Seeking Alpha
  • RCS Capital: Misunderstood With Tremendous Upside
    PRO RCAP Yesterday, 5:00 AM TheBaron Investing 13 Comments

    Summary

    • Institutional support helps solidify RCAP's potential upside.
    • RCAP's main asset is largely untouched by the recent turmoil.
    • Returning to fair value suggests upside potential greater than 100%.
    • Emotions, not fundamentals, have punished this company.
  • QAD Inc. - Overlooked Enterprise Software Name With 100% Upside
    PRO QADA, QADB Tue, Feb. 24, 5:00 AM CVC Research 11 Comments

    Summary

    • QAD Inc. is a nearly $300M annual revenue ERP software vendor to manufacturing companies worldwide.
    • QAD has shown consistent, if not exciting, growth through its history and is solidly profitable and free cash flow-positive.
    • The company now has a rapidly growing Cloud business; as this continues to gain scale, it should drive a higher multiple for the stock.
    • A reasonable sum of the parts suggests a fair value of nearly $40/share, or almost 100% upside.
    • Recent sell-side coverage launches mean this company will not fly under the radar at an absurdly cheap valuation of just 1x Sales for much longer.
  • Linn Energy: In Need Of A $100 Oil And $4.50 Natural Gas
    PRO LINE, LNCO Tue, Feb. 24, 5:00 AM Richard Zeits 93 Comments

    Summary

    • Linn's capital spending and distributions will be effectively funded by derivative settlements in 2015, assuming the current strip pricing.
    • In the longer term, I estimate that a maintenance capital spending of $1.3-1.4 billion per year would be required to sustain production.
    • The reported year-end PV-10 value disappoints, raising renewed valuation concerns.
    • A long-term commodity price assumption of ~$100+ per barrel for WTI and ~$4.50+ per MMBtu Henry Hub appear to be required to justify the current price.
    • The units' risk/reward profile appears skewed to the downside.
  • Hudson Global - Selling At 30% Less Than Activists' Cost Basis And Offers Significant Upside
    PRO HSON Sat, Feb. 21, 5:00 AM Derek Capo 38 Comments

    Summary

    • Lone Star Value Management's cost basis is at around $3.50; stock is now at $2.30.
    • Valuation is 0.07x EV to sales; 55% of market cap is in cash.
    • Initiatives are underway to make the company consistently profitable by 2nd half of 2015.
    • Cost cutting and product shift is catalyst to move the stock meaningfully higher.
    • Price target is for $9 to $11 by late 2015 to 2016.
  • Luxottica: Competition Will Reduce Profitability, 30% Downside
    PRO LUX Fri, Feb. 20, 5:00 AM Weighing Machine 13 Comments

    Summary

    • As a near-monopoly, Luxottica has demonstrated fast growth, improving operating margins, and a high return on equity.
    • However, an upstart with a unique business model is making an aggressive push into the eyewear business, undercutting Luxottica's prices by 70+%.
    • Trading at 28x 2015 estimated earnings, Luxottica seems priced to perfection. Should operating profit growth slow, the author sees 30% downside.
  • Chesapeake Granite Wash Trust: Oil Volumes Disappoint; Recent Rally Creates Downside Risk
    PRO CHKR Thu, Feb. 19, 5:00 AM Richard Zeits 7 Comments

    Summary

    • Q4 2014 oil volumes came in substantially below my estimate, indicating continued weakness in well performance. There is a risk of a downward reserve revision in the year-end 2014 report.
    • Oil over-hedging enhances distributions through Q3 2015. The subordination mechanism may remain in place through Q2 2017. Once protections expire, distributions will contract sharply.
    • I estimate the distribution to decline 60-70% within 2 years (depending on commodity prices).
    • The Trust's current $8.19 per unit price reflects ~$110 per barrel WTI and $4.50/MMBtu Henry Hub (based on the illustrative scenarios outlined in this note).
    • At the current price, the risk-reward profile is skewed to the downside, in my opinion.
  • Beadell Resources: The Hidden Value Of Tucano Is About To Be Unlocked
    PRO BDREF Thu, Feb. 19, 5:00 AM The Investment Doctor 4 Comments

