Today - Monday, March 10, 2014
- Seth Klarman is warning of an impending asset price bubble, calling out "nosebleed valuations” in high-flying stocks such as Netflix (NFLX) and Tesla (TSLA) and warning of the potential for a brutal correction across financial markets.
- “Any year in which the S&P 500 jumps 32% and the Nasdaq 40% while corporate earnings barely increase should be a cause for concern, not for further exuberance," the Baupost Group head wrote in a letter to clients.
- "There is a growing gap between the financial markets and the real economy... and the overall picture is one of growing risk and inadequate potential return almost everywhere one looks."
- In a semi-rebuttal, Vanguard's Jack Bogle agrees stocks are in "risky territory" but says investors shouldn't be trying to time the market in any case, and the problem with selling stocks based on such a prediction is you won't know when to re-enter: "Will [Klarman] call you and tell you when it's time to get back in?"
- Shares of Cliffs Natural Resources (CLF -4.2%) can't withstand today's news of plunging spot iron ore prices prompted by weak Chinese export data; adding insult to injury, Axiom Capital initiates coverage of CLF with a Sell rating, saying the iron ore and coal miner is "living on a prayer."
- The firm thinks CLF likely will blow through its debt covenants in 2014, further cut its dividend, and likely need to do a very large dilutive equity deal - with "acute liquidity risk" if the company is not able to execute these options; $114 iron ore suggests bankruptcy is a growing reality.
- It didn’t have to be this way, the analysts lament; CLF once had a steady business selling iron to non-coastal companies, but it wanted to get in on the China play, so it purchased other mines - now it’s paying for it.
- Barron's touted high-yield energy plays CVR Refining (CVRR +4.6%) and Northern Tier Energy (NTI +0.9%) over the weekend as looking attractive on a long-term perspective after both currently go for just 6x this year's projected earnings.
- Wall Street analysts estimate NTI will pay out 44% of its unit price in total over three years through 2016; for CVRR, estimated payments over three years work out to 37% of its recent price.
- Average analyst price targets suggest 13% upside for NTI over the next year and 19% for CVRR; add that to projected yields this year of 15% for each, and the result is potential for returns of more than 30%.
- Cimatron (CIMT -14%) "seems to be one of those cases where non-professional investors that don't really know the 3D [printing] industry are jumping on the stock," says SA contributor 3D Insider in a very bearish piece.
- The author states Cimatron admitted on its Q4 CC (transcript) it expects minimal revenue from 3D printing in the near-term, and that printer makers such as 3D Systems and Stratasys offer their own software suites.
- 3D Insider also notes insiders unloaded millions of shares last year via two public offerings. "Within a quarter, the owners managed to get rid of their 40% stake, which dropped almost to 0% by September 2013."
- Earlier: 3D printer makers fall on Barron's piece
- Kirby Corp. (KEX -1.1%) is added to the Top Picks list at FBR Capital, which notes KEX's core marine transportation unit continues to exhibit solid growth, driven by the transport of petrochemicals, black oil and refined products, and the firm expects demand for these volumes to only accelerate over the next three years.
- FBR thinks fundamentals driving KEX's diesel engine services unit bottomed in 2013, and it expects the segment to be a major contributor to earnings growth in 2014 and beyond.
- While expecting steady, consistent growth in the marine business, the firm says it "would not be surprised" to see growth juiced by M&A activity in the near term, particularly in the coastal barge market.
- Archer Daniels Midland (ADM +1.9%) is upgraded to Outperform from Market Perform with a $50 price target at BMO, which believes ADM is in the early stages of a strategic "transformation" that should create earnings upside in H2 2014 and into 2015.
- The firm sees "uncanny" potential parallels between ADM and Tyson Foods: ADM has just exited a trough earnings period with EPS of $2.50-plus despite unprecedented challenges; has relatively new management that appears in a position to offer financial growth targets; should benefit from improving fundamentals; should begin to realize benefits from recent capex projects and cost savings efforts; and should deploy cash toward shareholder friendly options.
- A weekend column titled "Beware 3-D Printing!" questions industry valuations, and suggests 3D Systems (DDD -4.2% premarket) could drop 80%.
- The column highlights Whitney Tilson's critique of 3D Systems and the company's recent warning, argues 3D printing/additive manufacturing "remains slow and cumbersome," and notes the presence of rivals such as printing services firm Shapeways and leading metal printer maker EOS.
- Barron's suggests software vendors Autodesk (ADSK) and Dassault (DASTY) are a better way to play the trend (ed: 3D printing use cases account for only a fraction of each company's sales), and notes the former's efforts to automate design work by leveraging real-life info. "The goal is for a designer to input a function, letting the computer dictate the most efficient design."
- SSYS -3.1%. XONE -3.3%. VJET -1.7%.
- US Steel (X) is upgraded to Buy from Neutral with a $32 price target, up from $27, at Nomura on free cash flow potential.
- Nomura says it sees many reasons to own X after the stock's 18% correction since January; after meeting with the CEO and CFO last week, the firm has increased conviction in the company’s direction as well as the opportunity sets in the commercial, financial and operating functions of the business, and sees cash flow significantly increasing in the coming years.
- Shares -0.5% premarket.