The Blog of Evermore

Update on Recent Activity

On February 27th, I posted that I had taken up positions in three new stocks (Exar (EXAR), Biosante (BPAX), and Comverge (COMV). Thus far, the three have each gone their own way. As of today, EXAR is up 2.2%, BPAX is up 91%, and COMV is down 47%. Fortunately, I took more substantial positions in BPAX and EXAR.

The sell-off in COMV has subsided and it probably is not a bad time to accumulate some shares as the downside should be limited with a high probability of being able to turn a profit. While I have been tempted to do so, I have resisted because of the tentative nature of the global economy and because I think there are better places to put money to work. I will hold onto the small stake I have because of what is now a low risk holding and the fact that at this price COMV could be takeover candidate.

I have recently shifted some money around by selling a portion of my holdings in the following:

AT&T
Bristol Myers Squibb
CalAmp

I still hold positions in these companies but I wanted to take some profits and take up some new positions. At the time of sale, I was up over 50% with CalAmp, 25% with AT&T, and 13% with BMY. Those figures are excluding dividends received.

I am still maintaining a sizable cash balance as I’m not convinced that the dual threats of the European Union difficulties and the impact of state and local budget cuts are priced into the market. As I commented last August, state and local governments are continuing to cut to the bone (and into the bone), and this will continue to be a drag on the economy. Add to this the moribund housing market and all is not well for non-Apple shareholders.

This does not mean that I am cowering on the sidelines. I have recently taken a position in Nokia. I plan to dollar cost average into it. I wanted to take advantage of the recent dip (I bought in at $5.84), but did not want to commit too much, too early as Nokia’s earnings announcement tomorrow will probably not be well received. My thinking on Nokia is as follows:

It is not unusual for technology companies to fall out of favor. History is littered with such companies (Digital Equipment Corporation, Compaq, Dell etc.). Sometimes technology companies never recover from the forces that caused them to fall out of favor. Eastman Kodak is a current example of this. They ran into a brick wall of change and despite fighting admirably, have found that their nascent recovery entering the digital camera market is now being threatened by consumers increasingly relying on their smart phones for snapping pictures. But sometimes, companies do pull themselves up, it just takes time. Remember the early 90’s when IBM was written off? IBM’s stock fell from around $98 to $40 between April of 1992 and July, 1993. Today, the stock sits at $183. And in a now legendary turn of events, Microsoft purchased $150 million of Apple preferred stock to help keep a struggling Apple afloat; only to be surpassed in market value in 2011.

There is definitely risk with Nokia. The iPhone and Android are practically the only game in town in the smart phone marketplace. However, Nokia has one thing going for it that a company such as Research in Motion does not: their relationship with Microsoft. I know, I know, you are probably laughing right now about the Windows 7 phone. Yes, its footprint is non-existent at the moment. But I believe this will change with time. In fact, my delving into Nokia has also awakened me to Microsoft. While the general feeling is that Microsoft was yesterday’s technology darling, the people in Redmond have made some strategic moves that are not readily apparent but could set themselves up nicely down the road.

1. Microsoft gets royalties from every Android phone sold.
2. Microsoft has stakes in Facebook & Comcast.
3. Microsoft recently acquired Skype.
4. Bing is slowly making inroads in the search market.
5. Apple is aggressively going after manufacturers of Android via patent suits and at a minimum, may be able to extract royalties for each Android phone sold and could potentially inflict even more damage to the platform.
6. Google is under further pressure regarding their Android operating system due to a suit being brought by Oracle, seeking damages related to Java patents.

All this could add up to disruption to Android manufacturers or at a minimum, increase the cost of the phones, making a Windows 7 phone more appealing.

So the Windows phone is not dead. I would argue that it really hasn’t gotten started. From what I hear, Windows 7 is very sleek and user friendly. Could Microsoft find themselves in the same position as Apple was in for all those years, having a superior product that no one took seriously? If so, will they be able to forge a market for the phone?

Of course the Windows phone can be successful without Nokia benefitting, but it’s likely that the fate of both will be closely linked. A week ago, every article I read was that Nokia was dying. “Stay away”.. “it’s just in the process of experiencing a slow death.” When things are this dire, it often can be a time to buy. Interestingly, I’ve been meaning to blog on Nokia for about a week now, and starting just a day or two ago, I’ve been seeing some more positive press as Nokia’s earnings date nears. I’m hoping Nokia dips further after this earnings release because I think it will be at least 24 months before the verdict is in on their turnaround hopes and like I said, I’m in accumulation mode.

