I have a decent position in SQBG, the company that owns the licensing rights to the Martha Stewart brand, as well as a few other retail licenses.

They have partnered with Amazon Fresh to help deliver the Martha/Marley Spoon meal kits, which is at the heart of the patent dispute announced today between Amazon and Blue Apron.
http://www.marketwatch.com/story/blue-apron-shares-sink-after-amazon-files-meal-kit-patent-2017-07-17

I use both services and like them both a lot. SQBG is really cheap on an adjusted forward PE basis, but has been beaten up like virtually all retail excluding Amazon this year. Partnering with Amazon is a smart move in this competitive space, although the meal kit delivery business is not broken out separately so its hard to know how profitable the licensing stream is. The company has been through the some rough patches in the past year, reducing guidance from a year ago and then firing the CEO with little warning earlier this year.

The second half of the year is the strongest for SQBG, and the comps should be pretty good on an adjusted, fully taxed, fully diluted basis.

Yes, they will show taxes on the GAAP income statement, but pay minimal cash taxes. That GAAP tax rate they show on the income statement should be close to the statutory rate, but its not what they will pay in actual cash.

Usually the taxes paid (in cash) is revealed in the operating cash flow statement. It can be far lower than the statutory rate.

They should report a big non-cash "gain" on the income statement due to the recognition of the deferred tax asset (i.e. bringing it on to the asset side of the balance sheet) that had formerly been an off-balance sheet "valuation allowance" used to offset taxes on the GAAP income statement. Over the next few years, they will pay down this asset, using it to offset cash taxes, even as they show a normalized tax rate on the income statement. It improves their balance sheet initially, but it impacts the GAAP income statement, making the reported GAAP PE higher in the future.

The use of valuation allowances and the difficulty of figuring out what Nelson discussed (i.e. when it is more likely than not that the company can fully use the NOL/valuation allowance) is the primary reason that I typically ignore what is on the income statement and use my own pro-forma tax rate. Just assume its gonna happen at some point.....

You can see why many investors find the income statement virtually useless these days with all the non-cash charges from options, intangible asset amortization, onetimers, and odd tax rates. Its why the EV/EBITDA ratio is used so extensively to value companies across different industries.

SQBG is a beaten down licensor of the Martha Stewart brand. Trades at around 3.00/share, which is 5.7x FY17 forward estimates. They announced fairly decent Q1 results earning non GAAP 0.09/sh (0.08 if using a proforma tax rate of 35%). They beat estimates by about 0.03, and have guided for growth in Revenue and adjusted EBITDA for FY17. The stock soared on the initial news up to 4, but has since settled back down into the low 3s amid the retail gloom.

A new relationship with QVC (skin care products/apparel) should start to kick in during the 2nd half of FY17, and they already have the brand associated with food/wine delivery (Marley Spoon, Hello Fresh). The complete list is here:
http://sequentialbrandsgroup.com/our-brands/

From the 10Q description of the company:

Licensing and Brand Management Business

We own a portfolio of consumer brands in the fashion, home, athletic and lifestyle categories, including Martha Stewart, Jessica Simpson , AND1 , Avia , Joe’s Jeans , Heelys and GAIAM . We aim to maximize the value of our brands by promoting, marketing and licensing the brands through various distribution channels, including to retailers, wholesalers and distributors in the United States and in certain international territories. Our core strategy is to enhance and monetize the global reach of our existing brands, and to pursue additional strategic acquisitions to grow the scope of and diversify our portfolio of brands.

We aim to acquire well-known consumer brands with high potential for growth and strong brand awareness. We additionally seek to diversify our portfolio by evaluating the strength of targeted brands and the expected viability and sustainability of future royalty streams. Upon the acquisition of a brand, we partner with leading wholesalers and retailers to drive incremental value and maximize brand equity. We focus on certain key initiatives in our licensing and brand management business. These initiatives include:

· Maximizing the value of our existing brands by creating efficiencies, adding additional product categories, expanding distribution and retail presence and optimizing sales through innovative marketing that increases consumer brand awareness and loyalty;
· Developing international expansion through additional licenses, partnerships and other arrangements with leading retailers and wholesalers outside the United States; and
· Acquiring consumer brands (or the rights to such brands) with high consumer awareness, broad appeal and applicability to a wide range of product categories.

