Episode 0011: Trimble Navigation: Casualty of King Dollar or building a durable cloud-based enterprise software empire?

Trimble Navigation’s high-margin geospatial business and its precision navigation systems for farm use have slumped as the dollar has pressured commodities markets.  But the company continues to grow in building information modeling (BIM) software and in mobile solutions for truckers and other fleets and work forces.  Management is seeking to improve profitability, and heavy investment in new features make its precision location software more  indispensable.  As technology continues to advance rapidly, will Trimble be a beneficiary of improved hardware and cloud-based data systems, or will its customers retrench?  Can it continue to make acquisitions, or must it focus inward to improve margins?

Episode 0010: Cree, Inc. Part 2: Can Cree’s strategy of heavy R&D investment in high power LEDs translate into better downstream profitability?

We described in Part 1 how Cree, Inc. ramped up its headcount in its LED fabrication operation during the major up-cycle that occurred from 2006 through 2010.  Although fewer bodies have been added since then, there’s “only” been a 10% reduction in corporate headcount since the all-time peak in fiscal 2014, and LED sales are now back to where they were before fiscal 2010.

Although Cree has changed course to emphasize lighting fixtures, the company still suffers from low gross margins and excessive operating expense relative to sales.  It also pays out a generous stock comp package even though its stock has underperformed Acuity, a pure-LED comparable that has treated its shareholders to the above average returns one might expect when being a leader in such a rapidly growing category.

In this podcast, we recap the operations discussion from part 1 (including thoughts about how our model has been changing over time), document how well the rest of the industry is doing, talk about the nature of excess Chinese capacity that was accumulated to accommodate flat screen TV manufacturing back in 2010-2011, and provide some color on what it’s been like to participate in the commercial, residential, and overseas markets for LED lighting.

Having heard parts 1 and 2, we think you will now have the building blocks to ask the right questions and properly think through whether Cree’s breakthrough SC5 technology might separate high power LEDs from those made by commodity LED fabricators, mirroring what happened coming out of the cycle downturn nearly a decade ago.  Importantly, you will want to consider whether Cree, Inc. can continue to grow in line with industry leaders on the lighting fixture side and if downstream margins might improve.

Episode 0009: Cree, Inc. – Part 1: The LED commercial lighting market is expanding rapidly, so why have Cree shares been left for dead?

Shares of Cree, Inc. are trading at about the same price as they fetched a decade ago, but at this point in time demand for LEDs for use in commercial lighting applications is very robust.  Other companies involved in this area have enjoyed a warm reception from investors, in stark contrast to Cree.  In this stock research podcast, we explore in detail what is happening in the realm of commercial lighting design and construction, and how Cree’s strategy has positioned this innovative company for the future.  As with many other episodes, we revel in the contrarian nature of the present moment, which we feel can reward those who choose to carefully examine the components of this company’s financial statement reporting and evaluate corporate strategy in a thoughtful and considered way.

Episode 0008: Zeltiq Aesthetics – Part 2: How does cyrolipolysis stack up against competition in non-invasive fat reduction, cellulite, and acne?

Besides having a unique technology, cyrolipolysis, Zeltiq may be able to effectively use this revolutionary platform to address needs beyond the original intention to selectively reduce fat in a non-surgical way.  In 2017, it plans to use CoolSculpting to treat grade 2 cellulite and acne.  Grade 2 cellulite affects a large portion of women, while some other devices target grades 3 or higher, which are characterized by unsightly manifestations like cottage cheese thighs.  By 2018, management hopes to introduce CoolSculpting to treat acne.  In this stock research podcast, we discuss the research of Dr. Rox Anderson of the Harvard Medical School, who delves into the history of acne treatments.  Powdered dry ice and acetone pastes were prevalent in the 1940s and 1950s, but were pushed aside by antibiotics and retinoids.  A tightly controlled approach to cyrolipolysis may improve outcomes and address worries of antibiotic resistance and fetal retinoid syndrome.  Using one platform to treat three conditions would present a unique competitive advantage to Zeltiq, should it succeed.