, the company continues to face difficult end-markets in autos, heavy vehicles, industrials, and appliances, and content growth can only offset that just so much.

I still really like this company, but the valuation is only "okay" now, and I think there is downside risk to the 2020 outlook given the growing weakness in heavy vehicles. Were the shares to again retreat back toward $45, I'd definitely reconsider this name for its long-term leverage to content growth in multiple end markets.

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Sensata Technologies Has Gone Nowhere Fast As Key End Markets Weaken

MaxLinear Logging Some Important Wins, But End-Market Conditions Remain Difficult

MaxLinear (MXL) shares were looking a little pricey back in May, but just as the market was starting to warm up to the company’s opportunities in wireless backhaul, 5G transceivers, and PAM4, the company had to deal with the U.S. government’s crackdown on Huawei, as well as even greater weakness in the Connected Home business and worse-than-expected trends in high-performance analog.

With all of that, the shares are down about 20% since my last article and analysts have significantly curtailed their revenue and margin expectations for 2019 and 2020. While I agree that the near-term outlook is tough, particularly with potential delays in PAM4 revenue, MaxLinear is a surprisingly profitable company (on a non-GAAP basis) relative to its revenue base and I think that will translate into impressive leverage when the revenue materializes (which I expect to happen in 2021). This is more of a ”story stock” than a fundamentals-driven call, but this is a somewhat beaten-down name that may still be worth watching.

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MaxLinear Logging Some Important Wins, But End-Market Conditions Remain Difficult

nVent Seems To Be Underperforming Its Markets, And It's Not Clear Why

Given the valuation, end-market exposures, and performance relative to its end-markets, I wasn't too keen on nVent (NYSE:NVT) back in May of this year. Between weakening industrial end-markets (which I expected), further relative underperformance (which I feared), and the surprising departure of the CFO, as well as management reiterated that it doesn't plan on a large-scale change in its R&D process, the shares are down about 10% from the time of that last article and were down closer to 30% before a decent third quarter and an overall industrial rally lifted the stock.

Relative to industrials broadly, and other electrical-exposed peers like ABB (ABB), Eaton (ETN), Emerson (EMR), Hubbell (HUBB), Legrand (OTCPK:LGRDY), and Schneider (OTCPK:SBGSY), nVent's share price performance has been pretty poor. On a positive note, the company's margins still remain quite healthy, and I expect many short-cycle industrial markets to start showing demand recoveries around the middle of next year. I don't really consider the valuation a "can't miss" now, though I would note that once May 2020 rolls around, nVent could be more in play as an acquisition target.

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nVent Seems To Be Underperforming Its Markets, And It's Not Clear Why

Microchip Technology Already Trading On The Recovery-To-Be

Investors have been seemingly chomping at the bit all year to buy a semiconductor rebound that has yet to happen. Of course investors look to get early (the market is a discounting mechanism, after all), but it seems like "oh, next quarter it will turn around" is all that investors have needed to hear. To that end, while my relative value call that Microchip Technology (MCHP) wasn't a great candidate to buy back in May has mostly worked out - the SOX has outperformed by about 10% and my favored name, STMicro (STM), has outperformed by much more - the shares are still up almost 15% from that last article (beating the market).

Although Microchip's business is finally turning (after six consecutive quarters of downward guidance revisions), and this is a very profitable and very diverse chip company, I can't say I love the valuation. Anticipatory buying has already taken a lot of semiconductor share prices higher, leaving investors to either rationalize higher fair values, accept lower returns, or cast about amongst the more troubled stories.

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Microchip Technology Already Trading On The Recovery-To-Be

Good Progress On Cost Control And Strong T&D Markets Helping Hubbell

When I last wrote about Hubbell (HUBB) in May, I saw mixed prospects for this manufacturer of electrical and power products for utility, construction, industrial, and energy customers. I did think (and write) that the shares looked undervalued and that the company’s late-cycle exposure was the right mix for what I thought would be a weaker-than-expected short-cycle economy. On the other hand, I also liked Schneider (OTCPK:SBGSY) and Eaton (ETN) better.

Since then, short-cycle end-markets have indeed weakened more than the Street expected earlier in the year and Hubbell has benefited from its strong utility exposure, as well as its internal self-help efforts on costs (manufacturing, et al). Hubbell shares are up about 18% since then, beating the broader industrial sector, while Schneider has in fact performed better (about 10% better), though Eaton’s performance has been more of a “push”.

Looking at 2020, I like Hubbell’s utility exposure even more, as I see grid spending as one of the healthier markets out there. I’m more concerned about oil/gas, but I think Hubbell’s specific exposures may be better than the overall market, and I expect more progress on costs/margins (particularly in 2021). What I’m not so fond of is the valuation. Like so many industrials, and particularly those with better late-cycle exposure, the shares have been strong enough that I don’t see a compelling valuation, though I don’t find them overpriced either.

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Good Progress On Cost Control And Strong T&D Markets Helping Hubbell

Emerson Bracing For A Slowdown And Considering Its Options

Back in May I thought that Emerson (EMR) looked undervalued, as I thought the Street was underestimating the full-cycle potential of the process automation business (particularly its petrochemical leverage), as well as the Climate segment. Since then, the shares have roughly doubled the return of the larger industrial sector, as cautious guidance from management has been offset by the involvement of an activist investor and investor enthusiasm for potential restructuring up to and including the break-up of the company.

