David Garrett, VP of Finance and Corporate Development at Dipexium Pharmaceuticals Inc (DPRX), says its lead candidate, Locilex, is going after a very large market. Locilex is a broad-spectrum topical antibiotic cream for the treatment of patients with mild infections of diabetic foot ulcers.
“In the mild category, which represents about 47% of the population — in other words, 47% of patients who have a DFI first present to a treating physician at the mild stage — that 47% equates to about 650,000 patients per year in the U.S. alone. We expect to become the standard of care in mild DFI,” Garrett says.
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Garrett adds that currently, there is no product approved by the FDA specifically for mild DFI, and no topical antibiotic approved in any category of DFI.
“In terms of differentiation, there are three key attributes that separate Locilex from other products. First, Locilex has an extremely broad spectrum of activity; that is, it kills gram-positive, gram-negative, aerobic and anaerobic bacteria, as well as numerous different kinds of multidrug-resistant bacteria,” Garrett says. “Second, Locilex is a topical cream that does not absorb into the blood stream, which we believe has the potential to be an extremely safe and well-tolerated product…Lastly, as Locilex does not absorb into the blood stream, we have seen no evidence to date of bacteria developing systemic resistance to Locilex.”
Jason R. Niswonger, SVP of Finance and Investor Relations for Installed Building Products Inc (IBP), says the insulation company will continue its acquisition strategy to access more U.S. housing permits.
“We are the second-largest installer of insulation in new-build construction projects. Our number-one end market, which makes up approximately 75% of our sales, is to the new single-family construction market,” Niswonger says. “Insulation is our largest product, it is approximately 80% of our sales, but we also install other complementary products: gutters, garage doors, shower, shelving and mirrors. Those are our other key product lines.”
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Niswonger says Jeff Edwards, the company’s CEO, saw an opportunity in the mid-1990s to employ an impactful acquisition strategy. Since then, IBP has done approximately 100 acquisitions have given the company a national footprint.
“We have access today to over 50% of the new housing permits across the country. So as we continue our acquisition strategy, we really have a lot of opportunity to increase our access to housing permits, especially in the South and West regions of the U.S., and that’s certainly what we have been pursuing. Just recently, we completed a fairly sizable acquisition that expanded our presence in California, Washington and Utah, as well as a couple of other locations,” Niswonger says.
Galmed Pharmaceuticals Ltd (GLMD) CFO Josh Blacher says that in clinical studies its product candidate aramchol has displayed significant activity in reducing liver fat concentration. This reduction may be critical in patients suffering from NASH, or nonalcoholic steatohepatitis.
“It’s our belief, based on our research and scientific literature, that the excessive fat is in fact the root cause of the liver’s deterioration,” Blacher says. “As such, we believe that if you can inhibit the production and accumulation of liver fat, you prevent the domino effect of the inflammation. So that’s in fact what we are aiming to do, and that is our mechanism of action: to inhibit the production and retention of liver fat.”
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Blacher says the NASH market currently has no improved drugs, yet is estimated to be between 5% and 10% of the adult population.
“It is thought to be one of the largest unmet medical needs in the U.S. right now. The estimates by Wall Street analysts for the market potential are between $10 billion and $70 billion a year, so this is a big one with nothing on the market,” Blacher says.
Stanley Elliott, a Vice President at Stifel, Nicolaus & Co., believes United Rentals, Inc. (URI) has been unfairly punished by talk of a negative impact on the energy side of the company.
“It is a business that has about 50% of its revenues tied to the nonresidential construction cycle,” Elliott says. “[Energy is] about 11% of the overall, and about 6% of those revenues are more upstream related. The risk there or the bear thesis is that energy rich markets will end up spilling over, and it’s more of a contagion, so that that 6% type of a revenue number that many people think is exposed could actually be some multiple of that.”
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Elliott says there are enough projects going on through an improvement on nonresidential, plus a secular shift to the rental channel, that United Rentals should be able to absorb the energy-related headwinds.
“Right now we can’t really tell whether there will be an energy impact or this energy contingent and, if so, how much it will impact numbers,” Elliott said. “I think what is going to happen is you are going a have a push/pull sort of argument for the next fiscal three to six months. And then as we get further into the year, I think the numbers that they can put up will be enough to change opinions, and I think if you get a change in the sentiment you are going to see that change in the stock.”
Larry De Maria, Co-Group Head of Global Industrial Infrastructure at William Blair & Company, says that in the current environment, he wants to find companies that can diminish the cyclical risks. He says that WABCO Holdings Inc. (WBC) is a stock with some of the best secular attributes.
“WABCO…has the advantage of having a safety theme. Safety is one of the best themes in the group,” De Maria says.
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WABCO makes safety systems and braking systems for commercial vehicles, which De Maria says are two large end markets businesses for the company.
“As you continue to see more and more adoption of safety systems in both mature and emerging markets for trucks, WABCO is well-positioned to take advantage of that trend. And some fleets are recognizing the benefits to productivity when they add some of WABCO’s safety technology, so the uptake is increasing even where it is not mandated,” De Maria says.
St. Denis J. Villere III, Partner at St. Denis J. Villere & Company, LLC, says 3D Systems Corporation (DDD) is an example of a contrarian holding in his portfolio. He says the 3D marketplace has finally been validated, with 3D Systems maintaining its stance as leader in the industry.