    Summary

    • Beadell Resources has been slaughtered over the last year, and the market has now (more than) priced in all negative effects.
    • The high-grade Duckhead pit isn't really empty; the Urucum Deep zone will add a lot of high-grade low-cost ounces, and the power cost will drop dramatically.
    • Two major banks have refinanced the company's debt at a very low interest rate of LIBOR +3%, another sign of strength.
    • Beadell could easily double from here, and I will average down my position shortly.
  • H&E Equipment: Exposure To Oil Is Misunderstood Presenting Strong Upside Case
    PRO HEES Wed, Feb. 18, 5:00 AM Alpha Gen Capital 5 Comments

    Summary

    • We feel that H&E is getting unfairly hit due to perceived high exposure to the upstream oil and gas industry.
    • Actual industry exposure is actually quite low, around 12% of revenue. Even still, we think the thesis surrounding the bearish stance is overdone given oil economics.
    • Relative valuation with their main competition, United Rentals, presents a strong long case. H&E shares have fallen 55%+ while URI has only seen a 22% drop, despite higher oil exposure.
  • Tuesday Morning: A Retail Turnaround Priced For Perfection, Up To 40% Downside
    PRO TUES Wed, Feb. 18, 5:00 AM Jeremy Raper 8 Comments

    Summary

    • TUES, a close-out retailer of home furnishings, operates a structurally low-margin business in a hyper-competitive environment.
    • A modestly successful 2-year turnaround has precipitated a beyond-frothy valuation of 29x current-year EV/EBITDA and ~15x FY16 EV/EBITDA - a level many turns above larger, more cash-generative competitors.
    • TUES' recent comp sales gains and margin improvements likely reflect the "low hanging fruit" of restructuring. Go-forward margin improvement and comp gains will be much harder to achieve.
    • With the stock priced for perfection, any misstep in execution will be punished severely. A more appropriate multiple - still at a premium to all comps - suggests ~40% downside.
  • Intersections Inc.: Company At Inflection Point Positioned For Sustainable Growth With 95% Upside
    PRO INTX Sat, Feb. 14, 5:00 AM Erik Ritland 16 Comments

    Summary

    • Intersections Inc. primarily provides subscription based identity protection services through both direct and third party channels.
    • After years of working through regulatory setbacks stemming from the financial crisis, the company is now at an inflection point where it is positioned for sustainable profitability.
    • The market has subsequently written off INTX, leaving it at an attractive valuation with a conservative two-year price target of $7.00.
  • Forestar Group: A Land Of Opportunity As Change Appears On The Horizon
    PRO FOR Fri, Feb. 13, 5:00 AM Nitor Capital 3 Comments

    Summary

    • Land has historically represented a very profitable investment offering consistent and stable annual appreciation.
    • Landowners such as Forestar Group sell at a significant discount to homebuilders, yet operate higher-margin businesses that can withstand significant drops in housing prices.
    • Forestar sells at a 30% discount to our conservative $20.05 estimate of NAV per share. Significant upside to NAV exists if Forestar successfully exits the energy business to focus solely on real estate development.
    • The Company can create significant shareholder value if it pays heed to the direction of the newly appointed activist-backed directors who bring credibility and real estate expertise to the board.
    • Our NAV does not include the potential value of water rights, and uses discounted valuations that reflect the potential impact that weak oil prices might have on the company's assets.
  • Continental Building Products: High FCF Yield, Asymmetric Upside Make This Our Largest Position
    PRO CBPX Fri, Feb. 13, 5:00 AM Andrew Tang 8 Comments

    Summary

    • Continental Building Products is a ready-made LBO just starting to hit its stride.
    • We expect double-digit revenue growth, meaningful margin expansion, and significant deleveraging of the balance sheet to drive attractive equity returns going into 2015.
    • With a projected ~13% free cash flow yield and at least $80 million of debt repayment in 2015 (7% of current enterprise value), CBPX provides a nice margin of safety.
    • With the opportunity to invest in the low cost producer in - what we believe - is the early innings of the U.S. construction cycle, CBPX offers asymmetric upside.
    • Pay attention to this stock going into the Q4 print (February 23, 2015).
  • SIGA Technologies: Uncovering Hidden Value In Bankruptcy
    PRO SIGA Wed, Feb. 11, 5:00 AM Understanding Businesses 46 Comments