I’m fairly indifferent about a break-up; I don’t think the Commercial and Residential Solutions adds a lot of value, but I also don’t think it really hurts the company all that much. As management seems far more interested in investing in the Automation Solutions business, perhaps it makes more sense to spin off the CRS segment or sell it in parts to other companies. Either way, while I do think process automation markets will slow in 2020, I don’t think they’re going to go negative and I like the long-term pipeline.

Unfortunately, the share price appreciation has pretty much soaked up the undervaluation I saw before and Emerson is valued on par with other high-quality industrials. Granted, with Emerson’s strong leverage to LNG liquefaction and chemical sector capex, as well as its growing discrete/hybrid business, I think you can make a “best of the rest” argument.

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Emerson Bracing For A Slowdown And Considering Its Options

voestalpine Likely Facing The Worst Of The Cycle

Investors have warmed back up towards steel stocks, assuming that 2019 was as bad as it’s going to get for the cycle and that responsible behavior on the supply side and improving steel demand will support prices and margins next year. With that, voestalpine (OTCPK:VLPNY) (VOES.VI) has gone along for the ride in recent months, rising about 25% from its August and October lows despite a recent warning on impairments and a cut to the dividend (both of which I think were, or should have been, largely expected).

I was pretty neutral on the stock in June, and while it has swung around quite a bit (rising about 15% before plunging 30% and then chopping higher), net net, it’s basically flat with where it was back then. Even with the troubles this year, I still like this business and I think I’d rather own voestalpine than ArcelorMittal (MT), and likewise the valuation is more compelling than for Steel Dynamics (STLD) and Nucor (NUE). Although I’m not as bullish on steel as some investors seem to be, I think voestalpine is an okay idea here, and particularly so if you want to play an upcoming rebound in autos and capital goods.

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Voestalpine Likely Facing The Worst Of The Cycle

ams AG Seemingly Going In All Directions At Once

When I first started digging into ams AG (OTCPK:AMSSY) (AMS.S) years ago, I never expected this would be such a volatile and bizarre company. The core technology drivers are still very much there - ams is a leading player in 3D sensing and other sensing and optics technology that is seeing increasing adoption in smartphones, and there are still attractive long-term opportunities in other sensing technologies and markets like auto and industrial automation. At the same time, though, business has proven very volatile on unpredictable OEM adoption curves and management's aggressive pursuit of Osram (OTC:OSAGY) seems predicated on some rather bullish assumptions regarding long-term revenue/technology synergy and cost optimization.

I feel pretty conflicted about the stock. Stand alone, I like ams AG. I'm not bullish on the Osram deal, but even with what I think are post-deal assumptions that don't give much benefit of the doubt to ams management, the shares look pretty meaningfully undervalued. I'm not really a believer in "hold your nose and buy" stories (if you don't believe in management, keep looking until you find a company/stock where you do…), but I still like the core sensing story and it looks like the market is already sufficiently skeptical about the Osram deal.

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ams AG Seemingly Going In All Directions At Once

With Positive Phase III Data From Lumasiran, Alnylam On Track For Another Approval

Some investors may well believe that Alnylam (ALNY) had already de-risked its lumasiran program for primary hyperoxaluria Type 1 (or PH1) with strong Phase II and open-label extension study data, but there is a reason that the FDA requires pivotal studies, and Alnylam came through with strong clinical results that will support a New Drug Application to the FDA early in 2020 and likely an approval before the end of the year.

With the positive lumasiran results, Alnylam is closing in on its third wholly-owned commercial product (joining Onpattro and Givlaari), and The Medicines Co. (MDCO) (which is being acquired by Novartis (NVS)) moving forward with inclisiran, Alnylam will likely be generating revenue from four drugs in 2020, with a fifth (Sanofi's (NASDAQ:SNY) fitusiran) not far behind in 2021.

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With Positive Phase III Data From Lumasiran, Alnylam On Track For Another Approval

Fortive Getting Plenty Of Love For Its Transformative Potential

While short-cycle industrials have recovered in recent months, Fortive (FTV) is still on track for a rare year of underperformance relative to the “average” industrial stock. This comes despite the announced decision to break the company in two and reposition RemainCo to focus more on software, connected devices, healthcare, and workflow management, partly due to the company’s exposure to this short-cycle slowdown. Although I find a lot of things to like about Fortive, I just can’t get that excited about the shares now. While I don’t disagree with the direction/focus of Fortive’s (RemainCo) M&A efforts, some of the specific deals have been questionable in terms of valuation and growth potential. What’s more, while I do expect 2020 to be meaningfully better for important segments like test & measurement, the valuation seems to already reflect that.

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Fortive Getting Plenty Of Love For Its Transformative Potential

Hartford Financial Delivering On A Model With Both Growth And Defensive Traits

I let Hartford Financial (HIG) fall off my regular paper route, but a lot of the things I liked about the company when I last wrote about it, including its Navigators acquisition, have worked out and my bullish stance has been rewarded with a decent 25% or so total return since then – pretty good next to Chubb (CB) and Travelers (TRV), though not quite as good as W.R. Berkley (WRB) and Arch Capital (ACGL) (another one I’ve long been fond of).

Re-examining the story again today, I like the company’s comparatively healthy reserve position and disciplined underwriting strategy – two factors that should let the company benefit from a very hard market where pricing is being driven by underwriting mistakes made by other insurers and claims inflation. I also like the potential for ongoing growth in the small business category, not to mention the potential to continue leveraging the Navigators deal to expand its product line-up.

