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Hello Readers,
Since the last Newsletter, we have closed seven positions, five for gains and two for losses. It’s a good start to the new year.
AVI BIOPHARMA (4/20/04). Closed position 1/12/06 at $4.87 for a 57% GAIN.
EXACT SCIENCES (5/20/05). Closed position 1/10/06 at $4.75 for a 106% GAIN.
GLOWPOINT (5/20/05). Closed position 1/10/06 at 67¢ for a 65% LOSS.
SIRENZA MICRODEVICES (6/5/05). Closed position 1/6/06 at $4.98 for a 53% GAIN.
IGATE (10/20/04). Closed position 1/6/06 at $5.68 for a 50% GAIN.
AEHR TEST SYSTEMS (3/20/05). Closed position 1/5/06 at a $4.60 for a 53% GAIN.
TRIPATH (8/5/04). Closed position 1/5/06 at 44¢ for an 81% LOSS.
Ever since AVI Biopharma became a bird flue play, the stock has been on a roller coaster; then, the recent news from Turkey propelled it to our 50%-plus threshold. Exact Sciences roared on news that results of a research study showed significant improvement in colorectal cancer screening technology. Although GlowPoint may have a future, its relegation to the Pink Sheets means it may be in for a long slog, so, we took the loss. Sirenza Microdevices picked up on its nice run that began two weeks ago, while Igate seemed to join the party enjoyed by many small tech stocks since the start of the new year. AEHR Test Systems appears to have built up a head of steam prior to its earnings news, which showed a profitable quarter. Despite a spat of recent upbeat news. TriPath seems to be mired, for now, and we closed it for a very ugly loss.
What a difference two weeks can make! You all know about the markets recent uplift, so, no need to belabor things. Our views are unchanged since the last Newsletter, and we are just going to sit back and enjoy.
Here are the headlines since the last Newsletter about companies in our Current Portfolio. Dates in parentheses are when we first recommended them.
Ceragon Networks (CRNT) (1/5/06). Stock gets a nice boost as company signs an OEM pact with Nokia. Slates earnings call for February 6.
Castelle (CSTL) (1/5/06). Releases new FaxPress 2500 for small business market.
Napster (NAPS) (11/20/05). Mentioned in several online articles about how the competition for downloading music has stiffened. Slates earnings call for February 8.
Iona Technologies (IONA) (11/5/05). Forms strategic partnership with Industria. Schedules earnings release for January 26.
Westell(WSTL) (10/20/05). Will host earnings call on January 19.
RAE Systems (RAE) (10/5/05). Announces AreaRAE Resonder, the first ATEX certified wireless multi-gas monitor for the EU market.
EntreMed (ENMD) (9/5/05). Completes acquisition of Miikana Therapeutics. Company and Elan execute license pact for proprietary NanoCrystal drug delivery technology.
N.A. Scientific (NASI) (8/5/05). Stock drops on disappointing earnings news. Delivers serial Tomotherapy treatment planning products to a hospital in China.
CDC Corporation (CHINA) (7/20/05). Onyx rejects CDC takeover proposal and CDC urges them to reconsider. American West selects Pivotal for Best in Class Marketing.
TeleCommunications Systems (TSYS) (6/20/05). Company’s 40th patent enables carriers to offer improved A-GPS capabilities, says TSYS.
Loudeye (LOUD) (4/5/05). Sees record number of paid music downloads during 2005 holiday season. Receives NASDAQ delisting notice. This is making us real nervous.
Mindspeed (MSPD) (2/20/05). Slates earnings call for January 23.
Advancis (AVNC) (12/20/04). Says planned sale of Keflex rights delayed.
Applied Micro Circuits (AMCC) (11/20/04). Enters Macintosh storage market. Sets earnings release for January 25.
Aviza Technology (AVZA) (10/5/04). Provides FY2006 outlook.
Chordiant (CHRD) (9/20/04). Deutsche Securities initiates a “buy” on the stock. Names VP of worldwide marketing.
Network Engines (NENG) (6/5/040. Slates earnings call for January 26. Names new CEO. Enters into a distribution agreement with Ingram Micro. Attains gold certified partner status in Microsoft partner program.
NexMed (NEXM) (4/5/04). Names new CEO. Gets NASDAQ delisting warning. Remember, this one is on the “Endangered List”.
Socket Communications (SCKT) (3/20/04). Announces support for Palm Treo 770w Smartphone running Windows Mobile 5.0. Unveils go Wi-FiP500. Names IR firm.
OpenTV (OPTV) (3/20/04). Signs multi-year license with India’s largest cable and satellite operator, the Essel Group. Collaborates with S3 and Nagravision to provide pre-integrated solutions based on ST Microelectronics high definition decoder chips for hi-def STBs.
Somera Communications (SMRA) (2/20/05). Stock rated a “buy” by Merriman Curhan Ford.
Actuate (ACTU) (1/5/04). Buys privately-held performancesoft, Inc. to extend performance management throughout the enterprise.
AVANT (AVAN) (12/5/03). Gets a mention in the New England Journal of Medicine.
Active Power (ACPW) (11/20/03). Receives 1.8 MVA UPS order for largest airport in Mexico.
Insmed (INSM) (11/5/03). University of Rochester initiates Phase 2 clinical trial of iPlex for treating Myotonic Muscular Dystrophy.
Art Technology (ARTG) (8/5/03). Vodafone selects ARTG for email response management. Sets January 31 for earnings call.