    Summary

    • After an $195 million unfavorable court ruling against SIGA, the company's stock has been slammed and SIGA has filed for relief under the Chapter 11 bankruptcy code.
    • Investors are most likely selling on panic and ignoring that SIGA's bankruptcy is non-insolvency driven, and primarily filed to allow an orderly appeal against PharmAthene.
    • With only $2.5 million of outstanding debt, $110 million of cash on the balance sheet, and another $165 million expected, SIGA's equity should remain unscathed in a worst-case scenario.
    • As the government's primary supplier of the Smallpox antiviral, SIGA has tremendous upside as it looks to renew its contract sometime over the next year or two.
  • SS&C Technologies: Advent Acquisition A Game Changer
    PRO SSNC Tue, Feb. 10, 5:00 AM Alpha Gen Capital 3 Comments

    Summary

    • SS&C's acquisition is a bit out of the box compared to most of their 49 past acquisitions given Advent already carried EBITDA margins above 30%.
    • Folding in Advent will add in the fast growing RIA channel to their mix, a segment that they have little current exposure.
    • We think the synergy estimates by the firm are likely very low and that the company can achieve large accretion in '15 and '16.
  • A Low-Risk Entry Into A Hated Sector: The Uranerz Takeover
    PRO URZ Fri, Feb. 6, 5:00 AM Itinerant 28 Comments

    Summary

    • Energy Fuels shareholders have overreacted to a proposed takeover deal of Uranerz. The sell-off has created an opportunity to enter this takeover story.
    • A combination of Energy Fuels and Uranerz makes sense strategically and operationally. The combined business will be positioned to act as a consolidator of US-based uranium mining.
    • We see 150+% upside for the combined business once rational valuation principles replace emotional overreaction.
  • Farmer Mac: Super Profitable But Cheap Due To GSE Aversion
    PRO AGM Fri, Feb. 6, 5:00 AM Simple Insights 48 Comments

    Summary

    • Farmer Mac, the Fannie Mae of agriculture, trades at 1 times book and 7 times earnings despite delivering sustainable 15-20% ROEs.
    • Organizational improvements are finally enabling Farmer Mac to rapidly gain share; penetration remains low, so the growth runway is long.
    • Investors drew the wrong lesson from Fannie Mae's failure. GSE privileges enable super profits from mundane activities. Fannie failed because it strayed from its core business.
  • TowerJazz: Fair Value Of $5 Per Share
    PRO TSEM Wed, Feb. 4, 5:00 AM Jay Yoon 95 Comments

    Summary

    • TSEM's Non-GAAP EPS is grossly inflated due to the exclusion of depreciation as an expense.
    • Severe and consistent shareholder dilution greatly limits TSEM's future earnings potential.
    • TSEM management has a history of over-promising and under-delivering, as well as enriching themselves at the expense of shareholders.
    • The company has underperformed its peers for the past several years, and may have a hard time maintaining its market share due to increasing competitive pressures.
    • Shares are overvalued by over 65% at the current share price level.
  • RadiSys Is Reaching A Meaningful Inflection Point
    PRO RSYS Tue, Feb. 3, 5:00 AM Mike Arnold 51 Comments

    Summary

    • RadiSys sits before a large market opportunity in the VoLTE deployment cycle, and is an enabling technology provider for various LTE telecom equipment manufacturers such as Mavenir and Nokia Networks.
    • After a significant restructuring, RadiSys' target operating model now has meaningful operating leverage to drive EPS growth. RSYS trades at 10x expected run-rate earnings (Q4 midpoint EPS, $0.06).
    • The RadiSys narrative going forward should feature revenue stabilization/growth, customer wins in new verticals, margin expansion from a growing portion of software revenue, positive cash flow and consistent profitability.
    • RadiSys is an asymmetric long bet (with expected better than 10:1 odds) at the current $84 million valuation with a clean balance sheet. No one cares... yet.
    • Earnings are set to be released February 3 after the market close.
  • InvenSense: What Matters, What Doesn't
    PRO INVN Tue, Feb. 3, 5:00 AM Esekla 60 Comments