As far as valuation goes, though, I’m not as bullish as I was. Between discounted core earnings and ROE-driven price/book, Hartford should be trading between the low and mid $60’s and that’s where the shares are today.

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Hartford Financial Delivering On A Model With Both Growth And Defensive Traits

Penumbra Leveraging A Strong Portfolio Into Attractive Under-Penetrated Markets

The only real problem I had with Penumbra (PEN) when I last wrote about the stock in June was the take-no-prisoners valuation. The company has continued to post good growth since then, with quarterly revenue growth rates around 25%, but expectations were so high already that the shares really haven’t gone anywhere on a net basis (there was a steep decline into the $130’s and a recovery to $180 along the way).

The share still aren’t cheap, but management has at least outlined a credible path to developing three markets worth roughly $1 billion a piece, two of which don’t really have a lot of compelling competitive offerings today. Premium small/mid-cap med-tech growth stories can trade at 10x forward revenue (or higher), and Penumbra still has some upside on that basis, but investors should at least be aware that any stumbles relating to growth will likely be harshly punished.

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Penumbra Leveraging A Strong Portfolio Into Attractive Under-Penetrated Markets

Independent Bank And Texas Capital Bancshares Tying Up In A Curious MOE

Mergers of equals have suddenly become a lot more popular in the banking space, likely as an answer to several trends in the industry including significant growth headwinds in 2020 and meaningful economies of scale, particularly with respect to future IT spending and branch network costs. The latest announcement, the tie-up between Independent Bank Group (IBTX) and Texas Capital Bancshares (TCBI), is a curious one in many respects, but also one that makes quite a bit of sense.

Given the significant EPS accretion potential on relatively modest cost savings assumptions and loan marks, not to mention the diversification the deal will provide, I think Independent Bank shares are worth considering here, and likewise Texas Capital.

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Independent Bank And Texas Capital Bancshares Tying Up In A Curious MOE

POSCO Getting Less Than Its Due, But Conditions Remain Weak

South Korea’s POSCO (PKX) has perked up some in recent months, following an overall upward trend in many steel names that seems underpinned by the assumption that the worst is past for the steel industry. I have written previously that I find that viewpoint somewhat optimistic, as I think there is still room for demand (and by extension, prices) to disappoint in 2020 and cost relief may not be as great as investors hope.

When it comes to POSCO, though I do think the company could bump along the bottom for a little longer (a few quarters), I do think the company is going through the worst of the cycle. What’s more, I think POSCO has been sold off too far relative to its underlying quality. While I’d probably rather have ArcelorMittal’s (MT) customer base, I’d rather have POSCO’s business on the whole for the next cycle. As one of the cheaper names in the steel space that I follow, I think this one could have some appeal now for investors who feel like fishing near the bottom.

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POSCO Getting Less Than Its Due, But Conditions Remain Weak

American Eagle Continuing To Flounder As Margins Disappoint

Among Warren Buffett’s many famous sayings is, “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact,” and that quote seems pretty fitting for American Eagle Outfitters (AEO) as an otherwise well-regarded management team continues to struggle with a host of margin challenges.

This was supposed to be a year where AEO started better leveraging past SG&A spending, and while sales have improved and SG&A leverage has also improved, greater than expected weakness at the gross margin line has more than canceled out any benefit. Although buying AEO on dips has historically been a money-making opportunity, this “dip” could well see the shares drop below $11 before reversing, and the company’s higher apparent fair value is really moot until management can post consistent numbers that move sentiment in a more positive direction.

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American Eagle Continuing To Flounder As Margins Disappoint

Like The Energizer Bunny, Old Dominion Just Keeps Going

One of the frustrating (and invigorating) aspects about investing is that you can be completely right … and still end up completely wrong if you’re right about the wrong things. In the case of Old Dominion (ODFL), the year and the market have developed largely as I expected back in April, with the company seeing growing weakness in volumes as the short-cycle industrial sector slowed throughout the year. And yet, with the shares up another 25% since then, what does it really matter?

I have long loved Old Dominion as a company, and if there aren’t case studies written about how this company has crafted a differentiated model in the at least somewhat-commodified less-than-truckload (or LTL) trucking space, then that needs to be fixed. Still, while I do expect a short-cycle recovery to kick in in 2020 and restore some momentum to Old Dominion’s business, I just can’t make any sense of the valuation. Sure, best-in-class operators absolutely deserve a premium, but with the shares already trading more than one standard deviation above the trailing five-year average forward multiple, I just can’t see how the shares are cheap on any fundamental basis.

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Like The Energizer Bunny, Old Dominion Just Keeps Going

Approval Of The Spark Deal Only Part Of An Expanding R&D-Driven Opportunity At Roche

As one of the largest pharma companies out there, I suppose it stands to reason that Roche (OTCQX:RHHBY) would have an above-average level of newsflow, but tracking the developments at Roche over the last couple of months has been like trying to sip from a firehose. It’s well worth trying, though, as these developments have been quite positive and only enhance the long-term value proposition of Roche shares.

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Approval Of The Spark Deal Only Part Of An Expanding R&D-Driven Opportunity At Roche

Broadcom Again Shows Its Commitment To Continuous Evolution

Broadcom (AVGO) has never been a company content to just sit still and play the hand it holds. Instead, management has always looked to maximize what it sees as the best long-term opportunities – exiting businesses with suboptimal return prospects (or high R&D requirements), and recently diversifying into the high-margin infrastructure software segment. Now it looks like further transformation is on the way, with management possibly looking to exit close to 40% of its semiconductor business while targeting new opportunities like silicon photonics and further infrastructure software bundling options.