Our business is designed to maximize the value of our brands through license agreements with partners that are responsible for manufacturing and distributing our licensed products and, with the exception of our Martha Stewart brand, primarily responsible for the design of such licensed products. Our brands are licensed for a broad range of product categories, including apparel, footwear, eyewear, fashion accessories and home goods, as well as, with respect to our Martha Stewart brand, food, wine, pet supplies and a variety of media related assets, such as magazines, books and other print and digital content. We seek to select licensees who have demonstrated the ability to produce and sell quality products in their respective licensed categories and have the capability to meet or exceed the minimum sales thresholds and guaranteed minimum royalty payments that we generally require.

We license our brands to both wholesale and direct-to-retail licensees. In a wholesale license, a wholesale supplier is granted rights (typically on an exclusive basis) to a single or small group of related product categories for a particular brand for sale to multiple accounts within an approved channel of distribution and territory. In a direct-to-retail license, a single retailer is granted the right (typically on an exclusive basis) to sell branded products in a broad range of product categories through its brick and mortar stores and e-commerce sites. As of March 31, 2017, we had more than one-hundred fifty licensees, with wholesale licensees comprising a significant majority.

Our license agreements typically require a licensee to pay us royalties based upon net sales and, in most cases, contain guaranteed minimum royalties. Our license agreements also require licensees to support the brands by either paying or spending contractually guaranteed minimum amounts for the marketing and advertising of the respective licensed brands. As of March 31, 2017, we had contractual rights to receive an aggregate of $429.6 million in minimum royalty and marketing and advertising revenue from our licensees through the balance of the current terms of such licenses, excluding any renewals.

================

Beyond the obvious connection to the hard-hit retail sector, the company is carrying about 600MM in LT debt on the balance sheet. Tangible book value is negative, but that assigns zero value to goodwill and intangibles. Stated book is around 7.35/share, which excludes the non-controlling interests.

The company has projected the following guidance for FY17:

For the year ending December 31, 2017, the Company is reiterating guidance of $170 million to $175 million in revenue and $98 million to $102 million of Adjusted EBITDA. The Company’s GAAP net income is now expected to be $15.5 million to $18.1 million due to costs associated with the departure of the Company’s CEO as mentioned above. The Company’s contractual guaranteed minimum royalties for 2017 are approximately $120 million. Consistent with the Company's historical quarterly results, the Company expects revenue for 2017 to be weighted to the third and fourth quarters due to seasonality in the businesses of many of the Company's licensees.


This equates to a non-gaap range of fd eps of 0.49 - 0.55. I'm using a personal estimate of 0.42/share, but that includes a 35% pf tax rate. I think the stock could trade in the mid to high 4s, if the company hits analyst ests for Q2 and continues to guide for a strong 2nd half. The stock is in a LT downtrend and is trying to find a bottom. If you like to buy low, and are a bit of a contrarian, this could be a decent turnaround play.

SGA for NAII is significantly higher this year due to increased legal costs to defend their patents:

"To protect our CarnoSyn® business and its underlying patent estate, we incurred litigation, patent compliance, and new patent application expenses of approximately $3.0 million during the first nine months of fiscal 2017 and $1.3 million during the comparable period of fiscal 2016. The increase in these legal expenses on a year over year basis is primarily due to our efforts to enforce compliance with our existing patents, fees and expenses related to new patent applications and to protect our trade name in the marketplace against parties who are using it without our consent. "

I would assume that this spending level will moderate a bit going forward.

Book value on the stock (where the company has repurchased shares before) is now 9.06/sh (up from the high 8s last quarter.)

They also had a gain on sale of property in the y/y Q3 which boosted GAAP net income last year, so the comps look even worse this quarter.

Re: SCMP. The revenue guidance doesn't include any projected milestone payments, so that is why it appears to be down vs FY16. There is organic growth here of 4-5% topline if you ex out that factor.

Also, the company actually increased their adjusted net income estimate from earlier estimates for FY17. Non-GAAP tax rates are also expected to rise in FY17 too, so that would indicate that pretax margins are rising.

Because the stated adjusted eps range includes the entire impact of the convertible debt shares, it looks a lot worse than it should vs FY16. Don't understand how those shares would be included in the FDS count if they are below the convert price, which is in the high 15s.

Back those shares out, since the share price is at 10.50, and the eps numbers look a LOT better if the SP remains where it is right now.

Yes, the reliance on primarily one drug is risky, but there are other pharma stocks with similar risk profiles that trade at far higher multiples than this one. EV/Adjusted EBITDA is around 3.8x FY17 projections....seems pretty cheap to me. I'm looking for it to rise to 15 in the next year.

