Investopedia: Cisco's Painful Transition

Nothing lasts forever.

That is the unfortunate reality that seems to be striking Cisco Systems (Nasdaq:CSCO) these days and spooking analysts and institutional investors. The question, though, is whether or not a Cisco that may not be quite as dynamic as it used to be is still a worthy consideration for an investor's tech portfolio.


A Spotty Quarter
On first glance, Cisco seemed to post a solid fiscal second quarter. Revenue grew 6% and exceeded even the high end of the range of analyst estimates. Although routers grew 5% and revenue from new products was up 15%, switches were down 8%.

Gross margin is likely to be one of the biggest talking points of the quarter. Whether looking at GAAP or adjusted numbers, gross margin fell and fell hard (down more than four points by GAAP accounting and three points with adjusted numbers). While the company tried to pin some of the blame on new product launches, a mix shift seems to also be a significant factor as the highly profitable switching and routing businesses are not strong. Sales and marketing expenses and R&D did not seem out of line or worrisome, but the damage to the gross margin line was more than enough to be problematic. That said, reported earnings for the quarter were still better than expected. (For more, see Ratio Tutorial - Gross Profit Margin.)


Please continue on through the link below:
http://stocks.investopedia.com/stock-analysis/2011/Ciscos-Painful-Transition-CSCO-HPQ-JNPR-MOT-FFIV-RVBD-EMC0214.aspx

Introducing An Ambitious Project

So, I've been thinking about adding a "Watch List" or "Top Ideas" list to this blog for a little while now.

And now I have.

What I hope I'm going to do (eventually) is write up a summary/report for each one of these ideas, but that is going to take quite a bit of time. This is still a really new idea for me, so there might be a lot of "turbulence" as I add/subtract ideas from the list.

I hope you'll all bear with me as I figure out the best way to do this, and I hope that anybody who is interested or has a suggestion will let me know.

The MannKind Eulogy

I'm hardly the first (nor likely the last) to write what amounts to a eulogy for MannKind (Nasdaq: MNKD) after this week's earnings report and conference call. With too little cash on hand, too much still to do with respect to clinical studies, and a great deal of uncertainty about funding or partnering opportunities, it is clearly dark times for this company and its ongoing survival is hardly a sure thing.

Looking At The Balance Sheet

First thing's first, the company's earnings report was in some respects typical for a biotech – that is, the concern was all about the cash on hand and the cash burn. To that end, the company ended the period with $70 million in cash and still has access to a further $98 million drawdown.

In order to minimize the cash consumption and stretch out survivability, the company is cutting 41% of its workforce. At this point, MannKind is pretty much just be keeping the so-called “essential personnel” for getting Afrezza through the clinic and is putting the cancer vaccine programs on the backburner.

The End Of Easy Money?

None of that is terribly surprising. More concerning, though, was founder Al Mann's unwillingness to publicly commit himself to further funding of the company. MannKind exists in large part only because of Al Mann's wealth and if that spigot is now off the company is clearly looking at much more onerous funding terms in the future.

Honestly, I'm not sure how anyone could really be surprised by this. Self-made billionaires don't get that way because they're stupid or because they routinely throw money down bottomless pits. More to the point, there has to be a point of pain for even the most avid believer and Al Mann likely has to face a difficult decision about whether he wants to risk any more of his wealth (and the money he can give to his foundations) on what may be a doomed idea.

The Path To Go Forward

So where does the company go now? Management should be commended for being quite clear about what they think needs to be done to secure approval, and how long those steps will take. To wit, management laid out a clear path of about 15 months for a new submission. Assuming a decent FDA review period (and no particularly ridiculous delays for labeling decisions and what not), that would put the decision date at around the end of 2012/beginning of 2013.

Can MannKind get there without more money? All of the analysts seem to say “no”, saying that the company has enough money to get through the end of 2011, but not beyond that. I think that may be a little too negative – I think its *possible* (but NOT probable) that the company could stretch their funding beyond that, but a lot of it will have to do with just how large these final trials have to be to appease the FDA. One way or another, though, the company will need more resources to survive to launch day.

Partners?

It was also interesting to hear the company continue to talk about partnering prospects; suggesting that there were multiple parties with at least some level of serious interest. Obviously, the company didn't name names, or was management very willing to talk specifics about what sort of deal they would find acceptable.

