Steve Brozak specializes in health research and banking across many segments. Right now Mr. Brozak is seeing one of the most significant demands for innovation. He says there is a limited availability of money to fund research and pay for drugs, and he is seeing more financial calculations based on revenue that shouldn’t be rewarded, as well as companies making incremental improvements of older drugs being rewarded. He says resources are being wasted to support these types of activities. Mr. Brozak is looking forward to seeing some pushback, and he’s starting to see some around the periphery. He discusses five companies with novel drugs that investors should be noting.

Full interview available here.

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Alaska Air Group, Inc.

Equity Analyst David Weinstein of Dana Investment Advisors says Alaska Air Group, Inc. (NYSE:ALK) is currently trading at a discount, and over the long term the company should generate significant earnings and cash flow.

All of the major airlines are trading on a forward-earnings basis at single-digit multiples. Alaska is 8.5 times right now. ALK also has a 10% free cash flow yield, and historically, they have generated significant free cash flow. So you’re getting a lot of cash with your investment. You’re getting a company trading at a really significant discount to the broader market and to the industrial sector and to the transports in general.

Returning to the fuel costs, two years ago, crude was $100, right? In 2013 to 2014, crude was $100, and ALK made a lot of money back then. So we know that there’s a defined downsized scenario that we can model. Our view on crude is — and I don’t think this is outside of consensus at all — but our view on crude is that with the technology that fracking has brought to the table, you’re not going to see crude up near $100 in the next several years for any sustained period of time. So we think that fuel costs are an overborne concern. They do affect the quarter-to-quarter EPS volatility, but over the long-term, ALK is generating significant earnings and cash flow, which is supporting your investment.

Weinstein adds:

So what you’ve seen is, of course, Alaska is growing, probably going to grow earnings somewhere in the region of 10% this year. That’s also with a 10% free cash flow yield.

David Weinstein
David Weinstein

Full interview available here.

Mariana Kou covers after-school tutoring companies in China and international schools. Ms. Kou says for the after-school tutoring companies, leading players are investing in digital offerings, and that’s helping them take market share. She says demands are strong in Asia for international school education, and that trend in China is really kicking off because of rising income levels and the government encouraging private education. Ms. Kou says the education space is very attractive at the moment.

Full interview available here.

Jeffrey Silber discusses the education sector. Mr. Silber is more optimistic on for-profit education than most, as there are a number of selective companies that can be good investments, particularly those going from a public pay model to a private pay model. He says nonprofits have had to change their themes a bit to compete with for-profit companies with the demand for education that helps students increase their employability. Mr. Silber favors the child care and premium K-12 sector, where he expects to see continued growth.

Full interview available here.

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Ambarella Inc.

Chief Investment Officer Joan Lappin of Gramercy Capital Management Corp. says Ambarella Inc (NASDAQ:AMBA), a semiconductor processing solutions company, is recovering from the GoPro (NASDAQ:GPRO) crash and running business in a very cash-efficient way.

Ambarella was the supplier of the guts of the GoPro cameras, and as GoPro rose dramatically, Ambarella was dragged along for the pretty impressive ride. I evaluated both companies at that time, and I decided that GoPro was kind of a one-trick pony. It had the cameras. The cameras were hot, hot, hot; however, it was clearly a fad…

What I like about Ambarella is, it did then and still has no debt. It also has several legs to its table. It had the action cameras, and it’s also actively in the drone market. It’s also involved in these video cameras that are now being used by security people, including the police and home surveillance systems, which Comcast (NASDAQ:CMCSA) is promoting to its customers. And also, when you watch a football game on TV, a lot of what you see is based on action recording devices that are based on the Ambarella technology.

We had great success with Ambarella last year, rode it from 40 to about 100. When GoPro inevitably came crashing down, AMBA came crashing down as well because GoPro was such a significant customer for it. AMBA peaked very close to 130, and it dropped back into the 30s and has begun its recovery and is now in the 50s. I believe that it has turned the corner. Now, GoPro is also predicting a stronger second half with new models. That is probably a mixed blessing.

[…] I believe that Ambarella is a well-run company not given to hyperbole. It’s been around for a long time. And it seems to be run in a very cash-efficient way, which is why they have no debt.

Joan Lappin
Joan Lappin

Joseph Walewicz discusses his coverage of specialty pharma companies. Mr. Walewicz says the election cycle and talk of drug pricing are headwinds for pharma overall and particularly for the small caps in his coverage. He believes that clarity will be realized over the next year and that people will revisit the small-cap pharma space. With stocks beaten down, Mr. Walewicz looks for companies that are focused on organic growth and have low or modest leverage.

Full interview available here.

Dr. Gbolahan Amusa covers biopharmaceutical companies. Dr. Amusa looks for companies that can create value for the overall global health care system either through disruptive innovation in developed markets and/or by providing access to medicines in less developed nations. He is focusing on emerging areas such as gene therapy treatments, stem cells and regenerative medicines, and personalized genomics health care. Dr. Amusa says innovation is higher than it has been historically, as drug approvals last year had their second best year in history.

Full interview available here.

Gregory A. Gizzi discusses Delaware Investments. Mr. Gizzi invests in the municipal market. He had modest expectations for 2016, but so far, returns are on pace to beat expectations. Rather than allow macro events to dictate the investment strategy, Mr. Gizzi focuses on income, which he believes is the key driver of total returns over the long term. The portfolio structure is driven by a bottom-up fundamental credit process. According to Mr. Gizzi, the portfolio tends to be overweight the lower investment grades. Right now, he is finding value in revenue bonds, MSA tobacco bonds, health care and transportation issues. As for investors in the municipal bond market, Mr. Gizzi’s advice is to diligently reinvest coupon interest because the compounding effect will increase the ultimate return.

Full interview available here.

Joan E. Lappin discusses Gramercy Capital Management Corp. Mrs. Lappin believes that investing is an art and not simply a science based on algorithms. In her view, the primary problem with algorithms is that they are based on the past and don’t take changing circumstances into account. Overall, she thinks that future earnings drive stock prices. Mrs. Lappin considers herself a contrarian, and her approach is to wade into controversy. This allows her to find opportunities in companies that others want to avoid. She also looks at a company’s debt level and advises investors to stick to companies that have little to no debt.

Full interview available here.

Michael Johnson discusses Tributary Capital Management, LLC and its small-cap strategy. Mr. Johnson’s goal is to provide long-term, above-average returns with less volatility than the benchmark and competing peers. As a bottom-up investment manager, Mr. Johnson spends a considerable amount of time getting to know potential investments and has an owner’s mentality. He also maintains a long-term view and is prepared to hold a stock for three to five years or longer if the fundamentals stay intact and the valuation remains attractive. The key to Mr. Johnson’s approach is to own good businesses and to buy them at a discount to intrinsic value, which provides a margin of safety.

Full interview available here.

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