Sounds great! Thanks Cliff and value1008 for both of your comments on ME.

I will probably try them out....I use Vanguard brokerage right now, but the ME commission structure would work perfectly for me and I'd probably save almost $1,000/yr.

Vanguard only offers after-hours trading, no pre-market. Very little in the way of research, screens, alerts, bid-ask depth, etc....although to be fair, I tend to use limit orders and trade non-OTC stocks. If you are a Flagship client, you get 30 free trades for the year and then $2/trade thereafter. Fidelity and Schwab are getting close to matching them, but they also probably offer a much more robust trading platform. The Vanguard website is a bit clunky when doing stock trades.

How many price alerts can you set-up in ME?

Thx.

Cliff, how do you like Merrill Edge? I've been thinking about moving some money over there to take advantage of their free trades, but was wondering what else they offered in the way of price/news alerts, real-time bid ask info, trading platform, etc. Do they offer after hours trading?

If you can give us a list of the pros/cons as you've experienced them, it would be much appreciated! Thanks!

More evidence out today that SPWH competitors like Cabelas (CAB) had a really tough quarter. CAB reported and had the following comments:

https://finance.yahoo.com/news/cabelas-inc-announces-fourth-quarter-113000687.html

“We were clearly disappointed with the fourth quarter results,” said Tommy Millner, Cabela’s Chief Executive Officer. “Consistent with other retailers, we experienced challenging traffic patterns in the quarter. Our increase in average ticket was not enough to make up for a decrease in transactions. Similar to industry trends, we experienced strength in firearms and shooting-related categories primarily early in the quarter. Later in the quarter, firearms and shooting-related categories became challenging as we faced the headwind of lapping the impact that the San Bernardino tragedy had on these categories a year ago. We saw improved trends in apparel and other softgoods categories in the latter part of the quarter. We continue to be pleased with the performance and growth of our Cabela’s CLUB Visa program.”

For the quarter, consolidated comparable store sales decreased 6.5% and U.S. comparable store sales decreased 6.4% as compared to the same quarter a year ago. Comparable store sales strength in firearms and shooting-related categories through the first half of the quarter was more than offset by softness in these categories due to challenging comparisons from the year ago period.

Merchandise gross margin decreased by 118 basis points in the quarter to 32.2% compared to 33.3% in the same quarter a year ago. This decrease was primarily attributable to the impacts of merchandise mix, promotional activity, and efforts to right size inventory levels. The negative impact of merchandise mix was attributable to the first two months of the quarter with increased firearms and shooting-related category penetration and decreased penetration in apparel categories. This negative impact was slightly offset in the month of December with lower penetration of firearms and shooting-related categories and higher penetration of apparel categories. The overall merchandise mix impact was approximately 70 basis points of the overall decrease for the quarter. Promotional activity was responsible for approximately 30 basis points of the decrease and efforts to right size inventory levels were responsible for approximately 20 basis points of the overall decrease.

===================

Clearly the market is pricing in a big Q4 miss from SPWH. Short interest is around 15% of fds count. If they come in around 0.22 or so (meaning FY16 fd eps of 0.65) and can provide a bit of evidence of growth in FY17, then its cheap at current prices....but this could be a tough period ahead for SPWH as they get a lot of their revenue from hunting/gun sales. I could very easily see a flat forecast ahead because of some tough comps. On the flip side, they are a much smaller retailer than Cabelas and don't really compete in the same territories...so perhaps they have a better chance to grow their top line. Analyst estimates have been dropping slowly for next year, so it might be hard for it to get a decent multiple.

Hey Nelson, all the cheap stuff will have some issues....but here are some to look at:

Auto suppliers:
Magna (MGA)
Adient (ADNT) - recent spin-off

Pharma:
Aceto (ACET)
Sucampo (SCMP)
Celgene (CELG)
Impax Labs (IPXL)

Homebuilders:
Century Communities (CCS)
LGI Home (LGIH)

Retail:
Zagg Inc (ZAGG)
Sportsman's Wearhouse (SPWH)

Travel Services:
Travelport (TVPT)

Cash Buyout deals:
Stillwater (SWC)
Kongzhong (KZ)
Synutra (SYUT)

Hweb, I've been a buyer of NAII today at 8.90, although that was adding more to an existing position. Thought it was cheap in the 11s, but of course that was before the news of the contract manufacturing biz in Europe and Asia and Australia slowing measurably.

I can understand some of the selling today, as there are probably better places for your money over the next 3 mos....but this is dirt cheap!