In terms of deals, MannKind is really over a barrel right now. It is unlikely that any Big Pharma CEO or VP would put his butt on the line and give a large upfront cash payment to MannKind when Afrezza has already been subject to two Complete Response Letters. At this point, then, MannKind investors should probably look at examples like Arena's (Nasdaq: ARNA) deal with Eisai for Lorqess or the deal between Orexigen (Nasdaq: OREX) and Takeda – deals that committed the larger partners to very little in the way of upfront cash and with all of the upside to the biotech on the back end.

That is not to say that nobody places any value on Afrezza. Even with past failures in inhaled insulin, I could see Sanofi-Aventis (NYSE: SNY), NovoNordisk (NYSE: NVO) and Lilly (NYSE: LLY) all being interested in Afrezza as a way of rounding out (and protecting) their diabetes franchises. The sticking point, though, is price and the structure of the deal. Any company that offers MannKind more upfront cash than is necessary to get Afrezza through the FDA is going to have to explain itself to an angry shareholder base if/when Afrezza fails again. Likewise, I cannot imagine that any company not currently engaged in diabetes is going to touch this drug – why build out a sales force for a drug that may not get approved or find much commercial acceptance? 

What might a deal look like? If MannKind strikes a deal before FDA approval, I would expect a modest upfront cash payment – likely just enough to fund the remainder of the drug's development expenses, plus a milestone for approval – and a relatively large royalty on the backend. The sooner the company does the deal, the larger the upfront payment and presumably the smaller the backend royalty.

Unfortunately, the company does not have many other obvious options. The remainder of the company's pipeline is very early stage and likely not worth much in a sale. More to the point, I do not see any way that the company could sell its GLP-1 or cancer vaccine programs for enough cash to fully fund Afrezza through approval. So why bother? Why sell a future option for pennies on the dollar when those pennies won't really spell the difference between success and failure?

The Bottom Line

I've never been positive on inhaled insulin or MannKind and that's not changing today. I simply do not think the market is as large or promising as the bulls believe, and I base that on over a decade of following the diabetes market. Moreover, let's not forget that this is a company with a $500 million market cap and a $1 BILLION enterprise value. That is a pretty huge valuation for a very iffy product – Seattle Genetics (Nasdaq: SGEN) has what may be an incredible drug for lymphoma and trades at an EV of $1.3 billion,

I'm sure that anybody still owning MannKind today is not going to be easily swayed, and I don't really mean to change their mind. I just think that for me, MannKind does not make any sense as a stock when the company sports a billion-dollar valuation.

Investopedia: Statoil: Bargain Or Bull Trap?

If investors want to find bargains today in the energy sector, they have to shop in the scratch-and-dent bins. Norway's Statoil (NYSE:STO) is a good example. Concerns about this company's production growth prospects have kept a lid on the stock price as more dynamic companies like Whiting (NYSE:WLL), Brigham Exploration (Nasdaq:BEXP), and Cimarex (NYSE:XEC) have raced by. The question, though, is whether Wall Street has made too much of Statoil's near-term growth woes and whether patient investors might be looking at a bargain in these shares. 

A Poor Quarter amidst Sluggish Expectations
Wall Street was not expecting very much from Statoil in the fourth quarter, but they got even less than that. Of course, "not expecting very much" is a relative judgment - Statoil still produced almost 17% revenue growth and 19% operating profit growth.

Unfortunately, during that same period the company saw a 23% increase in the average price for petroleum liquids and a 17% increase in natural gas prices. What that highlights is that once again production was a significant issue. Total production in the quarter fell more than 5% to about 1.95 billion barrels of oil equivalent per day, with lifted volumes of liquids (more valuable in today's price environment) down 8%. 



The full article can be found at:
http://stocks.investopedia.com/stock-analysis/2011/Statoil-Bargain-Or-Bull-Trap--STO-WLL-XEC-APA-PBR-UPL-COP0211.aspx

Investopedia: Disney And The Rich Getting Richer

Amidst all the tumult over oil prices, new highs in copper, soaring grain and a global industrial recovery, a giant has quietly gone about its business of hoovering out more dollars from people's wallets. As consumers are reopening their wallets, and consumer goods companies rush to convince them to spend on their products, Disney (NYSE:DIS) is delivering some impressive results. 

A Good Open to the Year 

For its fiscal first quarter, Disney reported that revenue had risen 10% to nearly $11 billion. Within that figure, the TV business saw 11% growth, theme parks and resorts grew 8%, and creative content (movies, etc.) grew 6% as 24% growth in license revenue offset flattish movie results. Drilling even deeper, ESPN ads were up a startling 34% as this leading cable network continues to serve an apparently bottomless appetite for sports. While traffic at the theme parks and resorts seemed a bit soft, the spending per attendant was quite strong and bookings for the second quarter seemed alright. (For related reading, check out 4 Non-Cyclical Growth Stocks Increasing Dividends.)