    Summary

    • Quick summary of Q3 figures and analysis of initial market reaction.
    • Refined calculations on terms of trade with Apple.
    • Current quarter outlook and catalysts.
    • Summary and commentary on longer-term technology development.
    • Long-term valuation analysis and risk factors.
  • ARI Network Services: Deep Discount For Market Leader With Expanding Market Opportunity, Build-And-Sell Management Team
    PRO ARIS Sat, Jan. 31, 5:00 AM ACM Research Team 9 Comments

    Summary

    • ARI generates 90% recurring revenue at 80% gross margin, and recently expanded its addressable market considerably.
    • The company is a leader in its niche, and its products are tightly integrated into customer workflows, resulting in high barriers to entry.
    • It is run by a skilled management team, with incentives aligned with shareholders, and a history of value creation.
    • ARI trades at a fraction of comparable multiples, due to several transient factors that we expect will dissipate in the coming quarters.
  • Sizmek: Immediate Catalysts Lurking
    PRO SZMK Sat, Jan. 31, 5:00 AM Sabra Capital Partners 10 Comments

    Summary

    • We believe the company’s earnings report on February 19th will be the first of several catalysts to reignite interest in the stock.
    • We conservatively forecast 14% EBITDA growth in 2015 and believe investors will reward the company with significant multiple expansion on improved operating results and favorable repurchase activity.
    • We believe the company will aggressively implement its recent $15mm share repurchase program with follow-on programs throughout 2015.
    • Assuming a multiple in-line with the ad-tech space at 10x EBITDA, Sizmek could reach $12.00 per share. If the company is successful in aggressively repurchasing shares at these levels, the upside could be even more pronounced.
  • Vectrus: Incentives And Black Swans Make A Compelling Long
    PRO VEC Sat, Jan. 31, 5:00 AM Dane Capital Management, LLC 5 Comments

    Summary

    • Vectrus was a recent ugly duckling spin-off that is quickly morphing into a lovely swan and a compelling investment.
    • Traditional spin dynamics provided motivation for management to undersell the story day 1. Prospects are much better than advertised.
    • Vectrus trades at less than 9x adjusted-EPS, substantially below peers, and has a ~10% FCF yield. Vectrus is a single large project win away from being a solid growth story.
    • A black swan event – ISIS, Ukraine/Russia crisis, etc., could enlarge the opportunity set, and provide a natural hedge to a market correction.
    • We see 50% upside over the next 12 months to $42 per shares based on modest top-line growth in 2H15 and multiple expansion to the low end of peers.
  • National General: 100% Upside, A+ Management, High-Quality, Under-The-Radar
    PRO NGHC Fri, Jan. 30, 5:00 AM Ravee Mehta 19 Comments

    Summary

    • A high-quality specialty personal lines insurer which writes insurance in sticky niche markets, and growing rapidly.
    • Strong competitive advantages, including superior technology and analytics, low cost structure, and strategic relationships.
    • A seasoned management team with excellent capital allocation and risk management skills.
    • Asymmetric risk-reward. 100% upside vs. only -16% downside in the next 2 years.
  • Innodata: Cheap And Forgotten
    PRO INOD Fri, Jan. 30, 5:00 AM New Capital 26 Comments

    Summary

    • Innodata is a misunderstood and forgotten microcap where cash-cow part of the business is overshadowed by investments into growth businesses.
    • The company currently trades close to 5-year lows at 3.5x forward EBITDA with strong cash buffer and no debt.
    • Innodata is at the inflection point whereby cash generation and growth potential of the business will become fully evident during 2015.
    • Insiders have bought the stock recently at higher prices and company launched a buyback program.
    • Innodata has at least 100% upside within a year and could easily triple or quadruple in a few years. Strong downside protection from recurring cash flows.
  • A Creditor-Imposed Liquidity Risk For Cross Country Healthcare Is Looming
    PRO CCRN Fri, Jan. 30, 5:00 AM Adak Capital 17 Comments