Moving another year to the right does shift my fair value range higher for Broadcom, and I believe the semiconductor sector is bottoming out. What’s more, I believe that Broadcom remains a leader in several key businesses, including networking silicon, and I like the growth prospects of new ventures in photonics and base stations. Broadcom has clearly put itself in a different category relative to how many chip companies run themselves, but I continue to believe this is a case of “different is better” and that Broadcom is still a strong core holding candidate.

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Broadcom Again Shows Its Commitment To Continuous Evolution

Canadian Western Looking A Little Undervalued After A Post-Earnings Sell-Off

Canadian Western Bank (CWB.TO) (OTCPK:CBWBF) has had a mixed track record recently relative to sell-side expectations, with modest misses in two of the last three quarters. It hasn’t hurt the stock too much, though, as the shares have climbed roughly 25% and outperformed most other Canadian banks (Laurentian Bank (OTCPK:LRCDF) has largely kept pace), with investors expecting a meaningful revision in its capital requirements in 2020 and above-average EPS growth.

I continue to be rather ambivalent on Canadian Western shares. Including the post-earnings reaction, the stock is basically unchanged from my last update on the company, and while I like the steps that the company is taking to build its long-term growth potential, I remain concerned about the company’s spread exposure, credit quality, and loan growth prospects in the short term. I think investors will do okay from here as is, but should the shares correct into the mid-to-high C$20’s, I’d be a lot more interested.

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Canadian Western Looking A Little Undervalued After A Post-Earnings Sell-Off

An Ongoing Divergence Between Ciena's Business And The Stock Sentiment Offers An Opportunity

Ciena (NYSE:CIEN) is doing its part. This optical equipment specialist has continued to more than hold its own in its traditional service provider networking market, while also executing well on its opportunities in the data center with webscale customers like Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB). What’s more, Ciena has shown it can move the ball forward with respect to technology, staking out a lead with its 400G technology and, now, its 800G technology as well.

And yet, the shares still don’t really reflect that, or at least not on a consistent basis. Ciena shares had drifted back toward $35 before reporting fiscal fourth quarter results (and more encouraging guidance than the Street had expected), but even in the low $40’s, the shares look underpriced based on what investors have normally paid for similar levels of margin. Although 2020 will see a slower pace for the company, I still think these shares are worth serious consideration.

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An Ongoing Divergence Between Ciena's Business And The Stock Sentiment Offers An Opportunity

HollySys Continues Its Frustrating 'Two Steps Forward, One And A Half Back' Dance

I can certainly sympathize with any long-term shareholders of HollySys (HOLI) who are wondering if their patience will ever be rewarded. HollySys shares have lost about 15% of their value over the past three years, a time period that has seen Yaskawa (OTCPK:YASKY) more than double (even with a substantial decline from the early 2018 peak), Rockwell (ROK) climb almost 50%, and even perpetually disappointing ABB (ABB) show some gains. During that time, the market for automation products (as well as train signaling products) has continued to grow in China, but HollySys just can’t seem to live up to its own goals and targets.

I used to cover a long-lagging power company (AES (AES) ) that a reader once described as “unable to ever leave its parents’ basement”, and that feels applicable here – HollySys should be making more progress as an automation provider within China, or at least communicating more pragmatically about its growth targets and goals. That said, AES eventually broke out and the same could still happen for HollySys – the company is flush with cash, has a good niche market position in process automation and train signaling, and stands to benefit from China’s Made In China 2025 (中国制造2025) strategic plan.

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HollySys Continues Its Frustrating 'Two Steps Forward, One And A Half Back' Dance

Growing Signs Of A Brazilian Recovery Have Fueled A Nice Rally In Gerdau Shares

I liked Gerdau (NYSE:GGB) for its leverage to a Brazil recovery story back in October, and the relatively short time since, that story has really caught on with investors. Between the prospect of significant improvement in Brazil in 2020 and more or less stable (but still quite profitable) conditions in North America, Gerdau is looking at solid bounce in 2020 that should make it one of the better growth stories in steel next year.

With the shares running up a third since my last article, I really can't say these shares are undervalued, though the relative value proposition is still fairly attractive next to the likes of Nucor (NUE) and Steel Dynamics (STLD) and considering the more promising near-term outlook relative to Ternium (TX). I usually like to buy commodity stories with a wider margin of error in the valuation, but as a momentum/trading idea, I can't really say Gerdau is a bad one.

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Growing Signs Of A Brazilian Recovery Have Fueled A Nice Rally In Gerdau Shares

Valeo Makes Its Case For Long-Term Electrification Leadership, But Analysts Still Obsessed With Near-Term Costs

“It takes money to make money” is a well-worn cliché, but the sell-side remains fixated on the R&D investments and JV losses Valeo (OTCPK:VLEEY) (FR.PA) is absorbing as part of its efforts to build a leading platform of passenger vehicle electrification technology. I can’t and won’t argue that Valeo’s margins today are great compared to peers, and I likewise won’t argue that there is still ample uncertainty as to what the long-term profitability of EV parts and systems will be, but I believe Valeo is making prudent investments to build a long-term business. Unfortunately, analysts and investors are often obsessed with the short term.