Book value: $8.97/sh, using the latest 10Q (Q2 FY17)
EV/EBITDA (TTM): 2.2x (You don't see that too often!)

Still growing their highest margin biz, which had been a concern because of patent expiration. Pretax margins have also been hurt by much higher than average spend on legal expenses:

"To protect our CarnoSyn® business and its underlying patent estate, we incurred litigation and patent compliance expenses of approximately $2.0 million during the first six months of fiscal 2017 and $779,000 during the comparable period in fiscal 2016. The increase in these legal expenses on a year over year basis is due to our efforts to enforce compliance with our patents related to instant release CarnoSyn® and to protect our tradename in the marketplace against parties who are using it without our consent."

With any luck, this expense will moderate in FY18, providing even more margin improvements.

Forecast is for growth in all segments to resume in FY18, which will begin in July 2017. Reduction in international demand is forecast by management to be "temporary". Of course, their forecast was wrong about FY17, so traders and investors will keep that in mind, which will probably keep a lid on the stock in the 11s. I'm assuming of course that it stabilizes here in the 8s and low 9s around book value. (Who knows.)

Stock buyback has been authorized for $5MM as per the Q; if management and the BOD were on the ball they should put this into effect immediately once buyback restrictions are lifted surrounding the release of the earnings report. Not that I think they will find enough shares for sale, but they could buyback around 8% of the market cap if the stock stays at 9.

So, some tough comps ahead for the next few quarters but there is a lot for the longer term value oriented investor to get excited about NAII below 9/share.

This would be a great acquisition for a competitor in the nutraceutical/supplements business....and/or could be taken private by a PE firm for 2x its current valuation. A PE firm would love that cash flow number!

Nelson, I completely agree with your logic on taxes and NOLs as they impact future net income predictions and thus estimates of valuation. If one is going to use a net income figure and going with PE as the primary valuation metric, you will clearly overshoot on your forward valuation mark because the quality of the NET earnings figure is paramount.

At some point, this happens to all turnaround situations. Like all non-GAAP measures, I think you have to build in a normalized tax rate for future estimates.

Now, if you use EV:EBITDA ratios, the tax issues are moot....but not many on this board use this as their PRIMARY means of stock valuation.

As a follow-up to BANC, today GeoInvesting has also weighed in:

http://seekingalpha.com/news/3215689-geoinvesting-jumps-banc-california

The lack of clarity on the call regarding which board members were "disinterested" and in charge of the investigation was a bit alarming, and the lawyer appointed by the "disinterested" board members to help be the special investigator apparently has previous ties to the company and its president. (as per the SA blogger and Geo)

Bad form. I decided to sell based upon the optics....the SEC and banking regulators rarely move that fast and this might just be a big diversion, but I'm on the sidelines for now.

I agree with R59 on BANC, and initiated a position in the high 12s.

There are some tax benefits in the quarter that raised eps, but even if you use a classic non-GAAP adjustment for a normalized tax rate to 40%, they still beat the estimates.

Looks like they will be reporting a 25% tax rate going forward due to investments in tax shelters....so that makes the bottom line even better.

They upped guidance to 1.85/fd eps.

Its cheap. There are some issues with the Seeking Alpha author's claim, that the bank just updated on with a new PR.

Also, not announced, but the company's has authorized a stock buyback for up to 10% of the current market value:

Item 8.01 Other Events.
On October 18, 2016, the Company also announced that its Board of Directors has approved a share buyback program under Rule 10b-18 authorizing the Company to buy back, from time to time during the 12 months ending on October 18, 2017, an aggregate amount representing up to 10% of the Company’s currently outstanding common shares.

I agree R59. I've been a buyer of DLA down here in the low 15s on the hope of an earnings rebound in FY17.

MGA (Magna International) is dropping today after it announced a conference call to report its Q3 earnings. Other auto parts suppliers seem to be weak today as well.

The auto industry seems to be stalling in terms of global growth, but large suppliers like MGA can often grow faster than the industry due to the consolidation trends and their ability to take market share away from smaller, less efficient competitors.

The company has generally beaten analyst estimates, is fully taxed, and appears to be quite cheap on forward PE basis:
https://finance.yahoo.com/quote/MGA/analysts?p=MGA

Pays a dividend too, almost 2.5% yield.

Could be a decent buy at its current price.....I'm looking to add more if it drops back into the high 30s again.

Yes, these are great points. Love the discussion on non-GAAP practices, and you can bet that this will become a larger issue over time.