    Summary

    • CCRN is in imminent danger of being bankrupted by its largest creditor (Providence Equity Partners) through a series of events that will likely lead to Providence's takeover of the company.
    • In order to finance an acquisition in June 2014, CCRN entered into $55 million of debt with Providence under extremely unfavorable terms.
    • The provisions of this debt allow Providence to cause a default of all of CCRN's secured debt at any time by acquiring an additional 22.8% beneficial ownership of the company.
    • As a result, CCRN would immediately owe $100.8 million to its creditors ($96.3 million of which is due to Providence), exhausting its liquid assets. CCRN would be forced into bankruptcy.
    • It is in Providence's interest to trigger these events prior to February 4. Adak Capital considers CCRN's stock essentially worthless, and predicts a corresponding price drop in the near future.
  • EXCO Resources: Overleveraging, Underhedging, And Blind Order Flow Offer A Compelling Short
    PRO XCO Fri, Jan. 30, 5:00 AM Preet Patel 59 Comments

    Summary

    • EXCO Resources is a Texas based oil and gas exploration and production company with a history of unprofitability, even at much higher energy prices.
    • EXCO is heavily levered and trades well above latest reported book value - even before the inevitable asset writedowns.
    • EXCO hedged improperly by selling put options on natural gas futures which are now in the money, leaving them exposed to downside in energy prices.
    • Share prices have been propped up by energy sector ETFs, resulting in a structural inefficiency creating a very attractive short opportunity.
    • Shares have been trading flat in spite of rapidly widening credit spreads and bearish analysts - potential catalysts include restructuring, equity offering, or ETF rebalancing.
  • Carnival: Declining Fuel Costs To Lift Profits In 2015 And Beyond
    PRO CCL Thu, Jan. 29, 5:00 AM Helix Investment Research 18 Comments

    Summary

    • Far too little has been written about the benefits of lower oil prices to the global cruise industry, which is led by Carnival.
    • Carnival is the market leader within the cruise industry on both a global basis and in the industry's most important growth market: China.
    • Carnival has the industry's strongest balance sheet on a net-debt-to-EBITDA basis.
    • Growth in yields set to continue into 2015 alongside double-digit falls in fuel expenses.
    • Assuming current oil market conditions continue, pressure will likely increase on Carnival to restructure/abandon its fuel derivative portfolio, upside potential of this move not currently in forward estimates.
  • B Communications: An Amazing Upside Opportunity In Telecommunications Right Under Our Nose
    PRO BCOM Tue, Jan. 27, 5:00 AM Khen Elazar 20 Comments

    Summary

    • B Communications is a holding company that has one major asset - 31% of the shares of Bezeq.
    • By lowering its leverage and the necessity of paying dividends to the company that holds it, it creates tremendous value to shareholders.
    • B Communications is devoted to keep spreading the value to its shareholders in the future.
  • Finmeccanica: You Can Fool All The People Some Of The Time
    PRO FINMY Sat, Jan. 24, 5:00 AM Caesar Augustus 27 Comments

    Summary

    • Finmeccanica is not as attractive as it looks.
    • A proper understanding of the company and its stakeholders raises many concerns.
    • A FactSet presentation claims Finmeccanica is a bargain but I challenge the findings.
    • All revenues and backlogs are not created equal. Beware valuation shortcuts.
  • Broadwind Energy: Strong Idea For 2015 With Extremely Compelling Risk/Reward
    PRO BWEN Sat, Jan. 24, 5:00 AM Equity Colossus 23 Comments

    Summary

    • BWEN’s Tower segment (~80% of revenue) generated $25m in YTD EBITDA, and is positioned for an incremental $10m in FY15 revenue. The entire company's enterprise value is just $50m.
    • 2015 estimates are too low at $0.18 EPS and $13m EBITDA. BWEN earned an adj. $0.17 in 2Q14 alone, and already produced $11m in YTD company-wide EBITDA.
    • Valuation is extremely favorable; BWEN prices at a paltry 0.2x revenue/backlog, 3.5x EBITDA, and 0.8x book, even though the company is CF-positive with a sold out 2015 order book.
    • A six-month buyback is in place for 15% of the entire company; the short duration/large magnitude of the buyback suggest management is extremely confident in FY15 top-line growth/earnings power.
    • BWEN was a $100 stock in 2009, a time when the PTC had gone 5 years without expiration - this free call option adds to an already powerful investment case.
  • Synergy Resources: E&P With A Premium Valuation That Could Decline 80%
    PRO SYRG Fri, Jan. 23, 5:00 AM Grizzly Bear 38 Comments