“That was one that we were quite early in. Now I believe that people think Hewlett-Packard (NYSE:HPQ) is coming into the industry, which it is, but 3D still has a dominant share, and competition is good,” Villere said.
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Villere has owned 3D Systems Corporation for over a decade, he says, and in 2014 the stock became contrarian as competition heated up. Villere sees endless applications for 3D printing as people realize manufacturing is going through a revolution.
“The focus is on industrial manufacturing whereby they can make pieces and parts that go inside of things like General Electric (NYSE:GE) engines as well as automakers like BMW (FRA:BMW) and Mercedes Benz, and aerospace like Boeing (NYSE:BA) and companies like that,” Villere said.
“We could see the future in the applications that it could have in terms of really revolutionizing manufacturing. I think with Hewlett-Packard now saying that they are getting into the industry that our whole thesis for all these years has finally been validated. They are going to have a good run for, I think, the next five or 10 years,” Villere added.
St. Denis J. Villere III, Partner at St. Denis J. Villere & Company, LLC, sees a good entry point into Men’s Wearhouse Inc (MW) as the company battles short-term headwinds.
“They are very dominant in the casual-clothing sector, and it came under pressure because they bought Jos. A. Bank, the retailer, and had a battle with the founder George Zimmer. The stock came under pressure when they made this acquisition and there was noise surrounding George kind of being pushed out,” Villere said.
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Villere says that when looking at the two companies combined, they have almost $6 a share in earnings power until 2017, making it a very inexpensive stock. He believes the companies are going to do well over the long term.
“We have been to stores and have visited regional sales people, and we can see the sales techniques that Men’s Wearhouse uses are going to be able to implement and utilize Jos. A. Bank. So I think that this is going to work out well. Plus, the $150 million in synergies between the two is really going to treat shareholders well over the next three to five years,” Villere said.
Managing Director Stephen Goddard of The London Company of Virginia says NetApp Inc. (NTAP) is trading at less than six times EBITDA and is holding an abundance of cash, nearly a third of its market cap, on the balance sheet.
“While they haven’t grown materially in recent years, they have relatively stable cash flow. The switching costs are high, allowing a stable client base,” Goddard said.
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Goddard believes NetApp has the potential to create value by returning capital to shareholders via more aggressive buybacks.
“This is much more about the opportunity on the balance sheet than speculation on future growth prospects. We view it far easier to analyze the balance sheet opportunities rather than trying to speculate on growth projections,” Goddard said.
Philip Gibbs, a Vice President, Equity Research Analyst with KeyBanc Capital Markets, says a name he favors in the metals & mining sector is Kaiser Aluminum Corp. (KALU). He says the company has a similar profile to the carbon EAFs, except that they are aluminum processors.
“So essentially they’d benefit from gradually declining aluminum prices, and they also have some fairly good visibility in aerospace, automotive and industrial,” Gibbs says.
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Kaiser Aluminum has put forth some spot price increases in heat-treated aluminum plate, which Gibbs says is the company’s staple product. He says lead times in that product have decreased to 10 weeks, as compared to nearly 20 weeks a year ago, creating good visibility in their order book.
“This is also a company that’s in a very good position to pay down debt beginning in the second quarter, and then they have roughly $600 million in net operating loss carryforwards or NOLs, which allow them to pay a very de minimis amount of cash taxes and really enhances free cash flow,” Gibbs says. “We like the demand visibility and high single-digit free cash flow yield.”
Finally, Gibbs says Kaiser Aluminum has the potential to do a reverse merger, purchasing a larger company in terms of EBITDA generation.
“It would make tremendous sense to us because that would allow them to fully keep their NOLs and really drive a lot of value for shareholders, bringing that cash more aggressively forward here over the next couple of years,” Gibbs says. “So dividend yield support as well strong free cash flow, and that’s really what we are looking for right now during a time period where we see a lot of global deflation.”
Philip Gibbs, a Vice President, Equity Research Analyst with KeyBanc Capital Markets, says the strong dollar has pushed a lot of U.S. steelmakers up the global cost curve and increased the amount of imports. Excluding energy, Gibbs believes the U.S. economy remains strong. Operating against what he calls an “extremely deflationary backdrop,” Gibbs says companies like Steel Dynamics, Inc. (STLD) have more variable cost structures and strong free cash flow.
“While hot-rolled coil prices in the U.S. have declined from $675 to $475, scrap prices have declined a nearly similar amount,” Gibbs says. “So from a spread — pricing less material costs — perspective, they have been relatively insulated and should see nice margin expansion in the event of steel pricing and volumes recover, each of which we are expecting in the second half of the year.”
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Gibbs says Steel Dynamics’ exposure to oil & gas is much less than a company like United States Steel Corporation (X). He says investors like the fact that Steel Dynamics has a good deal of exposure to nonresidential construction, so even in a weak steel price environment, they can generate a lot of free cash flow.
“Steel Dynamics right now is sporting a free cash flow yield on our 2015/2016 expectations of between 10% and 15%, which we think is pretty attractive,” Gibbs says. “More recently the company also enhanced its dividend, and right now they have about 3% yield. We think provides reasonable downside support amid a volatile market environment.”