While we are on the topic, there is one other big non-cash item that typically gets added back to adjusted net income: stock compensation. How does the board feel about this?

For me, the controversial aspect of its calculation is that it relies heavily on the Black Scholes model to price in volatility and thus potential profit that an employee could gain in a future exercise of an in the money option. My question is whether that is realistic and does it accurately portray the true cost to the company and its shareholders to retain those employees? IMHO, it often seems disconnected with what the actual expense is to the company, especially since the impact of the newly issued options is included in the calculation of fully diluted shares...

That's been my pet peeve with the GAAP rules on stock comp for years. Why not just expense the difference between the strike price and the market value at the time the option is granted or exercised? I can understand why this non-cash expenses often gets added back by analysts. Perhaps that should not be done in its entirety, but only to the extent that any discount to market accrues to the employee and not to shareholders.

How many times have we seen previously expensed options expire worthless? I haven't seen any company able to reverse those option charges in that event.

Another pet peeve is the often sketchy way that taxes are treated in the non-GAAP calculations too...

TSEM. Given that this eps number is not fully taxed, I'd be a bit more conservative on the PE valuation....so 18 is probably a good target over the next 6-12 mos.

Wade, TSEM revenues tend to ramp up sequentially through the year. The company doesn't provide full year guidance, only revenue outlook for one quarter ahead. They have been fairly accurate, without too many surprises. For instance, on the last call they guided for 300M in rev this quarter, and they did 305M.

Using the net income figure for the 0.42 fd (adjusted), implies a net margin of 13.76%. Slap that on the Rev estimate of 325M, and you get right around 44.7M in net income. EPS is hard to say because the FDS count will probably drift a little higher. Using 102 - 103M shares would get you to 0.43 - 0.44/sh. You are certainly in the ballpark for the headline number for adjusted fd eps. 1.80 for the next four quarters might be a bit high, but not out of the question.

This was a really strong quarter for margins at TSEM. There was probably a lot of shorts covering today, but also more than a few longs buying more shares. I added just a few shares this morning at 14.37. For a forward PE, I think a 10-12x multiple is fair for TSEM.

I'd expect a pullback back down into the low 14s again over the next month, so I'd advise patience in trading this one. It can trade very oddly at times and I think it attracts a lot of shorts and momentum traders.

TSEM and the eps comps from last year.

The reason they are significantly higher last year is that back then, the company presented their non-GAAP earnings excluding amortization and depreciation. The shorts hit them hard on that, and there was probably good reason for it as it was not standard practice. Now they just add back amortization of intangible assets.....along with the standard add backs of stock comp, one-timers (like the loss on the early sale of the debt, etc)

NOTE: They aren't fully taxed since they have a lot of NOLs. The Israel rate can be anywhere from 15 - 25%, high tech companies tend to get the more favorable rates.

R59 re CCS. True, but there isn't much selling pressure either. The owners of this stock know its dirt cheap, even within its sector. I haven't found anything cheaper on a relative basis yet.

This would have to rise close to 24 for me to start unloading some shares.

CCS report was solid, as are all the comments on the board so far.

We know that homebuilders are not valued like a tech company. They simply don't have businesses that scale up as well. The business requires big cash outlays up front, so borrowing capacity is key. Land is often difficult to acquire on good terms in a good location, and then labor costs are a perennial challenge.

The best homebuilder I've seen at managing costs and margins has been LGIH. CCS is not in their class, but they do a solid job...plus the stock is a lot cheaper, both on a forward PEG basis and discount to book value. CCS's valuation seems to be hurt by a lack of trading volume in the stock.

I don't see any major signs of weakness here....backlog orders look solid, with rising ASP. Guidance has been increased on top line and for active selling communities, indicating good visibility into the near term. Yet the stock still trades well under its 52 week high in the 23s. I'm guessing that fears of rising interest rates are what may be keeping buyers away, but I don't see slightly rising interest rates as being enough to kill the industry fundamentals that seem very strong; low inventories around the country, steadily rising wages, low unemployment etc.

Nelson, Thanks for the alert on PCMI earlier. I held a small position into earnings and glad I did.

The turnaround seems very solid and management is executing well, with all the margins rising and with decent cash flow from operations too.

Any sense on what the organic growth rate is here? Seems like most, if not all the growth in topline is from acquisitions. Only fly in the ointment, but if they keep improving margins that won't matter too much....

Bring on the low float crazies!

I took my short term profits on LGIH today on the advance over 35. LT, its still undervalued, but this stock is volatile and has a lot of IBD followers in it....who often sell on weakness, which gives some great buying opportunities for swing trading.