    Summary

    • Synergy is within 10% of its 52-week high and carries a 20x EBITDA valuation that is 2.5x that of comparable companies.
    • Management missteps and questionable stock sales are highly concerning.
    • Continued low prices and infrastructure challenges in the Wattenberg will make profitable production growth near impossible.
  • Exxon Mobil: Slow But Steady, Value Erosion Is Underway
    PRO XOM Wed, Jan. 21, 5:00 AM Richard Zeits 111 Comments

    Summary

    • Despite $100 oil and much higher capital spending, Exxon's oil production has continued to decline at a high rate.
    • When measured on a free cash flow basis, after adjusting for production declines, financial returns over the past five years were poor and the outlook remains bleak.
    • Even assuming the company will stabilize its liquids volumes, the stock appears dependent on $100+ oil to yield minimally acceptable free cash flow returns.
    • In a weaker price environment, Exxon may have to borrow to sustain dividends and share buybacks at the current level.
    • Exxon needs a radical Upstream strategy re-evaluation and deep cost reductions to restore competitiveness.
  • QEP Midstream Partners: 20% Near-Term Upside In A Takeout, And 40-60% Longer Term
    PRO QEPM Wed, Jan. 21, 5:00 AM Thomas Lott 17 Comments

    Summary

    • Tesoro Logistics recently offered to acquire QEPM for 0.2846 shares per share of QEP Midstream, a ratio that likely improves given what it paid to the parent.
    • The stock trades on top of the exchange offer as the QEPM board considers the offer.
    • Tesoro and QEPM are both cheap, attractive, fee-based midstream MLPs that have significant upside assuming any stability in oil prices.
  • My Best Idea For 2015 - American Airlines
    PRO AAL Wed, Jan. 21, 5:00 AM Wilson Wang 102 Comments

    Summary

    • Price target - $120.
    • 2015 EPS forecast of $12 per share.
    • Airfare prices should remain relatively stable thanks to favorable economic tailwinds.
  • Trinseo - Compelling Price, Bain Capital Pedigree, And Excellent Risk/Reward
    PRO TSE Sat, Jan. 17, 5:00 AM Prati Management 13 Comments

    Summary

    • Trinseo S.A is a global chemicals business that Bain Capital took public in June of last year after having acquired the business from Dow Chemical in 2010.
    • Trinseo's IPO last year at $19 per share soared to nearly $23 per share, and Bain Capital did not sell a share of their own position. All proceeds repaid debt.
    • TSE is off 24% since the IPO and 37% from its high, while making significant progress towards their operational/financial goals, yet trades at a 5x P/E on 2016 EPS.
    • Headline multiples are already attractive, but the valuation becomes extreme once normalizing for the abnormally high capital expenditures the company is incurring over the next 24 months.
  • Discounting Coupons.com: Follow The Insider Selling And Clip This Coupon Before The Coming Crash
    PRO COUP Thu, Jan. 15, 5:00 AM Andrew Tang 50 Comments

    Summary

    • Coupons.com was founded in May 1998 and remains unprofitable almost 17 years after its inception.
    • After 16 years of floundering as an unprofitable business, the company took advantage of the JOBS Act and frothy IPO market to create a liquidity event for management and sponsors.
    • The company is ultimately a "print at home" coupon business, and it is no secret that consumer inkjet printing is in secular decline.
    • We believe that the company has masked its weak underlying growth trends by utilizing a combination of opaque disclosures, non-recurring contract wins, and acquisitions.
    • We view the recent strength in the share price as being the result of management's efforts to boost the stock in order to get the ball rolling on secondary offerings.
  • The Bull Case For Mavenir Systems
    PRO MVNR Wed, Jan. 14, 5:00 AM Ben Axler 20 Comments

    Summary

    • An acceleration of carrier Voice-over-LTE (VoLTE) and Voice-over-Wi-Fi (VoWi-Fi) launches in 2015-2016 will drive demand for Mavenir’s market-leading solutions.
    • Mavenir’s unique software-focused business model provides a significant competitive advantage that will allow it to continue to gain share from incumbent vendors, and open up a TAM of billions.
    • As more wireless subs roll on to LTE, MVNR will shift its business from hardware to high-margin software sales, massively expanding its margins and moving towards high profitability.
    • Shares are highly undervalued on low Street estimates for 2015-2016; the Street’s avg price target is just $17/share, but we see the shares headed to $30.
    • Management, VCs, and Cisco (CSCO) own 57% of the shares. 1.6m shares (~13% of the float) is short making a short squeeze a real possibility.
  • Sell NovaGold: Market Vastly Overvaluing Donlin
    PRO NG Wed, Jan. 14, 5:00 AM Ian Bezek 26 Comments