I continue to like Valeo shares, even though the stock has rallied some on strong third quarter results. With investors selling the stock after a capital markets day that didn’t adequately address concerns about near-term profitability, I think this is a name for more risk-tolerant investors to consider.

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Valeo Makes Its Case For Long-Term Electrification Leadership, But Analysts Still Obsessed With Near-Term Costs

Columbus McKinnon A Victim Of Its Own Success With An Unexpected CEO Transition

Success is, on the whole, a good thing. Even so, it can create its own set of problems, and Columbus McKinnon (CMCO) shareholders are seeing that today (December 11), as the shares are selling off on the surprising announcement of the CEO’s resignation to take the top spot at Fortive’s (FTV) NewCo spinoff.

I believe the loss of Mark Morelli is a significant one, as he oversaw a transformational restructuring process (Blueprint for Growth) that has seen Columbus McKinnon slim down and focus on growth opportunities in material handling, and automation in particular. Although I think Morelli leaves the company much better than he found it, the process of finding a new CEO could well put the transformational process on “pause” and there are always uncertainties when new leadership is brought into a successful situation.

I’m cautiously optimistic that Columbus McKinnon will navigate this transition well – I believe the board has clearly seen the benefits of the strategy Morelli espoused and implemented, and I would expect the board to find a new CEO who will run the company along broadly similar lines. I’m boosting my discount rate by a point to account for the added risk, but the shares are still worth considering.

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Columbus McKinnon A Victim Of Its Own Success With An Unexpected CEO Transition

Rexel Transitioning From "Repair" To Growth

Although Rexel (OTCPK:RXEEY) (RXL.PA) has a decent enough trailing 12-month return (about 20%), the shares have ended up basically flat since my last update on this large electrical distributor, as internal progress with a variety of turnaround efforts has been offset by end-market deterioration. While management believes they’ve exited the “repair phase” of the turnaround, and I see meaningful growth opportunities in markets like the U.S., the reality is that macro indicators are still mixed, and the company is still investing in expanding its digital capabilities.

I still believe that Rexel shares are undervalued and that this stock can benefit from some company-specific drivers in 2020 that is looking pretty “meh” for most industrials. I believe the shares are more than 20% undervalued if Rexel can deliver low single-digit revenue growth and high single-digit FCF growth, but I must also note that the ADRs are illiquid and not all readers may wish to go to the trouble of buying the local shares.

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Rexel Transitioning From "Repair" To Growth

Copa Leveraging Emerging Market Air Travel Growth And Exceptional Operating Efficiency

Copa (CPA) shares have done alright since my last update, gaining a bit though not as much Azul (AZUL) or LATAM (LTM), the latter of which got a big boost from Delta (DAL) announcing its intention to invest in the airline. In any case, Copa continues to execute to a plan that has long proved successful – serve a broad selection of markets throughout Latin America with narrow-body jets using a hub-and-spoke model and focusing relentlessly on costs.

I do see some risk over the next few quarters as Copa looks to accelerate its fleet transformation (adding more Boeing (BA) MAX jets and retiring Embraer (ERJ) jets), but I think the risk is more to market perception and patience than any long-term issues for the business. With the shares still trading below my fair value, I’m bullish on an airline that is not only serving some attractive growth markets but also operating one of the most profitable models in the world.

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Copa Leveraging Emerging Market Air Travel Growth And Exceptional Operating Efficiency

ING May Be Through The Worst Point Of The Cycle

Not a lot has gone right for ING Groep (ING) in 2019. Despite being generally regarded as a well-run bank, ING has gotten caught up in and dragged down by most of the same macro challenges that have hurt other banks, including sluggish GDP growth across much of its operating area, political turbulence, and even weaker rates. At the same time, ING has been dogged by some more company-specific issues including higher compliance expenses, a high retail (and retail spread) skew, and a higher reliance on swap rates.

I’m not necessarily expecting 2020 to be dramatically better, but I don’t think it will be worse, and maybe the idea that earnings have finally been revised down far enough will be enough for ING to start performing a little better. These shares have risen more than 10% since my last update, but still remain undervalued if the company can muster just low single-digit long-term core earnings growth. With what I believe to be low expectations, a high dividend, and a sound capital structure, I think ING shares still have some appeal.

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ING May Be Through The Worst Point Of The Cycle

Jungheinrich Could Still Do Some Heavy Lifting

Investors have started positioning for an expected recovery in short-cycle industrial markets, but as is typically the case, it has left some names overvalued and others overlooked. Germany’s Jungheinrich (OTC:JGHAF) (JUN3.XE) isn’t going to be the easiest stock for some investors to own or follow, but for those who can, it’s a name worth considering as a nearly pure play on improving economic metrics in Europe over the next few quarters.

To be clear, I look at Jungheinrich as more of a trade than a long-term buy at these levels. Discounted cash flow suggests a return potential on par with other quality industrials, but the shares look undervalued on an EV/EBITDA basis and the company’s strong historical past leverage to economic upswings is the real near-term attraction here.

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Jungheinrich Could Still Do Some Heavy Lifting

IPG Photonics Struggling To Offset Weaker End-Market Demand And Stronger Competition

One of the most perilous times in a company’s publicly-traded life cycle is when it transitions from being a differentiated break-out growth story to a more “regular” type of company with more competition and less capacity for differentiation. Often there are many investors who are unable (or unwilling) to see the change and they’ll respond to any sell-offs or criticism with “just buy it and don’t worry”.