Going down the line, it's hard to complain about the company's profitability. Overall earnings before interest and taxes jumped 39%, with the TV business doing even better (up 47%). All in all, Disney improved its operating margin by almost four full points, a pretty remarkable result.

The Road Ahead 

Looking out into 2011, it would seem that Disney has the wind at its back. The company's ABC network is not really lighting it up in terms of ratings, but Disney seems to have found a workable solution for the time being in cutting production costs. Moreover, ratings success is fickle and unpredictable; it was not that long ago that CBS (NYSE:CBS) was a basket case. In the meantime, ESPN and the Disney Channel are crown jewels that draw millions of viewers every night - though some may be surprised to know that NBC Universal's (co-owned by Comcast (Nasdaq:CMCSA) and General Electric (NYSE:GE)) USA Network is actually the number one cable network. 

Click below to continue:
http://stocks.investopedia.com/stock-analysis/2011/Disney-And-The-Rich-Getting-Richer-DIS-CBS-GE-CMCSA-SIX-RCL-CCL0211.aspx

Investopedia: The Marvel That Is Coca-Cola

By almost any measure, Coca-Cola (NYSE: KO) is a remarkable company. Not very many companies produce long term free cash flow margins of 20% or better, nor consistent returns on invested capital in excess of 20%. Even fewer companies manage to do it in the finicky and price-sensitive world of consumer goods. Consider, too, the fact that Coca-Cola is one of the largest companies in the world and is relatively undiversified, and yet still produces pretty solid growth on a consistent basis.

Even for those who find Coca-Cola to be too boring or too big for the portfolio, there is a lot to learn from following this company and watching how management continues to build value for shareholders.

A Surprisingly Solid End To The Year
From a top line perspective, Coca-Cola had a very good fourth quarter. Worldwide volume increased 6%, or about 5% excluding a deal with Dr Pepper Snapple Group (NYSE:DPS), with decent growth in North America (3%, excluding that deal) and Latin America, but strong performance in Eurasia/Africa and weakness in Europe and Asia. Interestingly, volumes in China were down 3 percent.

Coupled with a 2% increase in price and mix, and 37% growth from so-called "structural changes," Coca-Cola reported revenue growth of just under 45 percent. Excluding all of the special items and changes, core revenue growth of about 8% is still quite good.

In order to really plumb the details of Coca-Cola's earnings statement, readers and investors will probably need a glass of something considerably more potent than soda. For purposes of clarity, brevity and sanity, I will simply focus on some bottom-line adjusted conclusions. Operating income was up about 11%, with adjusted gross margin declining from 65.5% to 61.5 percent. Currency impacts account for how adjusted operating income could outpace revenue growth while the "adjusted" margin declined.


Please follow this link for the full article:
http://stocks.investopedia.com/stock-analysis/2011/The-Marvel-That-Is-Coca-Cola-KO-DPS-PEP-GIS-NSRGY-MJN0211.aspx

Investopedia: Ingersoll-Rand Getting The Squeeze

Federal government officials may be eager to talk down the risk of inflation in the United States, but plenty of industrial companies are seeing it. Maybe there is a statistical argument somewhere that validates just ignoring the price of inputs like oil, gas, coal, and metal, but they are very real factors for companies like Ingersoll-Rand (NYSE:IR). With rising commodity input costs, a stagnant construction market and a mix of businesses weighted towards the later part of the economic cycle, this industrial conglomerate is struggling to match the performance of some of its industrial comparables. 

A Mixed End To The Year
Ingersoll-Rand did end the year on a positive note from a revenue perspective. Total sales grew 13% (as reported) and exceeded the high end of the analyst estimate range. Growth was also relatively well balanced, with climate (which is more than half of revenue) up 16%, industrial technologies up 17%, residential up 12% and security down 1 percent. 

Odd as it may seem, that extra revenue was not all good news. The company had aggressively reduced capacity during the recession and seems to have been caught off guard when demand rebounded. Gross margin declined ever so slightly, and that was arguably a solid result given the input cost pressure. Operating expenses, though, were more problematic. While it is true that operating income rose 38% as the company reported it, that was nevertheless short of expectations and forecasts. Investors should also note that there was noise in the operating income numbers (adjustments, "one time expenses" and so on) that can complicate the year-on-year comparisons. (For more, see Zooming In On Operating Income.)

