Walter Energy: Dramatic Price Decline Appears Overdone
- Walter Energy still has a huge debt burden to deal with and the weakening Australian dollar may slightly slow necessary supply cuts.
- Liquidity remains strong enough to last until 2016 at current prices though.
- A gradual metallurgical coal market recovery in line with consensus forecasts should be enough for Walter Energy to maintain at least a minimum level of liquidity.
- The dramatic decrease in share price appears overdone given the amount of runway remaining and the likelihood that supply cuts will at least modestly improve 2015 met coal prices.
Biglari Holdings: An Attractive Entry Point
- Stable, FCF generating operating business with future growth ahead.
- Large equity and cash holdings create a net cash position.
- Misunderstood share count and rights offering.
- Sum of the parts indicates undervaluation.
Universal Display, Apple And The Future Of Displays
- This morning's news, including iPhone tear-downs, makes it clear that Apple, and the display industry at large, is at the beginning of a transition to AMOLED screens.
- Universal Display is the primary beneficiary of this trend.
- The next big AMOLED producer and impact on other stocks as the industry develops are also discussed.
Rentrak: A Subscription-Based Secular Grower Transforming Media Ad Buying
- A recent Russell 2000-driven sell-off yields attractive opportunity with 60% upside.
- Revenue growth to accelerate to +50% CAGR over next 3 years, with significant operating margin expansion.
- A subscription-based business with significant pricing power and >90% renewal rates.
- Secular growth driven by programmatic ad buying and fragmentation of TV-viewing.
Marchex Post-Mortem Update
- The short thesis has played out at Marchex, with the equity declining ~66% since July.
- Re-cut of the Allstate pricing has served as the catalyst, supporting the notion that Marchex's offerings are non-differentiated.
- Marchex price action reflects the perils of investing in businesses with significant customer and vendor concentration.
China Dongxiang: A Very Cheap Way To Buy Alibaba
- Sum of the parts suggest a 30% upside.
- China Dongxiang owns 0.31% of Alibaba through Yunfeng e-Commerce Fund.
- Immediate Catalyst - Alibaba IPO.
Kennady Diamonds: Big Potential At Kennady North
- Kennady Diamonds plans to establish a mineral resource between 7 to 10 million tonnes with a grade over 2 carats per tonne.
- Diamond market dynamics favors Kennady Diamonds' financial outlook longer term.
- The company expects to release the preliminary NI 43-101 resource estimate by year-end.
DTS Inc. Will Add A Quarter To Your Money
- Audio devices and audio enhancement markets are set to grow due to proliferation of portable devices and adoption of wireless audio.
- DTS Inc., an audio technology company, will materialize on this growth because of its leading market share, superior technology, strong partner relations and current innovations like PLAY-FI.
- Though DTS is small-cap, liquidity and financial risk is low. Combine this with cheap forward PE, and you got yourself a small-cap treat.
- Valuations based on PE metrics and cash flows reveal potential upside of 25%. DTS Inc. is certainly a buy.
Coach May Have 40% Upside, Provided Near-Term Execution Goes Smoothly
- Coach, similarly to its competitors, has been struggling recently due to sluggish North American climate.
- Poor sales performance and contracting profitability margins are a concern.
- The company has announced plans to enter the "lifestyle" market, instead of purely focusing on luxury.
- Huge upside potential, provided execution of said transformation goes according to plan.
Why The Graphite Sector Is Heating Up, How To Evaluate Opportunities, And What I Own
- During the graphite boom in 2012, investors experienced a huge run-up in graphite stocks, only to be let down as their performance drastically outpaced their fundamentals.
- There is now an opportunity for contrarian investors to re-evaluate the sector given recent events: the stabilization of prices; projects starting-up or near production; and off-take agreements being signed.
- Blue-sky potential remains enormous from the incremental demand that will be created by ‘technology grade graphite’ to be used in emerging green initiatives and clean technology.
- Supply and demand trends are extremely encouraging, spurred largely by resource nationalism, industry consolidation, and Tesla's gigafactory which alone is supposed to at least double worldwide graphite demand by 2020.