I’ve heard exactly that in response to past articles on IPG Photonics (IPGP) highlighting the increased competition the company is facing and the challenges in finding new markets where the company can really stand out with its technology (and garner premium pricing). And yet, the shares are down about 20% from my last update (where I suggested the valuation was too high), and estimates are quite a bit lower now as well.

I don’t hate IPG, and the valuation is a lot more reasonable now, but those core challenges with rising competition and more difficult differentiation remain in place. While there is still a long runway for laser adoption in a range of markets (including core welding/cutting), more and more of that opportunity is going to go to lower-priced rivals in China. Still, I like the company’s leadership in areas like high peak power lasers and its opportunities in markets like sensors, instrumentation, defense, and medical technology, and I think these shares are worth another look now.

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IPG Photonics Struggling To Offset Weaker End-Market Demand And Stronger Competition

FLSmidth Not Expensive, But Weakening Mining Outlook Is A Real Concern

As a play on the late-cycle mining sector, FLSmidth (OTCPK:FLIDY) (FLS.CO) has simply not worked since my June 19 article. In fact, this diversified supplier of equipment to the mining and cement industries has been among the worst performers of the mining stocks I follow, with Epiroc (OTCPK:EPOKY) the only name in the group I follow to outperform the S&P over that time period.

FLSmidth’s underperformance has been driven by multiple earnings downgrades, which in turn have been driven by weaker service uptake, mining project cost overruns, project delays, and weaker-margin mining orders working through the P&L statement. Although a bullish stance on FLSmidth could well be throwing good money after bad, and there are risks to the mining equipment demand outlook, FLSmidth appears to be trading at an undemanding valuation and a stronger global economy in 2020 would likely drive some rerating in this laggard.

Readers should note that the U.S.-traded ADRs are not especially liquid.

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FLSmidth Not Expensive, But Weakening Mining Outlook Is A Real Concern

Commercial Vehicle: Better-Placed For The Truck Downturn Than The Share Price Suggests

It has to be frustrating at times to be part of Commercial Vehicle’s (CVGI) management team. While this supplier of seating, wiring, trim, and other components to the global trucking and construction equipment market has actually undergone a pretty meaningful restructuring since the last peak in Class 8 truck builds, it doesn’t show up in the share price (which is basically flat since then). Of course, CVGI hasn’t executed flawlessly over that time either; many of the company’s growth plans have come up short, and I’ve taken issue with the approach to M&A over the years.

With the company on the edge of the cliff with respect to U.S. Class 8 truck builds, this is a tough stock to recommend. I do believe the shares are undervalued on a long-term basis assuming low single-digit revenue growth and mid-single-digit FCF growth, but cyclical stocks tend to trade more on near-term earnings prospects, and CVGI is likely to see a meaningful EBITDA decline in 2020.

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Commercial Vehicle: Better-Placed For The Truck Downturn Than The Share Price Suggests

ArcelorMittal Up Nicely Off The Bottom, But Substantial Uncertainties Remain

Valuations looked pretty washed out across the steel sector going into third quarter earnings, and my last article on ArcelorMittal (MT) was titled “ArcelorMittal Likely Approaching The Bottom”. Since then, the shares are up more than a third on renewed optimism that steel prices have bottomed, that margins likewise have bottomed, and that the company may walk away from its questionable decision to take over Italy’s Ilva.

What is ultimately going to happen with Ilva is anybody’s guess; ArcelorMittal has offered the Italian government a path toward a resolution, but sound decision-making may be too much to expect. I do still believe these shares are undervalued, but with the market arguably now leaning too positive toward the steel market, I’m not inclined to push my luck here.

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ArcelorMittal Up Nicely Off The Bottom, But Substantial Uncertainties Remain

Aptose Shoots Up As Investors Focus On Reversible BTK Inhibitors

I’ve written before that I consider Aptose Biosciences (APTO) to be a “speculation worth considering” on the strength of its two-drug pipeline for hematology, and between Merck’s (MRK) $2.7 billion bid for ArQule (ARQL) and encouraging early-stage data for the second-gen BTK inhibitor class at this past weekend’s ASH meeting, Aptose shares are having a great Monday – up about 30% as of this writing.

Is Monday’s move fair? As far as a one-day move after the ASH meeting and Merck’s bid, I would say it is probably an overreaction. Then again, this is a sparsely-followed early-stage biotech that I thought was trading meaningfully below its fair value (even incorporating the elevated risks), so more attention on the pipeline and some increased scarcity value for it should drive some upside. Even with this move, though, I still believe the shares trade at enough of a discount to fair value to be worth a look for investors who can take on the well-above average risks and odds of failure.

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Aptose Shoots Up As Investors Focus On Reversible BTK Inhibitors

Atlas Copco Riding High On Renewed Enthusiasm For Recovery Stories

I’ve long liked Atlas Copco (OTCPK:ATLKY), but there haven’t been all that many opportunities to buy in at what would normally be reasonable multiples. Between low rates leading investors to accept lower prospective returns and Atlas Copco’s ongoing well-deserved status as a reliable growth leader, though, it hasn’t hurt the share price performance – Atlas shares have significantly outperformed industrial peers over the last 5-year, 3-year, 1-year, and 1-quarter time periods.

Atlas Copco’s recent capital markets day didn’t offer up a lot that was new, but for a company like Atlas Copco, “more of the same” when it comes to new product development, end-market/addressable market expansion, and margin leverage, more of the same is just fine. I can’t see any way that Atlas Copco shares are cheap now, though, and the prospective mid-single-digit return is among the worst of the quality industrials I follow (if not the worst). I don’t expect Atlas to sell off just because the shares look expensive to me, but it’s not a stock I intend to chase at these prices.