I'll see how it goes post earnings.

I still like and hold CCS (my favorite in the homebuilders based on valuation) and WLH. Also hold a very tiny bit of NWHM which I think should perform better as the 2nd half results come in.

If you are interested in homebuilder suppliers, BLDR is another one to watch. These companies in this sector often get substantially higher forward PEs than the humble homebuilder group.

MY deal closed today. On to the next!

Solid quarter in for LEN. Decent y/y growth and solidly beat analyst estimates. Outlook looks solid, supported by current economic conditions that should continue.

"The homebuilding market continued its slow and steady recovery sustained by low interest rates, modest wage growth, positive consumer confidence and low unemployment levels combined with tight inventory levels.

"As this year's spring selling season improved over last year, our second quarter new orders increased 10% to 7,962 homes year-over-year, while our home deliveries and home sales revenue also increased to 6,724 homes and $2.4 billion, respectively. As the recovery has continued to mature, we have remained focused on our strategy of moderating our growth rate in community count and home sales, as well as on our soft-pivot land strategy, targeting land acquisitions with a shorter average life.



LEN trades at multiples that indicate the smaller cap stocks in the homebuilder sector are really cheap. Stocks like LGIH, CCS, WLH all are growing their sales and eps at significantly higher rates yet trade at PE ratios that are 60-75% of what LEN trades for (12-13x). That relationship should be flipped, but it isn't.

On the same page with you re NWHM. Sold half around 11.03, but it was a fairly small position.

Agree with your ST price target for FV.

Still like CCS, LGIH and WLH....so I'm overloaded in the sector. Think all three are much cheaper than NWHM right now on a GARP basis.

LGIH (homebuilder) released its monthly closing data for May and YTD after the bell on Friday evening. Strong month (as expected in Q1 CC comments from CEO.) YTD closings show nearly 36% y/y growth, which puts the company well ahead of its guidance for closings in FY16.

http://www.marketwatch.com/story/lgi-homes-inc-reports-may-2016-home-closings-2016-06-03-1918443?siteid=nbsh

Their niche is in the lower end of the housing market for first time homebuyers (or downsizers). Typical Price range is roughly $200 - 225K. The company has some of the best margins and sales growth in the industry.

Yes, they have TX exposure, but with oil prices firming perhaps the short thesis looks more discredited? I wasn't worried too much about that anyway, as the company has been asked that question over and over again and has always sounded very confident in its ability to navigate through declining oil industry fortunes. Company performance has backed those words up.

I also still own and like CCS, WLH, and NWHM. Homebuilding sector seems like one of the bright spots to me in a largely dismal outlook for sales and earnings growth for many companies this year.

Wouldn't touch KANG until after a definitive deal is announced and the shareholder meeting date has been disclosed. It can often take 9-12 mos for these deals to finally close even with financing in place.

I'm watching a few other Chinese go private deals further along in the process and ready to close within the next month or two. QIHU and CNYD to name two I own now. QIHU could be just a week or two away.

MY go private deal moves one step closer to completion. Shareholder vote in favor (PR this morning.) 2MG, don't forget to deduct the 0.05 ADR fee from your per share calculation. Shareholders buying MY stock today should get 2.46 net.

2morrow, I agree that this go private deal for MY looks pretty certain to close by the end of the month. Its a great annualized return for little risk.

The voting results are due Monday; perhaps that last hurdle is causing some to bail today. I was a buyer at the end of the day today.

There have been a few headlines causing uncertainty in the arb community regarding any China related deal, but these smaller go-privates tend to close once the shareholder vote is scheduled and conducted. Lately, SAFE has been holding up the pace of the larger deals from closing (see QIHU), but MY is likely unaffected by this.

Completely shocked at how the situation changed here and as quickly as it did. Its definitely getting the Valeant valuation now, which seems to be somewhere around 4x forward guidance....but that guidance is now suspect too.

Will be looking to sell, but not this AM.

Cliff, TSEM is one I follow and still like, esp at current levels.

Its an Israeli company, so a 6K filer....and the CFO is likely a bit on the aggressive side when it comes to the earnings presentation. Not using FDS and instead using basic is a prime example, also backing out virtually all of the D/A from income and calling it adjusted net profit. What he's passing off as net earnings is basically adjusted EBITDA, which should be paired with EV. Even on that basis, it still looks fairly cheap to me at less than 6x EV/EBITDA (adj).