At the bottom line, though, the company did not meet the Street's profit goals and management's guidance gave no particular comfort that things would be getting better soon. 



Please follow this link for the full article:
http://stocks.investopedia.com/stock-analysis/2011/Ingersoll-Rand-Getting-The-Squeeze-IR-UTX-JCI-SWK-ETN-DE-DHR0211.aspx

FinancialEdge: The Apple Ecosystem

No company is an island; even the most integrated manufacturer or service provider relies upon a cooperative ecosystem of other companies. In the case of Apple (Nasdaq:AAPL) and its multi-billion dollar successes, the iPhone and the iPad, there is a long list of companies that are involved in the process. Consider the fact that Apple logged over $16 billion in costs of goods sold for the December quarter - an amount that on an annualized basis is larger than the GDP of Ecuador. (We look at a retailer's inventory turnaround times, its receivables as well as its collection period. See Measuring Company Efficiency.)

That is a large amount of money by any measure, and a sign of the value of being tapped as a supplier to Apple. As Apple shows no sign of slowing down anytime soon, it is worth examining who else directly benefits from Apple's successes. Here is a quick rundown of the Apple ecosystem.

Readers should note, though, that Apple's ecosystem is not static - the company sources certain components from multiple suppliers and will occasionally replace suppliers when price and performance dictate a change. Once such change has taken place relatively recently, as Linear Technology (Nasdaq:LLTC) no longer supplies the DC/DC converter or USB controller for the iPad2.

Please read the full piece here:
http://financialedge.investopedia.com/financial-edge/0211/The-Apple-Ecosystem.aspx

Investopedia: ArcelorMittal And The Steel Catch-Up Trade

The financial news often seems to talk about commodities as though they all trade together. The reality, though, is altogether different. While it is true that producers of copper, aluminum, and steel all depend to some extent on a healthy global economy, there can be a great deal of inconsistency between the individual commodities. So while iron giant Vale (Nasdaq: VALE) and aluminum king Alcoa (NYSE:AA) have done well over the past year, Freeport McMoRan (NYSE:FCX) has far surpassed them while ArcelorMittal (NYSE:MT) has been quite the laggard. 

Maybe that begins to change in 2011, and maybe investors should freshen up their due diligence on the largest player in the steel business.

A Solid End to a Tough Year
Although 2010 was hardly a disaster for ArcelorMittal or the steel industry as a whole, the memory of the boom years of 2007 and 2008 are still fresh in many people's minds. With certain commodities like copper hitting all-time highs recently, patience has been a little harder to come by in a steel sector still suffering from a sluggish economic recovery in North America and Western Europe. (For more, see Steel Cycle Looks Good.)

Still, ArcelorMittal ended the year on a solid note. Revenue rose 19% from the year-ago level (and 5% sequentially) and topped $20 billion. EBITDA was down 14% from the third quarter, but still higher than the consensus expectation and this quarter's number was arguably cleaner (that is, there were fewer non-operating items influencing the number).

To continue, please click:
http://stocks.investopedia.com/stock-analysis/2011/ArcelorMittal-And-The-Steel-Catch-Up-Trade-MT-VALE-AA-FCX-PKX0210.aspx

Investopedia: Atmel Off To The Races

Some investors want nothing to do with companies that are in the midst of turning around their business and repositioning themselves for future growth. Well, that is their loss. Not all companies succeed in self-improvement to the extent that Atmel (Nasdaq:ATML) has, but this not-so-little semiconductor company is a good example of the rewards that can accrue when patient shareholders and committed management intersect. 

A Strong End to a Strong Year
Atmel has been doing better for a little while now, but the fourth quarter put something of a finer point on that. Revenue rose 3% sequentially and 33% from last year, which is not only above what analysts had projected, but rather compelling in comparison to rivals like Cypress (NYSE:CY), LSI Logic (NYSE:LSI) and Microchip Technology (Nasdaq:MCHP). Better still, that growth rate is somewhat inaccurate on an as-reported basis; subtracting the Smart Card business (which the company divested) shows sequential growth of 10% and year-on-year growth of 44%.

Clearly, then, thing are going well for this company. The company's microcontroller business is doing well, and Atmel is gaining share in the non-Apple gadget market with its line of maXTouch controllers (which basically run the touch-screen interfaces). Atmel is already on board with devices from Nokia (NYSE:NOK), Motorola (NYSE:MOT), and HTC and although it has a formidable competitor in the likes of Texas Instruments (NYSE:TXN) (as well as Cypress to some extent), these chips are gaining share and impressing designers. (For more, See Texas Instruments Suggests A Soft Landing In The Works.)