On a final note, I recently doubled my position in Corning as it dropped precipitously down under $17. As it turns out, I could have gotten in lower if I had waited a few days, but I’m happy getting in at &17.27. Additionally, I purchased some Cicso stock around $15.30 for my son’s college fund. And lastly, I bought a bit of a lottery ticket with Rosetta Genomics (ROSGD) – but more on that to come.

The information and opinions on this site are not meant to serve as financial advice. I am not a financial advisor. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional This site is merely intended to provide what I hope is interesting information and opinions.

Add comment July 20th, 2011

Holding insider’s coattails through cautious times

It’s getting difficult to find attractive investing opportunities at the moment. Many of my current holdings are doing well and I still have a lot of my money in cash. Since my last post, I did take initial positions in three companies while taking profits in another.

I purchased some LSI shares at $4.45 a while back and have since sold off about 72% of that initial position in two sales ($6.02 and most recently at $6.74). I have now pulled out my initial investment and the shares I hold now represent my profit.

In combination with the most recent sale of LSI, I purchased shares of Exar at $6.33 (currently at $6.58). Exar is what is termed a “fabless” semiconductor company; meaning that they perform the sales and design work for new semiconductors but contract out the manufacture of the end product. My reasons for taking a position in Exar are as follows:

• The price recently fell due to a somewhat disappointing quarter and a projection that the current quarter will also be soft.
• Optimism for recent design wins that could start hitting the bottom line towards the end of the year.
  A sizable purchase of shares by the CEO and a steady and continuing significant accumulation by Soros Fund management.
• Downside limited by the fact that the company has about $4.50 per share in cash on hand.

I don’t expect anything to happen with this stock over the next several quarters but I am hoping that it will turn out to be a good investment 12 months from now.

I also picked up some shares of Biosante Pharmaceuticals (BPAX) at $1.87. The stock subsequently took a quick run up to over $2.50 and has now settled back (as of this posting) at $2.14. This stock will likely be volatile for the foreseeable future, so it may represent a good candidate for those interested in day trading.

Biosante is definitely a “story stock” in that it is currently nearing completion of trials for LibiGel, a product that the company is hoping will do for women (and investors) what Viagra did for men. While the company has other products in the pipeline, in the near term this company is a bet for or against the approval of LibiGel. There has been significant options activity regarding BPAX and there are large number of shares sold short (which may represent hedging as much as a pure bet against the company).

Other companies have failed to be successful in getting a testosterone related product to market for women, so I wouldn’t bet the farm on this one. However, given the recent insider purchases and the looming milestones coming up this year, I thought it worth taking a stake and keeping an eye on it. This is a good candidate for taking a position to hold and then trading around with some shorter term trades to take advantage of the volatility.

I have had Comverge (COMV) on my monitor list for some time and recently took a small position in it. The stock is very volatile and spent most of the past six months bouncing between $6.00 and $8.00 per share (it had been as high as $13.00 in 2009). Per the company’s profile: “Comverge, Inc. provides peaking and base load capacity solutions to electric utilities, grid operators, and associated electricity markets in North America.” So to some extent, this is a play on the smart grid that is supposedly coming our way.

Like Exar, this is a company that recently had a disappointing quarter and has seen its stock price fall to multi-year lows. Also, like Exar, the company has seen steady accumulation by insiders. It’s always nice to get shares at prices less than those in the know, and you can do that right now with this company.

Add comment February 27th, 2011

2010 in Review

Overall 2010 was a pretty good year for the stocks I identified using a new filtering process. The chart below gives the highlights and low lights of investments I made.

Notes regarding the year’s activity. On the downer side, I sold out of my position in OI Corp in May when the market was starting to look like it was heading down. Since the stock was not showing much activity, I figured I would have the opportunity to get back in at a later point. Unfortunately for me, the company was bought out in September at $12.00 a share. Had I held on, it would have given me a near 50% gain.