I obviously side more with the bulls than the bears on TSEM in the 11s, primarily because its cheap based upon the adjusted eps that I use. I also agree that the depreciation should be longer than average given the type of fabs they operate and own. Think the recent selling is from a lot of older bond holders that converted to stock and had a low basis.

Short interest has been dropping, so I think the savvy shorts are covering down here. They do have a tough comp in Q1, but the outlook should still be solid. Think FV is in 15s.

sskillz, I agree with your approach completely. Staying disciplined in your buy/sell strategy and individual stock weighting within your portfolio is essential for success in the long haul.

Still a lot of headwinds for companies out there, with Q1 results on tap. A lot of good news is already priced in, so I'm on the sidelines with you. I have cash levels currently that are in the 50-60% range as I think there will be better risk:reward trades in the future.

Have a look at ENDP also, which is even cheaper than HZNP:

http://blogs.barrons.com/stockstowatchtoday/2016/04/12/endo-pharmaceuticals-the-most-attractive-valeant-like-company/?mod=yahoobarrons&ru=yahoo

Both stocks are good examples of what happens when investor sentiment turns decidedly negative. Stocks in the specialty pharm sector have been deemed practically uninvestable because of possibly long-term headwinds of reduced pricing power and changes in tax inversion policies.

I guess they've been so beat up that they are becoming attractive from a valuation and contrarian point of view, but it may take a while to dig out from the negative press and publicity.

KINS CEO filed a Form 4 today, indicating that he bought 1500 shares two days ago:

http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001140361-16-058844%2Etxt&FilePath=%5C2016%5C03%5C23%5C&CoName=KINGSTONE+COMPANIES%2C+INC%2E&FormType=4&RcvdDate=3%2F23%2F2016&pdf=

Not a lot, but he already owns a ton of shares. Surprised to see that analysts chose to lower their estimates for FY16, but only by a few pennies. Still projected to earn 1.20 for FY16 (6.8x fd, ft eps).

Seems quite cheap to me. I've been adding shares here in the low 8s.

Thought the KINS (NY insurance company; last trade: 8.68) Q4 report and CC went well. Analyst estimates for FY16 are currently 1.23, which looks conservative IF the company can keep its combined ratio to the levels they are projecting along with another 20% year of revenue growth. Q4 was nothing special, but they are projecting a nice drop in the combined ratio due to lower winter weather expenses. If so, that could really boost the bottom line nicely and help them beat the current FY estimates. FY17 estimates are also up too....so there appears to be nice runway ahead of them.

The stock is really over-bought from a short term TA perspective, but still undervalued from a LT fundamental one, based upon where its traded relative to forward PE in the past. Could hit 12 if looking at similar valuations it traded at toward the end of 2015. Low daily trading volume, so likely to see some wacky intraday price swings. Trade accordingly.

There always seems to be a seller into the earnings day volume, and today was no exception. Could be a decent pick up on any further weakness.

Good job reaching break-even! Must be short covering at this stage on HUN, because the outlook for earnings growth in FY16 is now pretty poor. A big shift from a year ago.

I sold out a while ago on that last run up in Nov, taking the loss.

Also check out ENDP. Another casualty from the fallout of the VRX debacle.

At some point these stocks are going to stop going down on news, but its been a house of pain for anyone trying to catch the falling knife.

I've been nibbling on ENDP but there was a little bit of bad news out today in that they are guiding for adjusted eps just below the street estimates for Q1, and reiterating guidance for FY16. In this shoot first environment for specialty pharma, there has been massive dumping of this stock. Unlike Valeant, Endo is still guiding for strong growth in adjusted net eps for this year. Credibility is key, also timing.....Q1 numbers have a tough comp.

This bears watching:

http://www.wsj.com/articles/sec-scrutinizing-use-of-non-gaap-measures-by-public-companies-1458139473

There should be some agreed upon things that are legitimately excluded from GAAP earnings, especially truly non-recurring gains/costs. More controversial is the non-GAAP treatment of stock option costs and other non-cash items like D&A. Also, proforma tax rates are not consistently or logically applied to non-GAAP "net income".