- The NIA graphite explorers index is up ~70% YTD, posting most of those gains quietly this summer, and primarily by advanced projects which are still a ways off their all-time.
REA Group: Australia's No. 1 Property Search Website With Exceptional Earnings Growth And Classic Economic 'Moats'
- REA Group operates the #1 property search website in Australia.
- It has a strong brand and a durable competitive advantage.
- It has considerable pricing power for subscriptions and services, and is used by a majority of real estate agencies as their primary way of listing properties for sale and rent.
Linn Energy: Why The Asset Swap With ExxonMobil Makes A Lot Of Sense
- Linn Energy just announced another asset swap with ExxonMobil.
- ExxonMobil will receive 17,000 acres in the Midland basin, and Linn Energy will get its hands on ExxonMobil's interests in California's South Belridge Field.
- The asset swap will support Linn Energy's portfolio transformation and the shift toward mature, low-decline assets.
- Received assets will have a decline rate of 10% and an approximate reserve life of 22 years.
Cinedigm: Significant Upside With Secular Tailwinds
- With a stable base of risk-less assets providing a floor at $1.55 per share, downside is limited.
- Cinedigm’s earnings profile will ramp up substantially in the coming quarters as its growing library and distribution agreements start to pay off.
- Cinedigm's OTT opportunity represents the greatest upside lever with the potential to double the company’s value and beyond.
- We expect the equity to ultimately trade closer to its sum of parts valuation at ~$5.50 per share.
Hawaiian Airlines: More Upside Ahead
- After solid gains, Hawaiian Airlines remains a long-term buy.
- The airline trades at industry-low multiples of both PS and PE.
- The stock has 33% upside to catch up to the low-end airline multiples.
Sportsman's Warehouse Of Cards To Come Tumbling Down In Q3 And Q4
- SPWH should see a continued reduction of top-line, as its inventory fails to move during Q3 and Q4 as a result of pricing and new competition pressure.
- If SPWH is unable to move its inventory, and its inventory is reduced in value, that would greatly reduce total liquidity at the company.
- Even at current inventory valuations, SPWH has funding gaps starting in an estimated 6-9 months at stated CAPEX and growth strategies.
GoPro: 5 Factors To Push It Lower
- Stock price infers valuation metrics that are impossibly high.
- Priced for perfection but has increasing competition.
- Is merely a camera company but treated like a media company.
- Showing classic bubble stock trading characteristics.
- Lock-up stock coming due will increase the float 5 times.
- Zulily has performed poorly in the last five months, which was in line with my prior expectations.
- Revenue is growing ahead of estimates as the company benefits from rising demand.
- Short-term margin pressure kept the stock down since the Q2 report.
- Looking at the potential valuation and upside in the next six to twelve months.
Continental Resources: The Big Promise Of The Anadarko Basin
- Continental substantially increased resource estimates for its Anadarko Basin asset.
- The announcement of the Springer Shale discovery is important, given that the play will add to the “core of the core” drilling inventory.
- The positive read-across is to Newfield, Cimarex, Marathon and Devon.
HCI Group: The Wizards Of Tampa, Part II
- In the second piece in a multi-part series on the HCI group we focus on financial analysis.
- State subsidies embedded in takeouts can be substantial. However, the impact is temporary and eventually the economics of the underlying policies emerge.
- Our analysis shows that HIC's business model is only marginally profitable absent assumptions, even in the current 'best of times' business environment for DFIs.
- Expense analysis indicates that a large portion of the subsidies go out the door in the form of management compensation, rather than being retained to build the surplus.
- Without a transaction to fortify financial results, going forward we expect policy erosion, price declines and negative operating leverage to drive the ROE down to single digits.
REX: Overreaction To Brazilian Tax Credit News Bares At Least 26% Upside
- Recent news of a Brazilian tax credit for ethanol exporters sent ethanol stocks tumbling, with REX down almost 20%.
- Considering the back-story of this tax credit, I believe the move is more of a political tool than a long-term national strategy.
- REX owns stakes in large plants in the Corn Belt and should be minimally affected by this news.