Peregrine was the biggest loser of the bunch. It is a company that is still a ways off from getting a drug to market. I would like to see some sort of deal in 2011 but that is speculative. This company is a long shot, but we will know about them within the next 12 – 24 months. The price paid in the chart reflects my having sold some of my holding at a loss earlier this year thus, raising my break even point.

Verizon has been a big winner due to the combination of stock appreciation, the dividend of the Frontier shares, and my having sold part of the position at a gain (lowering the average investment of the shares still held). As noted above, these gains do not include the 7% I am earning on the stock’s dividend.

Some of the stocks sporting losses for me at the end of the year, should be able to pull themselves out of their ruts. Lime Energy and Liberator Medical are two that I intend to continue to hold throughout 2011.

The information and opinions on this site are not meant to serve as financial advice. I am not a financial advisor. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional This site is merely intended to provide what I hope is interesting information and opinions.

Add comment January 4th, 2011

Three out of Favor Stocks to Consider: LSI, COCO, ATEC

These three stocks are in very different sectors but have one thing in common. They’ve all been beaten down lately by factors that may not be as bad as the their respective sell-offs dictate..

LSI is in the business of designing, developing, and marketing semiconductors used in networking and storage systems. These are two areas that should experience growth over the coming years, despite the challenging economic times ahead of us. With the advent of cloud computing and more and more emphasis on mobile web-based devices, demand for LSI’s products should be strong.

Shares of LSI traded in the $5 – $6.50 range for the first half of 2010 before coming under pressure this summer. LSI was downgraded by Lazard Capital in July due to weakness in the PC supply chain. This sent the stock on a downward path that brought it down to the $4 range. At this price, insiders promptly jumped in at bought about 150,000 shares.

For this and the following three reasons, I saw this as a buying opportunity.

• Analysts are focused on the near term, by that I mean the next several quarters out. As a longer term investor, I don’t care as much about that.
• Networking and storage requirements will only grow as the internet continues to usurp the personal computer. While the lessoning emphasis on the personal computer does have a negative impact on LSI, this accounts for about 20% of its business which means that 80% is poised for growth.
• I was able to pick up shares of LSI at $4.48 which translates to less than 8 times the lowered 2011 estimates.

COCO – Corinthian Colleges is a for profit post-secondary education company. This sector was slammed over the summer due to the Department of Education proposal to crack down on extending loans to students attending these institutions due to the poor repayment record of their graduates. Corinthian quickly went from an $18 stock to a $4 stock.

Again, the concern is legitimate, but the risk-reward ratio was hard to pass up. The baby boomlet of the early nineties means that there are large numbers of young adults seeking advanced degrees. Many of these individuals cannot afford or do not desire to attend a traditional four year institution.

Trading at less than 5 times current year earnings projections and seeing insiders jumping in convinced me to take a small position in this stock. If nothing else, it will be some time before anything is resolved on this and at some point, the stock is likely to bounce back enough to make this a successful investment. I wish I had been on top of this when it was at $4.00, but I’ve already seen it go up almost a $1.00 since I got in at $6.24.

ATEC – Alphatec Holdings. Alphatec is in the business of providing products for the surgical treatment of spine disorders. Similar to LSI, Alphatec spent most of 2010 in the $4 – $7.00 range. That was until they missed on revenue and earnings in the second quarter. The stock promptly lost half of its value and sits today just over $2.00/share.

There’s a lot in flux at Alphatec as they digest the acquisition of a French based spinal products company (Scient’x S.A.). This combined with pricing pressure being experienced by all players in this niche and the inclusion in their revenue guidance of a Japanese subsidiary that is being divested, all added up to the disappointment. The company’s oversight is being promptly exploited by opportunistic law firms who are ostensibly looking out for the ATEC shareholders.

Short time horizon holders aside, the growth prospects for ATEC are still solid. Yes, the pricing pressures are a concern and the most significant risk is probably the reimbursement rates that health insurance carriers will be willing to pay. However, there’s no denying the demographics in the developed world are in Alphatec’s favor. Interestingly, in the days just before I started looking at Alphatec, I heard of two people I know who are or may be suffering from spinal stenosis. This is the kind of observation that would make Peter Lynch proud.

Alphatec has several products in the pipeline in addition to their core products already on the market. With their recent acquisition, they have a global reach into Europe, Asia and to a lesser extent Latin America.