Please click below for the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Atmel-Off-To-The-Races-ATML-CY-LSI-MCHP-TXN-ONNN-MOT0210.aspx

FinancialEdge: What's Going On With Muni Bonds?

For some months now, the municipal bond market has been in turmoil over the possibility that multiple issuers could default on their obligations. Much like how the mortgage-backed bond market cracked and then shattered, spreading chaos throughout the credit markets, the worst-case fear is that there could be a cascade of defaults throughout the country. These defaults would not only be serious for those who depend upon municipal bonds to fund some portion of their retirement needs, but also for the states and state-sponsored agencies that depend upon the muni market for capital. (For a little background and history of this market, check out Fatal Seduction Of The Municipal Bond Insurers.)

Moreover, just as the collapse of the mortgage-backed bond market spread far beyond the debt markets and into the stock markets and economy at large, so too is the fear that a wave of muni defaults will rattle the economy and stocks once again. With all of the worry and anxiety, then, investors have been selling out of these bonds, pushing yields to two-year highs.

The question, though, is whether equity investors need to really worry about how the muni market may influence their portfolios.

Please continue on to the full article:
http://financialedge.investopedia.com/financial-edge/0211/Whats-Going-On-With-Muni-Bonds.aspx

Investopedia: Ensco Digs Deep To Go Deep

Mergers and acquisitions seem to pick up when a market is just turning, so Monday's deal between Ensco (NYSE:ESV) and Pride (NYSE:PDE) may be a good sign that the offshore drilling market is about to enter another cyclical upswing. By the same token, it could just be a sign that Ensco realizes that its tough to get fair treatment from major integrated energy companies as a smaller company and that scale can produce some inherent advantages. 

The Terms of the DealWith the deal announced Monday, Ensco will acquire Pride with a combination of cash and stock worth $41.60 per share. In addition to $15.60 in cash, Ensco will hand over 0.4778 shares of stock to complete the deal. That represents a 21% premium for Pride shareholders and a pretty healthy multiple for Pride relative to industry norms.

What the New Ensco will Look Like
When the deal is complete, Ensco will control 74 rigs, with 21 that function in deepwater and ultra-deepwater. That will make Ensco the second-largest deepwater player, second to Transocean (NYSE:RIG). Ensco will also have 47 jackups in the fleet, with 27 good for drilling in depths in excess of 300 feet.

It is not all about the number of rigs, though. While companies like Diamond Offshore (NYSE:DO), Noble (NYSE:NE) and Transocean may have been historically more focused on deepwater assets, the new Ensco will have a newer fleet. Newer matters - newer rigs are often more powerful and more technologically advanced, and can allow drillers to do more in less time and complete complex jobs that older rigs may not be able to handle. That, in turn, often spells better dayrates.


Please continue below:
http://stocks.investopedia.com/stock-analysis/2011/Ensco-Digs-Deep-To-Go-Deep-ESV-PDE-RIG-NE-DO0209.aspx

Investopedia: Tepid Teva Somewhat Tempting

Once again Israeli generic drug giant Teva Pharmaceutical (Nasdaq:TEVA) has proven that although generic competition may bedevil the branded drug industry, there are no free rides here either. Teva's results and outlook will likely leave the stock cooling its heels for a bit in this growth-obsessed market, but patient investors should find no particular causes for long-term concern.

A Sluggish End to the Year
Before delving into Teva's results, it is worth repeating that Wall Street is a game of relative performance; companies can report objectively good (if not great) results and nevertheless disappoint analysts and investors.

To that end, Teva's 16% revenue growth this quarter was not bad, even if it was about 5% shy of the consensus estimate. While the company's biggest drug, Copaxone for multiple sclerosis (MS), did well with 26% sales growth (more than one-fifth of the company's sales), North American generic sales declined 5%. That is a bit puzzling, particularly given the company's exclusivity on generic Effexor XR. Then again, with doctor visits down across the board in the U.S., maybe that is where the answer lies. (For more, see There's Nothing Generic About The Profits.)

Profitability was not too problematic this period. Gross margin improved by both GAAP and non-GAAP calculations, and the company's non-GAAP operating income grew about 23% for the quarter. All in all, the company missed the average analyst guess by about three cents, though a better-than-expected tax rate helped. (For more, see Zooming In On Operating Income.)