- Even with a very conservative fundamentals valuation, REX has a 32% upside at current levels by year end.
The New Bill Barrett: Smaller, More Focused, Asset-Rich, Well Capitalized - Waiting On Strong Execution
- The divestitures announced by Bill Barrett today complete the company’s strategic repositioning and highlight intrinsic value.
- The company’s pro forma trading multiples are moderate given the growth potential and high-return core assets.
- Operating execution will be key for the stock to realize its potentially significant upside.
Symmetry Medical: Surgical Maneuver Sets Up A Very Attractive Asymmetric Trade
- In August 2014, Symmetry Medical announced that it had agreed to sell its OEM Solutions business for cash and, simultaneously, spin-off its Symmetry Surgical business.
- Its muted share price reaction enables investors to speculate cheaply that a higher OEM Solutions bid may emerge, whilst buying into Symmetry Surgical at a very attractive price pre-separation.
- Symmetry Surgical has been negatively impacted by a number of acquisition integration issues. Yet, it remains a high margin business capable of generating impressive cash flows.
- Symmetry Medical’s share price implies that Symmetry Surgical is being valued at a significant discount to listed comparables. We estimate there is 70%+ upside potential for Symmetry Surgical.
- This is an 18-month trade with strong catalysts. The low OEM Solutions deal risk combined with SSRG’s inherit discount limits the downside, presenting a very attractive asymmetric trade.
inTest: A Big Winner In A Semiconductor Capital Equipment Upcycle
- INTT is a very well-managed company, able to make money and generate cash even in the absence of a strong semiconductor capital spending backdrop.
- Decreased exposure to semi capital equipment (notoriously a feast or famine industry) lends itself to less volatile sales which goes hand in hand with a better multiple.
- P&L tightly levered to upturns in the semiconductor industry and the co.’s cost structure is largely fixed: we think this portends to quarterly earnings power of 25-40c (stock at $5.20).
- The worst-case scenario is a profitable company throwing off cash and creating value by repurchasing stock at depressed valuation (magnifies earnings power when the cycle turns).
- We think valuation makes our case even more compelling: trades at 10x earnings (ex-cash) and carries a 10% FCF yield. INTT trades at a significant discount to larger, well-covered peers.
Solitario Exploration & Royalty: Profitable Gold And Zinc Production Is Coming Soon
- Solitario Exploration & Royalty is advancing the economically sound Mt. Hamilton Gold project in Nevada, which will produce 60,000+ ounces annually at low cash costs.
- The company also owns a 30% interest in the high-grade Bongara zinc project in Peru, which is joint ventured with a major zinc producer.
- Solitario currently has a market cap of just $50 million, but its assets could be worth several times that figure as it reaches the production stage.
- I think Solitario presents a compelling buy at current prices and investors should be adding shares on any future weakness in the share price.
Is It Time To Bottom-Fish For Vale SA?
- Iron ore prices have tested the $80 level and led to predictions that iron is dead as an attractive commodity.
- Vale has very low production costs, high-quality ores in its Northern resource base, and ample expansion potential.
- Just 5.5 times 12-month EBITDA can support a fair value above $14, but further iron ore price declines and a potential new political regime in Brazil loom as risks.
American Realty Investors - Deeply Undervalued Real Estate Company With Significant Upside And Asset Monetization Catalyst
Turnaround At Hallmark Financial Services Could Drive 60% Upside
- Exit from a troubled loss-making division coupled with continued growth of a highly profitable segment portend large increase in earnings at Hallmark.
- Insiders own 30%+ of company and have been buying.
- Company is well capitalized and has ample growth opportunities.
- Selling at just 75% of book value and less than 6x normalized earnings, shares could appreciate 60% over the next 12-18 months as turnaround becomes evident.
The Babcock & Wilcox Company: Massive R&D Obscuring Earnings Power; 80%+ Upside
- BWC is a large manufacturer of utility steam boilers and nuclear components.
- Large operating losses in one segment are obscuring the true value of the company. Management has shown a willingness to stem these losses.
- The company has a 150-year operating history, few competitors, a 25% RoE, and a backlog of 2x the market cap.