The second quarter earnings disappointment is behind them and the lawsuits will eventually work themselves out one way or the other. The company has a strong balance sheet with lots of cash so future dilution should be limited.

Analysts who were caught off-guard with the earnings disappointment promptly lowered their recommendation to hold from buy (they had placed a buy on it when it was close to $6 a share). I think they’re a little whipsawed having issued the buy at this price and now placing a hold when it’s at $2.16. The downgrade has nothing to do with the sector or the products that Alphatec produces. Again, I think these downgrades are looking only a few quarters out. The buy ratings will probably come back when this stock has doubled again to over $4/share. In fact, one firm (Stifel Nicolaus) that initiated coverage AFTER this latest earnings released has initiated coverage with a buy rating.

The stock may not move much for the rest of the year, but it would appear to have no where to go but up from here.

Add comment October 1st, 2010

The Looming Impact of State and Local Government Budgets

In late 2008 and early 2009 we saw the impact of a rapid downsizing within the private sector. The unemployment rate soared and expenditures were cut. This year, the private sector has stabilized for the most part; but is this just the eye of the storm?

A new source of strain on the economy is coming by way of state and local government budgets that lawmakers are currently trying to cobble together. The impact of this recession is only now hitting governments with full force. The combination of lowered sales, income, and property tax revenue combined with increased social spending means that there will be drastic cuts required in upcoming fiscal budgets. This translates into more unemployment, reduced payrolls and painful cuts in services. These cuts will not only impact state and local employees and the citizenry, it will also impact the private sector.

So caution is still in order. I have roughly the same allocations I had before and have been happy with my telecom investments as the 7% yield I’m getting on AT&T and Verizon coupled with their recent run-up makes for a nice return in this market. I also ditched the last of my Dover Motor Sports around $2.00 and have since seen it fall almost 25%.

I’ve also seen my agriculture ETF (DBA) rebound back to and above my December, 2009 entry price. I was down for quite a while but my patience was rewarded. The ongoing drought in Russia and surrounding region has caused a spike in wheat prices that has helped with that investment. I had a little more in the ETF than I was comfortable with, so I let go 40% to bring it down to a more reasonable percentage of my portfolio.

There’s not a whole lot out there that looks attractive right now. I did just buy some Corning (GLW) at $18.84. They have a reasonably strong balance sheet and they have a product they call “Gorilla Glass” that could help improve the bottom line over the next couple of years. It is a very strong glass that enables manufacturers to create products such as flat screen TV’s without the need for a surrounding frame, thus reducing the weight of the television and probably just looking pretty cool. For some company information on the product click here

Given that Corning was trading at about 9 times projected earnings, they pay a very modest dividend and they are positioned well if we ever do start bringing fiber to the curb, I figured it was a reasonable risk. At this point I’ve just dipped my toe.

Add comment August 5th, 2010

Other (mostly) Small Cap Stocks

A run-down of some of the other stocks in my portfolio.

AMAT – Applied Materials

I’ve traded around a little with this one over the years and got back into it when it was down in the $8 range in February, 2009 and then added some more in the $11-12 range in February of this year. I recently took some of it off the table at $14.32 after their Q2 earnings release.

This is a stock I like for the long haul. I recently sold my Intel holdings and put that money into AMAT. I did this because the way I figure it, the demand for semiconductors will only increase as the middle-class in other areas of the world continue to grow. However, knowing which semiconductors is more difficult to determine. While Intel is a strong company, I spooked myself a little when I imagined a Chinese-based company acquiring AMD. Such an acquisition could pretty much take China and perhaps other areas of Asia off the map for Intel.

But regardless of what semiconductors are designed and constructed, the equipment to build those semiconductors will be in demand.

Throw in AMAT’s foray into solar panel manufacturing equipment and a very strong balance sheet, and I’m very comfortable holding this stock.

DVD – Dover Motor Sports

On the other side of the safety spectrum from AMAT is DVD. This is soley an asset play as the company is not profitable, has a weak balance sheet (at least on a GAAP basis) and has limited growth prospects. This is a stock I typically would run away from except for two things. The first is they have assets whose true value is not reflected on their balance sheet. The fact that they host two NASCAR Sprint Cup races and operate a unique race track that can hold well over 100,000 people. There has also been insider buying recently which might be an indicator of something positive happening soon.