The Road Ahead
Perhaps it has been going on a bit too long now to still be ironic, but one of the major concerns surrounding Teva involves competition in its branded drug business. Novartis (NYSE: NVS) will likely take some business away from Teva with its new oral MS drug Gilenya, and Genzyme (Nasdaq:GENZ) likewise has big hopes and expectations for its entry into the market.

Continue on via the link below:
http://stocks.investopedia.com/stock-analysis/2011/Tepid-Teva-Somewhat-Tempting-GENZ-NVS-ELN-BIIB-MYL-WPI-RDY-IPXL-IPCI0209.aspx

Investopedia: Danaher Hopes To Revive Beckman Coulter

Ending weeks of speculation, industrial conglomerate Danaher (NYSE:DHR) announced a bid for Beckman Coulter (NYSE:BEC) on Monday morning. Assuming that the deal goes through, and that is likely given the Beckman board's support, Danaher will join the likes of Abbott (NYSE:ABT), Siemens (NYSE:SI), and Roche (Nasdaq:RHHBY) as the biggest fish in the diagnostics pond. That said, Danaher is paying a rich premium for the chance to apply its operational magic touch to a company that desperately needs help. 

The Deal
Beckman has been trading on deal speculation since early December, and it was only last week that a Reuters article speculated on private equity bids in excess of $5 billion for the company. At that time, little mention was made of a strategic buyer for the business, though this author has been maintaining that Danaher would likely be the most credible buyer and that a price of eight times trailing EBITDA would be a fair price.

Lo and behold, Danaher has offered $83.50 in cash for Beckman, a nearly $7 billion deal that values Beckman at a trailing EV/EBITDA of just a bit over eight. That bid also represents a 45% premium to Beckman's pre-rumor price, and a pretty generous price for a true turnaround project. Given the operational improvements that Beckman needs and some of the peculiarities of the business, the last large deal in diagnostics (Siemens' acquisition of Dade Behring for 16 times EBITDA in 2007) is really not an apples-to-apples comparison, so Beckman shareholders should not feel too badly abused in this transaction. (For related reading, Does Beckman Bow To The Inevitable?)

What Danaher is Getting
In Beckman Coulter, Danaher is acquiring a diagnostics business with some major heft in many sizable markets. Beckman is a leader in the clinical chemistry market and has been at the vanguard of the fast-growing lab automation market (where expensive and increasingly hard-to-find technicians are being replaced by machinery). Beckman is relatively less of a factor in the faster-growing immunoassay market, but has a large share in the hematology market and a decent foothold in flow cytometry, where it competes with Becton Dickinson (NYSE: BDX) (among others).


Please read the full piece at:
http://stocks.investopedia.com/stock-analysis/2011/Danaher-Hopes-To-Revive-Beckman-Coulter-DHR-BEC-ABT-SI-BDX-LMNX-BLUD0209.aspx

Late, But Not Too Late, For Healthcare

There's nothing quite as annoying as being basically right about something and making no money from it. I was pounding the drum for most of 2010 that healthcare was too cheap and that it was a good time to buy some undervalued companies.

Sure enough, stocks like Hologic (Nasdaq: HOLX), Varian (NYSE: VAR), Accuray (Nasdaq: ARAY), Bruker (Nasdaq: BRKR), Cepheid (Nasdaq: CPHD), and Volcano (Nasdaq: VOLC) have all done quite well. And how many of these did I buy? Oh yeah, that's right … none. I kept my shares in Johnson & Johnson (NYSE: JNJ) and added some Alnylam (Nasdaq: ALNY), but didn't add any of the other names I said I liked.

Lucky for me, though, it may not be too late. Looking around the sector, I'm still seeing some interesting valuations on names I like. There are not as many 30%+ undervalued stocks as six months ago, but still a decent collection of ideas.

Here are some of the names I've been looking at lately and seriously considering:

BioMimetic Therapeutics (Nasdaq: BMTI) – I absolutely love this company's product for treating non-union fractures, and I think the overall technology platform as a lot of promise in orthopedics and sports medicine. Moreover, orthobiologics has been a Holy Grail for years and only Medtronic (NYSE: MDT) has really gotten anywhere with it. If approved, BMTI could have a great market opportunity in front of it – though it would more likely get a buyout bid from a larger company like JNJ or Stryker (NYSE: SYK) that needs the growth and the product niche.

Unfortunately, BMTI is offering new technology and I'm scared to death of what the FDA is going to do with this. There is a tiny risk of cancer with these growth-stimulating products and even though BMTI appears to be safer than already-approved products, does anybody want to bet on the FDA taking an enlightened view of this? After all, it seems like the FDA has the attitude that any risk outweighs virtually any benefit. Still, with a panel meeting on May 12 the picture will clear up considerably. I'd like to own this one, but there's a better than fair chance the FDA will torpedo this product.