    Summary

    • NovaGold's primary prospect, Donlin, is receiving a $2bn valuation from the market.
    • This is inexplicable given comps to neighboring projects.
    • Donlin also is valued at roughly 4x its Net Present Value, which is equally illogical.
    • NovaGold has a spotty record of developing mining projects; this is particularly troublesome as environmental headwinds to Donlin mount.
    • Recent 30% run-up in NovaGold shares offers perfect opportunity to sell.
  • EnPro: Unconsolidated Subsidiary A Hidden Asset
    PRO NPO Wed, Jan. 14, 5:00 AM Alpha Gen Capital 3 Comments

    Summary

    • The Garlock (GST) subsidiary was deconsolidated back in 2010. We think the market is missing the true value of the business.
    • Recent court rulings were extremely favorable for the subsidiary and company, and have jump-started the work to get the subsidiary out of bankruptcy.
    • A turnaround in Europe is offsetting headwinds from their oil and gas exposure, which we also think is overstated.
  • Tribune Media: Outsmarting The Market's Misinterpretation Of Retransmission Renegotiations
    PRO TRCO Wed, Jan. 14, 5:00 AM Chicago Students' Proprietary Trading 4 Comments

    Summary

    • Investors misunderstand the implications of broadcasting fee-split renegotiations for Tribune and sold off the stock.
    • However, Tribune underwent bankruptcy from 2008-12 and never profited from otherwise industry-wide increases in retransmission revenues; unlike its peers, it will benefit from the upcoming renegotiations.
    • Tribune's business is therefore at an inflection point, whereby industry tailwinds from sports and political advertising and the conversion of WGN to a cable network drive additional upside.
    • The market has also been overlooking Tribune's valuable hidden and soon-to-be monetized assets, including spectrum, equity stakes, and real estate.
    • This leads to an +80% fair-value discount and merely 11% premium to liquidation value which, in combination with multiple catalysts, makes Tribune an incredibly compelling investment opportunity.
  • Pending Class-Action Lawsuit Creates A Short Case For Eagle Materials
    PRO EXP Tue, Jan. 13, 5:00 AM Stanislav Ermilov 5 Comments

    Summary

    • Eagle Materials achieved a 74% increase in gypsum wallboard price in just 3 years, and it currently stands close to the peak level of 2007.
    • Housing starts activity is at significantly depressed levels and industry-wide wallboard capacity utilization is only at 63%.
    • Based on the balance of probabilities, Eagle Materials and other wallboard manufacturers are not operating in a clean competitive environment with the pending antitrust lawsuit in place.
    • The upcoming break-up in suspected price-fixing creates a short case for Eagle Materials since 70% of its operating earnings are derived from the wallboard.
  • Green Plains Inc. Shares Can Double Despite Cheap Oil
    PRO GPRE Sat, Jan. 10, 5:00 AM Tristan R. Brown 19 Comments

    Summary

    • GPRE's shares have fallen by 53% since September as gasoline prices have collapsed.
    • GPRE's forward P/E ratio is less than half of its 5-year historical average.
    • Rebounding RIN prices will insulate GPRE's earnings from gasoline price volatility.
    • A return to the 5-year average P/E ratio would cause shares to double from their current price.
  • Key Tronic: A Cheap, Quality, Growth Play On EMS Re-Shoring
    PRO KTCC Fri, Jan. 9, 5:00 AM Simple Insights 13 Comments

    Summary

    • Superb management let this electronics manufacturer outperform peers in tough past environments - profitable every quarter 2004-2014 - despite geographic, scale and scope constraints.
    • Each of those constraints have either been lifted or shifted in their favor. EMS work now flows back to Mexico; organic growth has delivered scale; and acquisitions broadened capabilities.
    • Worth $16, or 15x the $1.15 run-rate I expect within 12 months. Potential to trade to $32 within a couple years if operating margin nudges through past plateau.
  • Medley Capital: Another Gift From Year-End Tax Loss Selling
    PRO MCC Fri, Jan. 9, 5:00 AM Cahaba Research 44 Comments