There has been some discussion of selling the company but the owners (this is a closely held public company, meaning it is actually controlled by a few people) do not want to let it go when it’s valuation is in a trough.

I won’t have a lot of patience with this one, but as long as insiders continue to buy shares, I’m comfortable looking for a buy-out.

PPHM – Peregrine Pharmaceuticals

This small biopharmaceutical company has been around a long time and burned through a lot of cash. It has a couple of drug candidates that are nearing completion of phase II trials. Progress reports appear positive; however, I am by no means qualified to judge the scientific data. What I can tell is that one director of the company has loaded up on the shares and if there is anything to what they’re relaying about their products, there is significant upside for this company. The company’s drug candidates can be used in combination with other drugs for potentially a wide range of cancers.

Another aspect of this company I like is that while they are moving these products through the pipeline, they also operate a subsidiary that performs contract manufacturing services for biotechnology and biopharmaceutical companies. This, in theory, will help them generate some cash-flow and reduce future shareholder dilution; a concern for a company with over 51M shares outstanding already.

I’m holding a modest position in this company and keeping a close watch on the activity. Something will need to happen over the next 12 months in terms of partnering for phase III trials. I don’t think they have the resources to go it alone.

CAMP – Calamp

Calamp, formerly known as California Amplifier, has been around a long time. The company describes itself as a “provider of wireless communications solutions that enable anytime/anywhere access to critical
data and content.” The products of theirs you would be most famaliar with are the ubiquitous satellite TV receptors you see on every other house.

Back in 2007, the defect in one of the products they were shipping to a major customer was discovered, resulting in the halting of orders. It was a big blow to the company and although sales have resumed with this customer, they have yet to get back to where they had been.

Now, you might think that this market is saturated and the prospects for growth are therefore limited. In part this is true, however, as cable, internet, and satellite providers rush to provide more and more services, the need for new equipment for existing customers is created.

Additionally, they have other segments they participate in included public service communications, industrial monitoring and most recently getting involved in “smart grid” initiatives (adding intelligence to the electrical grid). The company recently (4/5/99) announced three new supply contracts worth $15.3 million within the rail, public safety, and utility smart grid sectors. To put this in perspective, the company had total revenues of $98 million in its last fiscal year.

LIME – Lime Energy
This company is involved in helping businesses and governments improve their energy efficiency. This is an industry that is still very fragmented and LIME is helping to consolidate it through acquisitions.

There is tremendous focus on identifying and developing alternate and new sources of energy to meet future worldwide demand. The less glamorous side of this coin is reducing an organization’s costs through energy efficiency. Demand for this service is not likely to reverse anytime soon as more of the world joins the devleoped nations as large energy consumers.

In spite of these longer term trends, delays by some customers have slowed things at LIME recently. Some of this is attributable to the bureaucracy related to the stimulus plan. They are expecting (hoping?) to see stimulus related revenue pick up in the latter half of the year. The slowdown now could represent a good entry point (I’m currently sitting at a modest loss).

Another variable is that recent improvements in drilling for natural gas has helped drive the cost of natural gas down significantly over the last six months. This is probably not beneficial to a company such as LIME where you would expect demand to be impacted by people’s cost of energy. It could be a while before the impact of utilities and other enterprises switching to natural gas as their primary energy source will bring the cost of natural gas back in line with its historical relationship with the price of oil.

So LIME is definitely a long term prospect. One thing I like about them that I think is largely lost in all the noise of energy is that they are also involved in helping customers in the conservation of water. I think that water conservation will eventually become more critical than energy efficiency.

T/VZ – AT&T/Verizon

Here’s my take on these two communications companies. First and foremost, they’re stable. Even when the bottom of the market was falling out from under it a year ago, these stocks only dropped a few dollars from where they are today. Throw in a dividend in the 6% range and you’ve got a certain degree of security built right in.

But are these really stodgy old utility-like companies? I suppose they could be. The cell phone market is largely saturated at this point and wireline service is on the decline, so yes, there is some reason to expect low growth. But there’s one thing that I’m not sure people are pricing into their valuation at this point. These companies are not just internet companies, they ARE the internet. Between them, they operate a large percentage of the actual fiber that makes up the internet around the world.