Covidien (NYSE: COV) – Nobody is more surprised that I like this stock than me. Covidien has long been a boring, not especially well-run company. But it seems like there's a new day at Covidien, and a host of deals done in 2010 should start paying real benefits and giving the company a shot at some decent growth. Covidien is what JNJ might be if management at JNJ wakes the hell up (and I never thought I'd be suggesting that JNJ needs to emulate Covidien). If Covidien can grow the top line at 5% and produce free cash flow margins in line with the industry norms, this is a $60 stock.

Palomar (Nasdaq: PMTI) and Solta (Nasdaq: SLTM) – Aesthetics will come back. These are the companies to own when it does. But judging by Allergan's (NYSE: AGN) recent guidance, the aesthetics market has not come roaring back yet.

Stryker – I've beaten this drum a lot. But I think this stock might actually be worth upwards of $80. Management seems hell-bent on finding ways to grow, and now has clearly opened the door to expanding into markets beyond orthopedics and surgical equipment. I don't know what's next for this company, but it's one I still want to own.

TomoTherapy (Nasdaq: TOMO) – Risky, but really interesting. I need to do a separate write-up on this one to really do it justice.

Abbott Labs (NYSE: ABT), Roche (Nasdaq: RHHBY), and ISTA Pharmaceuticals (Nasdaq: ISTA) – This post is probably getting unbearably long already, but these are three pharmaceutical (mostly) names where I still see some real value. Abbott has suffered as investors worry about competition for Humira. It's a valid worry, but one I think the company can navigate. Roche … well, Roche continues to underwhelm, but I think there's promise in the pipeline, value in the diagnostics business, and a left-for-dead valuation in the shares. ISTA is one of the only pure-plays left in eye care and looks like a winner whether it gets a bid or stays independent.

So that's a quick rundown on what I'm seeing in the med-tech space, but I didn't even touch biotechnology or life sciences. That will have to wait for another day. In the meantime, I'm seriously considering adding one or more of these names to my own portfolio. It's still easier to hold names in materials and industrials, but good healthcare stocks can still outperform and eventually the markets will wake up to these names.

Disclosure: I own shares of Johnson & Johnson and Alnylam

Sorry!

Sorry for the absence of posts today.

I need to get better about this. I have the goal of having something new go up every day, but obviously I'm falling far short of that.

Investopedia: Cameron And National Oilwell Looking For A Busier 2011

While the oil spill in the Gulf of Mexico in the summer of 2010 may have pressed the pause button on offshore energy development for the United States, the rest of the world continues to move forward. That, in turn, means more business opportunities for key equipment suppliers like Cameron (NYSE:CAM) and National Oilwell Varco (NYSE:NOV). With rig construction picking up and major projects about to get underway in Asia, Africa and South America, investors may have reason to expect still more pop in these leading energy service stocks. 

Solid Ends To 2010
Neither Cameron nor National Oilwell capped 2010 with a blowout quarter, but both companies delivered acceptably solid results.

Cameron saw revenue increase 18% on a sequential basis, with the drilling/production and process/compression units leading the way at 25% and 31%, respectively. Margins were not quite as strong, though, and EBITDA increased 9% on a sequential basis. Integration expenses related to a merger and legal costs related to the Deepwater Horizon hit margins this quarter, but it does not look like there is any structural problem with the company's business.

For National Oilwell, this quarter was more sedate. Revenue climbed 5% from the third quarter, led by the Rig Technology group's 6% sequential growth. Profitability was also better on a relative basis, as NOV saw EBITDA rise 4% and operating income rise 5% from the third quarter. If investors want to get really picky, it is true that NOV saw about 20 basis points of margin shrinkage. (For more, see Zooming In On Operating Income.)

Click below for the whole article:
http://stocks.investopedia.com/stock-analysis/2011/Cameron-And-National-Oilwell-Looking-For-A-Busier-2011-CAM-NOV-XOM-BP-PBR-GE-FTI0207.aspx

Investopedia: JDS Uniphase Comes Through Loud And Clear

Tech investors have not been too forgiving to companies through this earnings cycle, but JDS Uniphase (Nasdaq:JDSU) largely took matters into its own hands with a stellar result. While there is still plenty of room to debate JDSU's long-term future, the near-term outlook for optoelectronics seems to be pretty strong. 