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Atlas Copco Riding High On Renewed Enthusiasm For Recovery Stories

Alfa Laval's Resiliency Back In The Share Price

There are some stocks out there that always (or almost always) get the benefit of the doubt when it comes to valuation – names like Atlas Copco (OTCPK:ATLKY) and Danaher (DHR) spring to mind pretty readily – and then there are names where it seems like the market is more apt to just somehow “forget” the underlying quality of the business, and I think Alfa Laval (OTCPK:ALFVY) fits in that group. While there are undeniable cyclical parts to the business, I believe the volatility in the share price is outsized for a company with a good full-cycle track record when it comes to returns on invested capital, free cash flow, and other metrics.

I thought the market was overly spooked by second quarter results and guidance and that the shares looked appealing back in July. With a nearly 30% move in the ADRs since then, as part of a bigger rally in many industrial names, the undervaluation is more or less gone now and the annualized prospective returns seem more in line with the 6% - 8% range that is common now for quality industrials (Dover (DOV), Honeywell (HON), Rockwell (ROK), et al). As such, I think Alfa Laval is a decent hold and a name to consider adding on pullbacks along the way.

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Alfa Laval's Resiliency Back In The Share Price

Dana Slogging Through Some End-Market Challenges, But The Longer-Term Outlook Is Better

While I’ve thought Dana (DAN) shares looked undervalued, I also thought that the choppy trends in many of the company’s end-markets, including heavy-duty trucks and off-road vehicles, would add volatility to these shares. Since my last update, the shares have traded over $20 and below $12, and while the company’s capabilities in electrification are getting more recognition, the outlook for 2019 is still dicey and management has been cutting back guidance.

Dana isn’t a good name for nervous investors, but I see a lot of value here. I think the Street may be overestimating the negative impact of lower Class 8 truck builds in 2020, and likewise may be underestimating the potential uplift of electrification in busses and medium-duty trucks in the relatively near future. Although Dana isn’t my favorite auto/truck supplier in terms of pure quality, the valuation is hard to ignore.

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Dana Slogging Through Some End-Market Challenges, But The Longer-Term Outlook Is Better

ITT Inc. Executing Well, But End-Market Weakness Could Create Opportunities For Investors

Industrials don’t move in lockstep through their cycles, and multi-industrial ITT Inc. (ITT) continues to benefit from both a stronger skew to process industries and company-specific share-gain drivers, not to mention better than expected margin leverage. With that, the stock has been a notable outperformer over the past year, beating its peer group by over 20%, with a strong run since reporting third quarter earnings.

Although I’m concerned that ITT could still see slowdown in the business (orders have been negative for two quarters), I think the nature of the company’s business mix will lead to a shallower, shorter slowdown than what many industrials are seeing. On top of that, the company appears to have more options to drive better operating margins over the next couple of years. I can’t say that ITT is all that cheap now (though a high single-digit expected return isn’t terrible), but if the company were to stumble a bit over the next few quarters on weakness in short-cycle markets, chemicals, or so on, it would definitely be an opportunity to reconsider these shares.

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ITT Inc. Executing Well, But End-Market Weakness Could Create Opportunities For Investors

Societe Generale In A Position To Switch From Stabilization To Actual Growth

Shareholders of Societe Generale (OTCPK:SCGLY) (“SocGen”) have endured more than a decade of substandard performance, with the bank underperforming not only relative to other French banks like BNP Paribas (OTCQX:BNPQY) and Credit Agricole (OTCPK:CRARY), but to a wider set of quality European banks as well. SocGen’s problems have been legion, putting the company into a very poor capital position and necessitating numerous defensive asset sales and restructuring efforts.

At long last, though, there are more than just signs of progress. SocGen’s capital improvement in the third quarter may have been helped by timing factors, but the bank’s capital position is nevertheless in a much better place and most of the heavy lifting on restructuring is likely done. If SocGen can avoid any major missteps, and if the global economy doesn’t deteriorate too much from here, this long-troubled bank may finally be in a position to go from defense to perhaps actually pursuing growth again.

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Societe Generale In A Position To Switch From Stabilization To Actual Growth

Silicon Labs Executing On Its IoT Opportunity, With Infrastructure Likely To Get Better In 2020

Maybe valuation does matter, at least a little. When I last wrote about Silicon Labs (SLAB) I wrote that I’d at least somewhat thrown in the towel on valuation where this stock was concerned – investors prize the company for its focus on IoT and likely for its M&A takeout as well – but the shares have since underperformed the broader semiconductor space by about 10%. Then again, it could just be a reallocation of some resources in the sector, with other chip companies stumbling (if not crawling) toward the end of their correction cycle and investors wanting to establish positions for the broader recovery.

Whatever the case may be, the shares are still richly-valued, even on a hybrid EV/sales approach that factors in a takeout premium (based upon what companies like Infineon (OTCQX:IFNNY), NXP Semiconductors (NXPI), and ON Semiconductor (ON) have paid for wireless assets). I do believe Silicon Labs is still well-placed for above-average growth, particularly when the timing business recovers and as opportunities in auto mature, but paying premium prices for growth is not really my favored investment strategy.