I know there is a strong desire to keep the internet open and free for anyone and everyone to use; however, I have a hard time seeing how the Googles and Netflixes of the world can expect to be able to throw out immense traffic onto the internet and not be expected to pay for it in some manner. So are AT&T and Verizon just expected to continually lay fiber and upgrade their networks for free so that people can watch Netflix movies without disruption? Someone is going to have to pay in some way, whether it be the companies who are streaming large quantities of data or the consumers who are consuming them. Google’s planned high-speed test plan in certain metro areas aside, the barriers to entry to building out the internet are immense and I don’t see anyone jumping in to challenge the current owners and operators of the internet.

Going forward, I see two things of value regarding the internet. One is the content. Without content that people are interested in, the internet is only a giant email and phone network. The other thing of value is owning the actual conduit of the internet. The Tier-1 carriers to be exact. These are the companies that own and operate the internet backbone.

If I were a Netflix shareholder (which I’m not), I’d be a little concerned about my business model. Netflix is a company that takes other people’s content and delivers it to customers on another company’s network. They are nothing more than an intermediary and I predict that without merging with someone, their days are numbered.

To be sure, there are regulatory and political obstacles facing AT&T and Verizon, but at the end of the day I don’t see how they get the shaft and end up simply the maintaining of the internet for everyone else to exploit and make money on.

There are other Tier-1 carriers such as Sprint, Quest and Level 3. I’ve got my eyes on them as well, but these are less stable and also carry a lot of debt. I would not be surprise to see them merge with other companies at some point because of their assets however.

Add comment May 3rd, 2010

Extreme Networks -> Buyout Target?

Full Disclosure: I took a position in EXTR at $2.91 in December, 2009.

At the time I took my initial position in Extreme Networks, I was looking at this company as a buyout target. Hewlett Packard had recently acquired 3Com and after a dismal Q1, Bob Corey had been named interim CEO. Bob Corey has been associated with several companies that went on to be aquired and had recently taken a modest position in the company.

The woes that had plagued the company were partly the result of problems with their suppliers and as such, appeared to be an obstacle that was fairly easy to rectify . The bigger challenge for EXTR was to turn the corner on profitability through growth and not just cost-cutting. It appears that CEO Corey and EXTR are moving in the right direction.

Today EXTR reported meeting their revenue projections and beat the Q4 EPS projection by $.02 on a non-GAAP basis (.06 vs. .04). More importantly, guidance for the coming quarter is for top line revenue to increase nearly 7% sequentially and about 3% Qtr. over Qtr.

While this hardly represents gang-buster growth, it justifies the recent run-up in the stock price; providing some cover while waiting for a speculative buyout. I feel EXTR is fairly priced around $3.75 price per share.

2 comments April 27th, 2010

DUSA Pharmaceuticals: Room to Run?

Dusa Pharmaceuticals has made a good run since Chairman of the Board Jay Haft purchased 10,000 shares at $1.71 on March 5th. This on the heels of some other insider buying back in December, 2009.

I first spotted DUSA (and took an initial position) when it was trading at $1.53 in December of this year. It closed on April 23rd at $2.67.

So has the opportunity with DUSA gotten away from investors? Not if DUSA is able to overcome the one hurdle between it and significant growth: increasing the rate at which dermatologists are adopting their treatment of actinic keratoses (AKs), a precancerous skin lesion caused by sun exposure.

If DUSA’s photodynamic therapy can gain traction and become the preferred form a treatment, there’s no telling where this stock can go. They have only 24 M shares outstanding and a strong balance sheet, so dilution of shareholder value should be limited.

DUSA’s solution to treating AKs requires the use of their pharmaceutical product (Levulan) combined with their BLU-U hardware which emits the appropriate light wave required to trigger the benefits of Levulan. While Levulan sales increased 20% this past fiscal year, the more important number to watch is the sales of the BLU-U device, as this is a better indicator of future sales. Last year, BLU-U unit sales increased 10%.

DUSA expects to be profitable for the first time in the Q1 of 2010.

Bottom line: This is a small cap stock with room to run if they can convince the medical profession to abandon a long-held treatment regimen.

3 comments April 24th, 2010