A Blowout in the Fiscal Second Quarter
JDS Uniphase delivered everything investors wanted in its fiscal second quarter and then some. Revenue jumped 16% from the first quarter (and 39% from the year-ago level) and handily smote even the high estimate on the Street. Revenue growth was definitely fueled by test and measurement business (up 27% sequentially), but the optical products business was no slouch at 14% sequential growth. While the Advanced Optical Technologies unit saw a 10% sequential revenue decline, analysts did not expect a lot from this business.

As revenue jumped ahead of plan, the company was able to leverage better profitability. Gross margin increased 140 basis points on a sequential basis, while the operating margin expanded 450 basis points to over 15%. (For more, see The Bottom Line On Margins.)

The Road Ahead
If management is right, this was not a one-quarter recovery in JDS Uniphase's business. The company guided for a level of March quarter revenue that looks to be about 7% higher than where estimates had been, and while there could be some sequential pullback in profitability, it would seem that numbers should be going up overall.


Please click below for the full piece:
http://stocks.investopedia.com/stock-analysis/2011/JDS-Uniphase-Comes-Through-Loud-And-Clear-JDSU-FNSR-OCLR-CIEN-DHR0207.aspx

FinancialEdge: What Is The U.S. Government's Credit Score?

Although the U.S. government has the luxury that the market for its debt is the single largest securities market in the world, there is growing concern about the creditworthiness of the government and its ongoing ability to borrow. What would happen if the federal government were subjected to the same standards as its citizens and assigned a credit score? (For related reading, also take a look at Can You Hit A Perfect Credit Score?)

While the credit rating agencies jealously guard the formulas by which they calculate credit scores, a few general concepts are widely acknowledged as major factors. Let's look at how the United States would stack up for each element that goes into a credit score.

Are Bills Paid on Time? 
Paying on time is good, paying late is bad. Having a debt go to collection or discharging debts through bankruptcy is very bad.

Generally speaking, the United States has a very good record of paying its bills on time. The national government has defaulted on its debts just twice - back in 1790 (under the huge burden of debts incurred in the war for independence) and again in 1933 when the government explicitly changed the rules and unilaterally decided it did not have to honor the obligation to repay its debts in gold.

Along the way, the federal government has faced a few moments where creative accounting had to be employed. Nevertheless, for all of its faults and flaws, the United States scores well in terms of paying what it owes in interest and principal and doing so on time.



Please click here for the full column:
http://financialedge.investopedia.com/financial-edge/0211/What-Is-The-U.S.-Governments-Credit-Score.aspx

Beckman Bids Shaping Up

According to a Reuters article, Beckman Coulter's (NYSE: BEC) efforts to sell itself have reached the final bid phase, with at least two interested parties.

Unfortunately, they are both private equity groups - one a combination of Blackstone and TPG Capital, the other Apollo and Carlyle. Danaher (NYSE: DHR) apparently was interested and still may be, but there was no confirmation that they were involved in the final round of bidding.

So, why do I say "unfortunately"? Well, if private equity buys this company, they're most likely going to be interested in restructuring it with an eye towards maximum cash-on-cash return. That is almost never good news for employees, and especially employees in the some of the slower-growth "legacy" diagnostics markets of Beckman.

If Danaher buys Beckman (or General Electric (NYSE: GE), or Philips (NYSE: PHG) or whomever else you wish to suggest), there's a better than fair chance that the company will stay intact. Sure, there will likely be some head-cutting, particularly in overlapping areas like finance, IT, middle management and so on. But I think it would be unlikely to see wholesale changes; Danaher isn't going to pay $6B+ and then radically rearrange the entire company. Moreover, I would like to think that a strategic buyer would understand not only the long-term cash flow potential of these slower-growing units, but also the bundling and marketing leverage they could provide in the context of a larger healthcare business.

Even though I don't own Beckman, and wouldn't buy it here, I do hope it ultimately goes to a strategic buyer and not a financial buyer. Sure, I happen to think that Abbott Labs (NYSE: ABT) and Roche (Nasdaq: RHHBY) are better companies and better stocks, but the employees of Beckman are not to blame for where the company sits today and I would hate to see another purging of scientists and technicians out of the healthcare sector.

All of that said, it's really interesting to me that there are apparently so few strategic bidders for BEC. There is a lot of cash and borrowing capacity out there, but companies do not want to bite ... at least not for Beckman Coulter. I guess that supports my thesis that this is not a terribly interesting diagnostics companies, as it is not as though med-tech companies routinely show price discipline in M&A.