Wednesday, April 16, 2014

Rockwell Automation Equity Research

Most industrial companies tend to say a similar thing with regard to end market conditions in their specific industry or geographic exposure. In other words, when a bellwether like General Electric Company  gives word on its various industry exposures, the commentary from most of its peers like Siemens  tends to follow in step. Interestingly, this wasn't the case with Rockwell Automation Inc. whose first-quarter results and guidance seemed somewhat out of sync with the market. What is going on? Furthermore, what does it mean for Rockwell Automation?

Summarizing Rockwell Automation's first quarter
The key takeaways from its recent earnings report and commentary:
 
 

Thursday, April 10, 2014

Which is Better Value, Ingersoll-Rand or Johnson Controls?

Anyone who believes the winter weather caused unnatural weakness in U.S. construction, and that activity will subsequently rebound, will be interested in Ingersoll-Rand. Along with Johnson Controls, which has a large building efficiency segment, Ingersoll-Rand has possibly given conservative guidance because of the weather. Is this enough of an argument to make the stock a buy? And what does it mean for Johnson Controls?

Ingersoll-Rand's earnings drivers
The key to answering this question is to appreciate how the company makes its money. Following the spin-off of its commercial and residential security businesses, called Allegion, Ingersoll-Rand's focus is on climate control and industrial solutions, with around 67% of segmental income coming from the former. Overall revenue growth is forecast to come in at 3%-4% for 2014, with the split between segments as follows:
 

Tuesday, April 8, 2014

Should Aerospace Investors be Worried by AAR Corp's Results?

The aerospace industry is highly cyclical. It always has been and always will be, which is why Fools need to keep an eye out for any early warning signs of a downturn. Given that aviation services company AAR Corp recently reduced its full year guidance, are conditions are about to worsen for Boeing , and its aviation suppliers?

What happened to AAR Corp?
Essentially, the key takeaway from AAR Corp's results is that its problems in the quarter were more stock specific than emblematic of any kind of trend change in the industry. However, the devil is in the details, and there are a few things for aerospace investors to look out for. AAR Corp is a long-term Boeing supplier, so its commentary on the marketplace matters.
 

Monday, April 7, 2014

More Trouble for Rackspace

Life just got a bit harder for cloud computing services company Rackspace Hosting. Google  aggressively reduced prices across its range of cloud services recently, while deep-pocketed competitors like Amazon, Microsoft, and Oracle are committed to offering infrastructure as a service, or IaaS, at highly competitive rates. In addition, Cisco Systems is planning to invest heavily in offering IaaS. While much of this is known to investors, it's sometimes easy to lose site of the fundamental reasons why these companies are doing this and why competition is only going to get more intense.

Why companies are investing in IaaSSimply put, it works. The companies that have transitioned to offering their services and applications on a software as a service, or SaaS, basis have seen a transformational improvement in their prospects. The three leading examples of this change are Adobe, Autodesk, and Intuit. Investing Fools already know how and why these companies are outperforming the markets.
 

Wednesday, April 2, 2014

A Buying Opportunity with FedEx?

As Albert Einstein might have said, it's all relative isn't it? This thought comes to mind when considering the performance of FedEx  and United Parcel Service  over the winter period. An unusual confluence of events came together to hit both companies over the period, and investors should not be quick to superficially judge their future prospects based on an untypical quarter.

FedEx and UPS take multiple hits
While most attention has been focused on the disruptions caused by the extreme winter weather in the U.S., there were three other factors involved as well.
 

3 Reasons to buy Danaher Corporation

There is no shortage of stock ideas for investors in what can loosely be called the diversified industrial sector. But not all conglomerates were made equally. For example, in the case of Danaher  , it's very hard to find a direct comparison. Instead, the company competes across a number of sectors with smaller companies like DENTSPLY, Ametek, Sigma-Aldrich Corporation, Agilent Technologies, and Waters  Corporation. The stock is one of the most attractive of the industrial conglomerates and here is why.

3 reasons why Danaher stands out
First, the company has a well-deserved reputation for acquiring smaller businesses and then extracting every last piece of profitability it can out of them. It's been highly rewarding for shareholders (the stock is up threefold in the last 10 years), and it's also left them holding a company containing some pretty diversified businesses. In other words, Danaher has the kind of diversification that can generate growth through the business cycle.
 
 

Monday, March 31, 2014

VF Corp Looks the Best Value in the Sportswear Sector

Investors are always encouraged to look at valuation and potential returns, but often ignore risk assessments. In the case of the sports-apparel sector, VF Corp  presents a compelling risk-reward proposition, particularly when compared with Nike , lululemon athletica, and Columbia Sportswear. Why is this so, and what can investors expect from VF in 2014?

Risk matters
A quick look at the relative valuations of the stocks mentioned above reveals that VF is actually the second most expensive of the four.
 
 

Saturday, March 29, 2014

Why Oracle is Still Good Value

When a technology company misses analyst estimates and disappoints based on its own guidance, the stock usually gets punished severely. However, in the case of Oracle  the market was much more forgiving, with the stock down barely a percentage point on the day. Investors' reaction to the news is telling you a lot of what you need to know about the stock: Oracle remains one of the most attractive investing ideas in technology.