- Under conservative revenue growth assumptions, the company has 80% upside with a large margin of safety.
3 Micro-Caps With Persistent Insider Purchases
- Market capitalization less than $300 million.
- Insider purchases involving at least 2 different insiders over the past 6 months.
- Selling at a discount to book value or at less than 12x my estimate of normalized earnings.
Currency Exchange International: Compounding Cash Machine At A Deep Discount To Private Market Peers
- A unique opportunity to own a compounding machine with organic growth in excess of 20% and high returns on capital.
- OSFI approval to transition into a 'Banker's Bank' is a near-term hard catalyst for value creation.
- Currency Exchange trades at a steep discount to recent private market transactions. We believe shares at minimum have upside potential of ~70%.
HCI Group: The Wizards Of Tampa
- HCI is a Florida P&C insurer with a business model that is the product of the dysfunctional and politically driven Florida homeowners' insurance market.
- HCI's extraordinarily high ROE is largely driven by state subsidies embedded in the timing and terms of takeouts from Citizens.
- End of year assumptions in recent years have perpetuated the mirage whereby mispriced and risky takeout policies are transformed into a book of business with industry leading profitability.
- Absent takeouts or acquisitions, we expect profitability to erode rapidly as it has in a past period without a substantial takeout.
MiX Telematics: This Looks Like A Bottom
- Weak revenue growth, but fundamentally sound and subscriptions growing fast.
- Operational changes, new products and geographic expansion should bring back revenue visibility and growth.
- Trading near replacement value, stock may benefit from earnings and multiple improvement as the revenue stabilizes and margins expand.
Solazyme: Taking Advantage Of Healthy Food Trends And The Need For Innovation
- Solazyme recently gained its first customer for AlgaVia's Whole Algal Flour product.
- The company offers natural product ingredients and is also able to improve the health profiles of food.
- Solazyme's technology platform could be a disruptive innovation when it comes to oil profile variety.
Skeletons In Plain Sight And Why Nu Skin Is Worth $10/Share
- Various short theses on Nu Skin are synthesized.
- A closer look at the company's management of cash reveals that the management not only lost focus, but also grossly mismanaged cash.
- The company entered each of the last four quarters with a negative cash situation for operations during the quarter, which explains the company's recent scramble for cash.
- Justification for setting NUS stock price target at $10 is presented.
AT&T: A Bullish Algorithmic Perspective
- AT&T, despite being the second-largest wireless telecommunications provider in the U.S., has recently been regarded as a problematic stock, because of high competition in telecommunications and T’s lower-than-estimated revenues.
- Recent developments – including new mobile plans and phones, network expansion, novel technologies, and increased subscriber counts – make success foreseeable for T, especially when coupled with its steady dividend.
- While lower revenues, a competitive market, and questionable investments are not going away, T is not the disaster some analysts paint it to be.
- I Know First algorithm predicts a bullish forecast for T in the 1-month and 3-month time frames.
Nuverra Environmental Solutions: No Longer Investing In The Hope
- Nuverra Environmental continues to provide investors with hope that never materializes.
- Large capital spending plan is unfunded.
- Inability to hit financial targets suggests a large cut to the EBITDA multiple is warranted with downside potential of at least 35%.
- Better opportunities exist in the oilfield services sector that don't involve high levels of leverage.
Allana Potash Continues To Drift Amidst Ag Malaise
- Allana shares continue to drift lower, despite a strong and engaged strategic partner in Israel Chemicals.
- If efforts to increase royalties and taxes on resources produced in Israel stick, Allana's Ethiopian Danakhil project may become even more valuable to ICL.
- Allana still needs to secure project financing, but these very risky shares look undervalued below $0.80/ADR.
AngloGold Ashanti: The Restructuring Plan Could Fail
- AngloGold Ashanti plans to split into two companies.
- One of these companies will own AngloGold Ashanti's South African assets, while another will operate its international assets.
- AngloGold Ashanti also plans to raise $2.1 billion in equity.
- This plan will likely meet heavy opposition from shareholders.
Asian Growth Sends Strong Bull Message For Apple
- Apple iPhone increasing market share in Asia.