SEC Signals It Could Curb Use of Adjusted Earnings Figures
Chairman Mary Jo White addresses U.S. Chamber of Commerce conference in Washington
Chairman Mary Jo White indicated the SEC could introduce new curbs on companies’ ability to report results that back out costs. ENLARGE
Chairman Mary Jo White indicated the SEC could introduce new curbs on companies’ ability to report results that back out costs. PHOTO: ANDREW HARRER/BLOOMBERG NEWS
By DAVE MICHAELS and MICHAEL RAPOPORT
Updated March 16, 2016 7:15 p.m. ET
9 COMMENTS
The Securities and Exchange Commission sounded the alarm on companies’ reliance on customized accounting figures Wednesday, saying regulators are considering whether to curb some of the freedom firms enjoy to provide adjusted earnings figures.

“It’s something that we are really looking at—whether we need to rein that in a bit even by regulation,“ SEC Chairman Mary Jo White said Wednesday at a conference of finance and business lobbyists in Washington. ”We have a lot of concern in that space.”

Ms. White’s use of the “R” word—regulation—shows how skeptical regulators have grown about homegrown accounting measures that don’t comply with generally accepted accounting principles, or GAAP. The SEC has historically policed the customized metrics by questioning aggressive adjustments, often in letters that investors must sift through the SEC’s electronic filing system to find.

The SEC’s current rules allow companies to report profit figures that don’t comply with GAAP, provided they don’t obscure the official numbers and reconcile the non-GAAP numbers to the equivalent GAAP figure.

Profits usually are higher under a non-GAAP formula because companies back out what they consider unusual or noncash costs; they claim the resulting measures are a better way to gauge core operating performance. Researchers at the University of Washington and the University of Georgia have reported this tactic can be opportunistic; their 2014 paper found companies are more likely to report non-GAAP numbers that back out losses rather than gains.

The SEC is weighing whether new rules are needed to ‘rein in’ use of non-GAAP reporting. ENLARGE
The SEC is weighing whether new rules are needed to ‘rein in’ use of non-GAAP reporting. PHOTO: ASSOCIATED PRESS
With companies relying more on non-GAAP results, regulators are ramping up their scrutiny of the practice. For members of the Dow Jones Industrial Average that reported non-GAAP earnings per share last year, the adjusted metric was on average 30% above earnings per share under GAAP, according to data from FactSet.

Ms. White made clear Wednesday that regulators know how much better earnings look when some costs are backed out of them. “Your investor relations folks, your CFO, they love the non-GAAP measures because they tell a better story,” she told the conference sponsored by the U.S. Chamber of Commerce.

It is unclear how soon the SEC could propose new rules that would restrict non-GAAP metrics. Ms. White is likely to leave the commission sometime before the end of the Obama administration, meaning rule changes likely aren’t imminent.

Regulators also say they don’t want to choke off non-GAAP reporting because many investors say it can be valuable in some circumstances.

Regulators could, however, target gaps in their rules that allow companies to give more prominence to non-GAAP results on websites and other venues that aren’t covered by the commission’s rules, according to a person familiar with the matter. Separately, regulators worry that less-sophisticated investors rely on media reports and other sources that don’t always distinguish between adjusted numbers and GAAP results.

“A lot of people would say there is gamesmanship going on here,” said Joseph Carcello, an accounting professor at the University of Tennessee who sits on the SEC’s Investor Advisory Committee. “But you have to craft a rule that targets the abuses without killing what is valuable information.”

The SEC previously has expressed concern about companies’ non-GAAP metrics. In 2011, regulators raised questions with Groupon Inc. before the firm went public about its use of a non-GAAP profit measure that excluded its marketing costs to land new subscribers. Groupon scaled back its use of the metric in response to the SEC’s concerns. Groupon couldn’t be reached for comment.

In addition, the SEC has said in comment letters to dozens of companies in the past few years that they were giving “undue prominence” to non-GAAP numbers. In the past year, the SEC sent such letters to companies including Equifax Inc. and T-Mobile US Inc., both of which told the commission they would revise their future disclosures to address the issue.

Equifax declined to comment and T-Mobile couldn’t be reached for comment.

Hweb, re EVOL. I see why you like it, for all the reasons you've stated earlier (insider buying, dividend yield, increasing backlog, cost cutting measures, etc)

Three things:

a) Low tax rate, which will have to end sometime. Sskillz has already pointed this out, so I won't harp on it....but I think one could adjust for a higher tax rate to be conservative. The forward PE may be deceptively low, esp if the company has to recharacterize its valuation allowance and bring it on its balance sheet as a deferred tax asset. Probably not a concern to a short term swing trader like yourself, but its more of an issue for the LT investor.

b) Lumpiness of revenues from the sale of licenses. Really tough to predict this, and its probably why management shies away from giving quarterly guidance.

c) Not a screaming value on the EV/EBITDA scale.