    Summary

    • Medley Capital is a busted BDC trading at a +25% discount to NAV. Its portfolio of predominantly senior secured floating rate mezzanine debt is well diversified and strong.
    • MCC has suffered from tax loss selling and fears of a potential but needed dividend cut. The December price decline is an overreaction to a down-tick in MCC's fundamentals.
    • Equity issuance at a deep discount to book value is unlikely given management's promises to the contrary and history.
    • MCC represents one of the strongest risk-reward investment opportunities in the BDC space today (TR of 40-50%), even with the projected dividend cut.
  • Advanced Drainage Systems: Inside Selling Is Worth A Thousand Words
    PRO WMS Thu, Jan. 8, 5:00 AM Phaethon Capital 18 Comments

    Summary

    • Advanced Drainage Systems is the leading US manufacturer of plastic pipe, used in the waste management, infrastructure and construction sectors.
    • If your first reaction to that was “sounds like a tough industry”, you’d be right – margins and returns are typically low, in the mid-single digits.
    • The stock is trading on optimistic growth forecasts and huge margin expansion, both of which seem misplaced and reliant on external factors.
    • We argue that the correct price for a commoditized, low-quality business in a cyclical sector is far from the 20x+ EV/EBIT on which the stock is trading.
    • .. But you don’t just have to take our word for it – the private equity house which took the business public is aggressively selling down its stake.
  • Value Trap, Or Why The Prospects For Dorian LPG May Be Bleak
    PRO LPG Wed, Jan. 7, 5:00 AM Stanislav Ermilov 13 Comments

    Summary

    • VLGC vessel orderbook stands at 54% of the existing global fleet size.
    • Upcoming US export terminals to boost LPG trade flows but insufficient to balance the VLGC fleet growth.
    • Major deterioration in the VLGC charter rates would lead to further decline in Dorian LPG's stock.
  • SEC Action Forces RAIT Financial Book Value To Plummet
    PRO RAS Tue, Jan. 6, 5:00 AM Dr. Hugh Akston 76 Comments

    Summary

    • Our analysis indicates the SEC settlement will cause book value to drop by -35% to $4.73 per share.
    • We expect investors will continue to value the stock on a price/book multiple and therefore expect the stock price to decline by a proportionate amount.
    • We believe the current dividend is not sustainable according to the pro-forma income statement filed in the Company’s 8-k on December 29, 2014.
    • Dividend growth has been fueled by dilutive equity raises. The dividend is really just a “return of shareholders’ capital” rather than a “return on shareholders’ capital”.
    • Two executives facing enforcement actions from the SEC were given golden parachutes at the expense of shareholders.
  • OHA Investment Corporation: Special Situation In A Busted BDC
    PRO OHAI Tue, Jan. 6, 5:00 AM Cahaba Research 10 Comments

    Summary

    • Busted BDC trades at +40% discount to book value due to a misread 3rd quarter, a tiny float, low institutional ownership, and year-end tax loss selling.
    • Last quarter, there was a complete turnover in the Board of Directors, management team, strategy and opportunity set for this BDC that the market completely overlooked.
    • Strong insider buying points to a total return potential of 30-50%.
  • MiX Telematics: A Rare Opportunity To Buy A Stake In An Excellent Company At An Excellent Price
    PRO MIXT Thu, Jan. 1, 5:00 AM Tal Davidson 64 Comments

    Summary

    • MiX Telematics operates in the Fleet Management industry which is growing fast, yet is under-penetrated.
    • Its excellent management team has grown MiX from a start-up to becoming a differentiated and profitable global player.
    • Temporary headwinds and selling pressure have weighted on the stock since the August 2013 secondary IPO, resulting in an attractive valuation.
  • Medical Properties Trust Presents 40% Upside As Discount Evaporates
    PRO MPW Dec. 31, 2014, 5:00 AM Dane Bowler 54 Comments

    Summary

    • MPW trades at 11.5X normalized FFO compared to peers which trade at 16X on average.
    • The discount is unwarranted as MPW is equal or better than peers in key areas such as growth and reliability of earnings.
    • A return to proper market pricing is catalyzed by a potential buyout and room for substantial dividend raises.