- Samsung losing ground to Apple and Xiaomi.
- Xiaomi gaining ground, but now Apple can fulfill potential faith its large-screen phones.
- Analysts have failed to grasp the importance of Asia, excluding China and India, which represents a growing population of 1.8 billion people.
Triangle Petroleum: Delivering On The Ambitious Growth Strategy
- Triangle delivered much stronger than expected fiscal Q2 2015 results in its pressure pumping business.
- Given the favorable current environment in the pressure pumping sector, Triangle’s growth initiatives in Oil Services are very well timed.
- Using an updated valuation range for the company’s Oil Service and Midstream segments, the implied valuation for the core E&P business is attractive.
- However, the company needs to clearly demonstrate its ability to achieve competitive drilling returns in its operated upstream business.
Tesla Is Not All Glitter And Glamour
- Tesla could reach $1,000 per share if everything goes to plan.
- However, such scenarios are fundamentally and empirically unlikely.
- Tesla burns through cash at a pace of 279 MPH.
- How will Tesla perform when stock markets hit a correction?
How And When To Short Tesla
- This round of gapping up seems to have peaked.
- A window of opportunity is open in the range of 285 - 300.
- It's a high risk trade, not appropriate for many investors.
Prosafe SE: Classic Value Opportunity For Long-Term Investor To Profit From Offshore Fleet Growth
- Operating earnings cushion through long-term contracts with near-record high backlog combined with capex investment program set to increase firm's assets by over 50% in the next 2 years.
- Selloff on the back of upcoming dividend cut offers opportunity for contrarian investors to profit from outflow of the dividend seeking group.
- Overreaction to short-term softness in operating environment offers additional value in light of long-term tailwinds for the sector.
Priceline: Value And Growth At A Reasonable Price
- Priceline's shares have started to trend negative on little news-- is this an opportunity or a sign of something more ominous?
- The company's competitive position, particularly against Expedia and Orbitz, is compelling, and getting stronger with time.
- The negative price action looks to be an opportunity to get a strong growth story at an excellent value.
Spin-Off NOW, Inc: Market Leadership, Experienced Management, And Pristine Balance Sheet Point To Compounding Value
- DistributionNOW or NOW, Inc. (DNOW), the recent spin-off from National Oilwell Varco, Inc. (NOV), ranks second by market share in the fragmented but fast consolidating energy distribution market.
- DNOW’s pristine balance sheet – $236 million in cash, no debt – and low cost of capital should facilitate organic market share gains and rapid growth via M&A activity.
- In contrast, DNOW’s primary competitor and market leader, MRC Global (MRC), has much higher leverage and now needs to enter a period of de-leveraging, which will likely slow growth.
- DNOW’s management team has a 10 year, successful track record of accretive M&A. The spin-off is only the most recent in a long series of strategic actions to create value.
- DNOW’s operating margins are likely to inflect significantly higher after digesting two large acquisitions and transitioning to a global ERP system.
Glu Mobile: Laying Out A Valuation Based On Revenue And Earnings
- Glu Mobile is a high growth stock that has its value rise 150% over the past 12 months.
- While past performance develops a reputation, forward guidance should help form a valuation and target.
- Other companies in the sector are over reliant on one or two big hits, adding risk should one of those fall in popularity.
- Glu faces a similar problem as Kim Kardashian: Hollywood will likely supply well over 50% of revenue this quarter.
- Despite the Kardashian effect on the stock, the company has a good base of strong performing games that help to de-risk the company compared to peers.
Mountain Province Diamonds Offers 65% Upside
- Mountain Province's Gahcho Kué diamond project could generate $4.1 billion in net operating margin for the 12-year mine life.
- The presence of large diamonds within the reserve improves the longer-term financial outlook.
- Shares are trading at a 39% discount to our 12-month target price of $8.30.
In The Eurozone, What Goes Around Comes Around, Even For Germany
- Some journalists are bullish on the Eurozone: "We are starting to see growth".
- Take care - the Eurozone should not be viewed as a single entity. It is made up of 18 very different economies.
- The article looks at each country separately and offers investment advice.