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Silicon Labs Executing On Its IoT Opportunity, With Infrastructure Likely To Get Better In 2020

A Beat-And-Raise Has Shifted Sentiment On BorgWarner

I liked BorgWarner (BWA) back in late August and thought sentiment was much too negative on this balanced play on internal combustion and electric powertrains, but I didn’t expect the roughly 35% snap back in the share price in such a short time. That’s Wall Street in a nutshell, though, as a share price that’s driven to unreasonably low levels on little more than fear can quickly rebound when sentiment shifts.

Although the valuation isn’t so deep in what I consider to be a “can’t miss” range, I do still think BorgWarner shares are undervalued, and I do still believe that this company is one of the best-placed plays on increasing efficiency and emissions standards, as well as the eventual migration to hybrid and EV models. A greater focus on its manufacturing costs would be welcome, and I’d note that there’s still risk to the backlog, but this is still a name to consider even after this run.

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A Beat-And-Raise Has Shifted Sentiment On BorgWarner

AerCap Sticking With A Value-Creating Strategy

I can’t complain as much these days about the Street not really giving AerCap (AER) shares their due. True, I still think the shares are undervalued and I think the Street undervalues the company’s ability to create value through its leasing operations, and I’d note the implied private value of the company’s fleet is above the market valuation, but I’d also note that the shares are up more than 15% from my last article on the company.

I’m still bullish on AerCap and I still believe this is a good core holding for patient investors. Some readers will no doubt be frustrated by the company’s preference for buybacks over dividends, but I believe the long-term potential rewards are worth it. More competitive lease rates are definitely worth watching, but I believe there is still money to be made from these shares.

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AerCap Sticking With A Value-Creating Strategy

Delphi Technologies Dinged By Near-Term Challenges

There has been quite a bit of variation in the fortunes of leading powertrain suppliers this year, as Valeo (OTCPK:VLEEY) and BorgWarner (BWA), two companies I’ve written favorably about, have performed noticeably better than Delphi Technologies (DLPH). While I believe some of this can be tied to inflated past optimism about Delphi’s merits as a fuel efficiency and EV play, the reality is that Delphi’s recent performance has been lackluster, with worsening trends relative to the improvements at BorgWarner and Valeo.

A lot of sell-side ink has been spilled on which company (or companies) have the best components for hybrids and electric vehicles, but the reality will be that no one company dominates the market, or at least not for long. To that end, I believe Delphi is likely to be a long-term winner in the market, and I believe the current share price reflects a great deal of the near-term risk to weaker vehicle production rates and slower hybrid/EV migrations, but not much upside from that eventual migration.

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Delphi Technologies Dinged By Near-Term Challenges

Turkcell Continues To Execute, But Macro And Strategic Concerns Remain

Turkey's leading mobile services provider Turkcell (NYSE:TKC) has had a mixed performance run since my last update on the shares. Operationally, the company continues to do quite well, with relatively stable share in the mobile business despite aggressive pricing and ongoing growth in ancillary services. While the shares have risen more than 10%, they've lagged the broader Turkish market a bit, and I'd say the performance is relatively lackluster, given the heightened macro risk.

Although I still think Turkcell shares are undervalued, I likewise still think that macro issues tied to Turkey's economy and international relations loom large. I would also note that there seems to be some uncertainty in the market regarding the company's new strategic priorities regarding business and fintech growth - priorities that are going to demand investment spending. Turkcell pays a decent dividend, and its cash flow will likely support improved dividends from here, so at least, there's a "get paid to wait" argument in play for Turkcell shareholders.

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Turkcell Continues To Execute, But Macro And Strategic Concerns Remain

Veeco Seeing New Opportunities Develop, But Valuation Is More Equivocal

Veeco (NASDAQ:VECO) has definitely had its challenges, as the company has not only had to deal with a slowdown in the semiconductor industry but also a significant shift in its long-term end-market opportunities. Veeco has turned away from the LED tool business that was quite significant to the company and has instead embraced emerging opportunities in EUV, VCSEL, and hard drives, as well as maintaining the LSA and lithography businesses it acquired with Ultratech.

The extent to which Veeco can stitch together an attractive long-term opportunity from these new markets remains to be seen, but a greater focus on front-end semi tools should help margins. Profitability, too, remains challenging, with the company likely to report quarterly net losses into 2021. Valuation is something of a toss-up now, but returning to double-digit year-over-year revenue growth could bring some positive attention back to the shares.

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Veeco Seeing New Opportunities Develop, But Valuation Is More Equivocal

Neurocrine Partners With Xenon To Add New Early-Stage Pipeline Assets

I’ve noted before that for all of the positives of the Neurorince Biosciences (NBIX) story, the company has never had an especially dynamic or productive R&D operation when it comes to generating new clinical candidates. With Ingrezza driving the company to profitability and positive free cash flow, management is augmenting its internal R&D efforts by actively looking for licensing and acquisition candidates, and the company announced another such deal earlier this week.

Neurocrine’s agreement with Xenon Pharmaceuticals (XENE) is fairly typical for an early-stage licensing and development agreement. Xenon doesn’t really have the resources to go it alone, and has chosen to partner out certain assets to Neurocrine to better fund other programs, while Neurocrine pays a relatively low entry price for a risky but promising portfolio of compounds for various forms of epilepsy. While the Xenon assets are too early in development to make a meaningful impact on Neurocrine’s valuation, I consider this a worthwhile use of assets for the company and consistent with the strategy management has previously laid out for investors.

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Neurocrine Partners With Xenon To Add New Early-Stage Pipeline Assets