Oracle disappoints, again
First things first, aside from its hardware product sales, it wasn't a great set of results:
 

Thursday, March 27, 2014

Dresser-Rand Equity Research

By now, most investors in Dresser-Rand Group, Inc. , will have realized that the company recently gave disappointing earnings and guidance. While, some of its problems are stock specific, it was also subject to some industry wide issues that will also affect key competitors like General Electric Company. In addition, Dresser Rand's guidance for 2014 is significantly behind the long-term targets set by the management in 2010.  So, why is the company missing its long-term objectives, and what does it mean for the rest of the industry?

Dresser Rand's stock and sector specific problems
Revenue and operating income for 2013 came in at $3 billion and $321 million, respectively, when previous internal guidance was for $3.6 billion and $490 million. In addition, at its investor day in 2010, management had outlined its aim to reach $4 billion in revenue and $700 million in operating income in 2014. Given, that its recent guidance for 2014 is for revenue of $2.9 billion-$3.1 billion, and operating income of $377 million-$396 million, it's clear that growth hasn't quite worked out according to plan.
 
 

Monday, March 24, 2014

NCI Building Systems Equity Research

A lot of hopes are being pinned on the non-residential construction market in 2014, and major companies such as Johnson Controls, and Caterpillar Inc. are hoping for broad-based strength in the sector. In this regard, it's fascinating to look at a company like NCI Building Systems   and see what its outlook means for the sector.

Why NCI Building Systems matters
It's interesting to contrast Johnson Controls and Caterpillar, because the former gave a cautious outlook for its heating, ventilation and air conditioning, or HVAC, markets in 2014, while the latter predicted its construction machinery sales would rise 5%. Johnson Controls may be conservative with its guidance, because current conditions are affected by the weather, and because HVAC solutions are relatively late stage in a construction project.In other words demand tends to kick in later in the cycle. However, Caterpillar's construction machinery is likely to have a longer-cycle demand and be utilized more in early stage work (excavation, earth moving, and the like). Perhaps this explains the difference in outlook?
 
 

Saturday, March 22, 2014

What ConAgra Needs to do to Convince Investors

Investors in ConAgra Foods  must wonder what on earth will come next. The company's update in February outlined a litany of problems that ran though its existing operations, through its acquired businesses, and even to the future formation of a joint venture. Value-seeking investors may ask whether these problems mark the trough of ConAgra's difficulties, and if the stock offers good value.

ConAgra's list of problems
Many of the company's problems don't indicate anything new, rather they show a failure to rectify ongoing issues. For example, in a previous article in July, readers learned of the three big risks associated with the stock. In short, ConAgra struggled to generate sales growth in its consumer-foods division. Moreover, its acquisition of private-label manufacturer Ralcorp produced results that came in below expectations. Finally, it lost a major customer from its Lamb Weston (potato operations) unit within its commercial-foods segment.

Fast forward to the recent February update and the company faces these issues:
 
 

Friday, March 21, 2014

Pall Corp Earnings Research

Filtration and separation company Pall Corporation is not often discussed by the investment community, but that doesn't mean that Fools should ignore it. On the contrary, it's one of the most interesting stocks in the industrial sector, as its outlook usually contains a useful read across many industries. In addition, it competes with the units of some giant conglomerates, such as General Electric and 3M Company, as well as smaller companies like Donaldson Company, Inc.   and Entegris, Inc.  , so its commentary is relevant to them as well.

Pall Corporation's recent second-quarter results
The company's sales were evenly split between life sciences and industrial segments in 2013. The two segments provide Pall Corporation with a nice mix of health care stability and cyclical industrial growth, while its razor-and-blade model means that it can generate long-term sales from consumables (87% of its sales in 2013) provided it expands its installed systems sales.

READ THE FULL ARTICLE LINKED HERE

Thursday, March 20, 2014

Is Wal-Mart Taking Aim at the Dollar Stores?

If you had a dollar for every time an analyst speculated over what would happen if Wal-Mart   decided to target a certain market, then you would have enough money to buy a Family Dollar store outright instead of fretting over encroaching competition. The dollar stores do look like they could see Wal-Mart muscling in, so investors looking for another way to play the value segment of retail might consider Ross Stores or TJX Companies  instead.

Wal-Mart targets the dollar stores, or does it?
By now, most investors will be aware of Wal-Mart's recent announcement in which the company states that it intends to double its planned small-store expansion to 270-300 stores, from an initial target of 120-150. Essentially, this is seen as Wal-Mart taking direct aim at the dollar stores, especially given Wal-Mart's undoubted purchasing power and reach.
 
 

Tuesday, March 18, 2014

Joy Global Earnings Analysis

Mining equipment company Joy Global (NYSE: JOY  ) gave results recently, but the real news wasn't so much about what the company said, it was about what the company didn't say. The earnings report was positively received by the market, and investors in competitors like Caterpillar (NYSE: CAT  ) took heart from some of Joy Global's commentary. On the other hand, most of the good news was stock specific, and the underlying end-demand drivers for mining machinery still look weak in 2014. So what exactly can Fools learn from the results?

What Joy Global said in its first-quarter results
The company raised the mid-point of guidance by issuing adjusted diluted EPS guidance of $3.10-$3.50 versus previous guidance of $3.00-$3.50. The bottom end of earnings guidance was raised, and management expects that margins will further improve in 2014.
 
 

Wednesday, March 12, 2014

Illinois Tool Works Equity Research

Illinois Tool Works is always one of the most interesting industrial companies to follow because it has broad exposure to the industrial economy. In particular, Foolish investors in peers like Johnson Controls Inc.  and 3M Company should take note, while Fools invested in industrial supply companies like WESCO International Inc.  and Fastenal Company will surely have an interest, too.

How Illinois Tool Works makes money
A quick look at Illinois Tool Works' revenue by end market reveals how diverse its end-market customers are. Even within the automotive segment, it sells into a mix of original equipment manufacturers and aftermarket customers. It's a similar story within its construction (residential, commercial, and renovation) and its food (institutional, service, and retail) sales, too.
 

Sunday, March 9, 2014

Prospects for Boeing

With the recent difficulties in emerging markets, it's probably a good time to assess whether there will be any effect on the current outlook for The Boeing Company in 2014. Moreover, if the aviation market is affected then a major engine manufacturer like General Electric Company will be too.

The Boeing Company's production plans
The two key drivers of its share price are its delivery rates and order book. Investing Fools already know about Boeing's plans for 2014. In particular, Fools will be monitoring Boeing's aim of ramping up production of the 787 Dreamliner to 10 a month, and the Boeing 737 to 42 a month.  In addition investors in General Electric Company and the U.K.'s Rolls Royce will be interested too, because they are the engine suppliers to the 787 program. With regard to the 787, there has been some mixed news recently.
 

Thursday, March 6, 2014

Home Depot and Lowe's Equity Research

There was no shortage of reasons for investors to worry before Home Depot and Lowe's Companies gave results recently. The slowdown in the housing market in the second half of 2013 had the market concerned going into the earnings reports. Moreover, some recent lackluster earnings reports from retailers encouraged some investors to conclude that Home Depot and Lowe's would disappoint. In the end, they both delivered sold results. But the question is: What are their prospects going forward?

Home Depot and Lowe's report earnings
As ever with retailers, the key is to follow movements in their comparable-store sales. The latest data confirms that Home Depot is outperforming Lowe's, and it also suggests that growth is slowing for the home-improvement retailer.
 
 

Wednesday, March 5, 2014

Time to buy UPS and FedEx?

The share prices of package-delivery giants UPS (NYSE: UPS  ) and FedEx (NYSE: FDX  )  have been down in the high-single digits in 2014. Essentially, the market is punishing them for a difficult Christmas period when high-profile delivery delays disappointed consumers and online retailers alike. Has this created a buying opportunity in UPS and FedEx?

UPS and FedEx have been unfairly criticized
The widely publicized problems with Christmas deliveries led to UPS and FedEx receiving substantive amounts of criticism, but investors need to appreciate that the issues were partly caused by an unusual confluence of incidents. From an investment perspective, the main concern is that the problems were somehow systemic, which would necessitate greater investment in order to rectify them. On the other hand, investors need to bear in mind the following points about recent events:
 

Tuesday, March 4, 2014

What you Need to Know About Deere

The agricultural sector hasn't said many positive things in recent weeks. Not only are investors fretting over deteriorating conditions at agricultural machinery distributor Titan, but Deere also recently outlined its expectations for a 3% decline in sales in 2014. Moreover, CNH Industrial  gave news of its expectation of a decline in demand for its agricultural machinery in 2014. In fact, the only good news -- more relevant to a company like Caterpillar within the sector -- is that the construction machinery outlook is improving. So, where does all this leave Deere as an investment proposition? It's time to look at three key factors affecting the stock.

READ THE FULL ARTICLE LINKED HERE

Saturday, March 1, 2014

February Performance Update



A quick update on performance. A pretty decent month, with a gain of 7.8% putting me on 2.9% YTD. I'm going to start updating live trades on my recently-added twitter feed, so anyone interested should just follow me on that. A link to my twitter feed should be on the website, otherwise find me @LeeSamaha

Alternatively, I'm obliged to disclose my positions through the Motley Fool website. You can follow them here http://my.fool.com/profile/SaintGermain/info.aspx

BBH, CHD, CHKP, COO, CSCO, CVS, GS, HD, IBM, INTU, LOW, NICE, PDCO, PPG, ROST, SIRO, TJX, VRNT, WHR, WAG, WTS

Red line is the S & P 500, blue line is me.


I'm pleased to pass an all-time-high, but not pleased to have taken so long to get back up there. My one area of concern, and it's a pretty big on actually, is that my returns seem to be becoming correlated with the market. In a sense, I'm performing more like a high-beta fund then a truly market neutral strategy. You can see this by how the R^2 has crept up recently to 11%.


Perhaps the recent correlation is just a trick of distribution patterns, or maybe I am holding too many large caps? Time will tell.