Crossroads Systems (CRDS.PK) (2/5/04). Voluntarily delists itself from NASDAQ and we now place it on the “Endangered List”.
Nephros (NEP) (9/20/05). Announces first order from a major U.S. hospital for proprietary water filtration system.
Our picks for this Newsletter are a wireless equipment maker and a hospital provider, both trading on NASDAQ.
8×8, INC. (NASDAQ: EGHT) – $2.00. Twelve-month hi-low has been $4.09 – $1.03. Based in Santa Clara, CA, with about 90 employees, this equipment maker has 53.8 million shares outstanding, $24 million in total current assets, $26.87 million in total assets, little debt, and $7.7 million in total liabilities. Institutional ownership is around 6%. One analyst rates the stock a “hold”. http://www.8×8.com
This year is starting off as a good one for tech stocks, and also for the wireless sector. So, we add 8×8, Inc. to the Current Portfolio, since it has been showing some good revenue growth and has a decent-looking balance sheet, which may get better due to a recent $15 million equity funding; although this offering could affect the stock price short-to-medium term.
Founded in 1987 as Integrated Information Technology, and public for nearly nine years, 8×8 bills itself as a leading VoIP and videophone communication service provider; its major domo product is the Packet8 Broadband Phone Service, which is offered for several usages. The Packet8 VoIP enables broadband Internet users to add digital voice and video communications services to their high-speed hookups. It also uses Web-based technologies to allow account setup and management, billing, and customer support. As part of the VoIP service, the company resells private-branded telephone IP terminal adapters and IP videophones. The Packet8 Virtual Office allows users to be part of a virtual PBX (private branch exchange) that includes automated attendants to assist callers, conference bridges, extension-to-extension dialing, ring groups, and other PBX features.
8×8 presently holds around 50 U.S. patents with more pending, and, as of October 2005, the company had about 93,000 Packet8 lines in service, compared to 73,000, as of July. Its service and products are normally sold through direct sales, Web site, retail and online channels, cable TV providers, and wholesalers.
We suspect that much of the company’s future growth may come from distributor alliances. From the beginning of December, 2005, to the start of the new year, 8×8 signed an agreement with Brightpoint to offer Packet8 Internet phone services through VAR and SI network; inked a distribution deal with QDI Wireless also for the Packet8 Internet Phone Services; and teamed with BellSouth to deliver VoIP phone service to residential customers. During the first week of January, 8×8 and Uniden introduced a new generation of co-branded VoIP products.
For FY2005, ending 3/31/05, revenue was $11.47 million with $19.15 million in losses (ouch!). During the first six months of FY2006, ending 9/30/05, revenue was $13 million with $10.7 million in losses. So far, pretty good revenue growth, but we would like to see the losses come down, soon.
Except for the losses, there is a lot to like with 8×8. The company appears to be expanding its foundation for even more growth.
Our 24-month target for the stock is $3.50 to $4.00.
For more information, contact EGHT’s Joan Citelli at 408-687-4320; jcitelli@8×8.com
DYNACQ HEALTHCARE, INC. (NASDAQ: DYII) – $2.65. Twelve-month hi-low has been $5.60 – $2.24. Headquartered in Houston, TX, with about 300 employees, this hospital/healthcare provider has 14.9 million shares outstanding, $19.44 million in total current assets, $72.45 million in total assets, little debt, and $13.74 million in total liabilities. Institutional ownership is around 2%. http://www.dynacq.com
This is the year that the baby boomers turn 60 and, with that in mind, we add Dynacq Healthcare, Inc. to the Current Portfolio. Over the last several years, the company has been expanding and does have a decent-looking balance sheet, however, we should warn that DYII has had a few recent bumps along the way.
Formed in 1983, and public for nearly a dozen years, Dynacq is a holding company that through its subsidiaries develops and manages general acute care hospitals that provide specialized surgeries, such as bariatric, orthopedic, and neuro-spine surgeries primarily in the U.S. The company also provides fertility, sleep laboratory, and pain management services, as well as minor emergency treatment services, and ear, nose, and throat services. Its hospitals include operating rooms, pre and post operative space, intensive care, nursing units, and diagnostic facilities, as well as medical office buildings that are leased to physicians and other healthcare providers.
Dynacq’s hospitals are the Vista Medical Center Hospital in Pasadena, TX, the Vista Surgical Hospital of Baton Rouge, LA, the Vista Hospital of Dallas, TX, and the Vista Surgical Center West in Houston, TX. It also has a 70% equity interest in Shanghai DeAn Hospital, a joint venture formed for the purpose of building a hospital in Shanghai, China.
The company usually does not participate in managed care nor does it receive large reimbursements from Medicare or Medicaid. Most of DYII’s surgeries are covered by workers’ comp or by commercial insurers or an out-of-network health plan basis, and are relatively complex surgeries. Dynacq believes that, as a result, the per-procedure revenue generated by the company is comparatively higher than the per-procedure revenue generated by other hospitals. Sounds sort of mercenary, but if it benefits investors, there is little to argue about.
Over the last year, the company had a bumpy ride, as mentioned, and this is reflected in its yearly numbers. Several physicians left one facility while the needed expenses remained constant. Also, there was a major lawsuit that was settled. Then, its Baton Rouge facility filed for bankruptcy. For FY2005, ending 8/31/05, revenue was $55.27 million with $5.14 million in losses compared to FY2004 revenue of $62.85 million with $1.61 million in losses.
The bet here is that Dyancq has the bad news behind them and that the next few fiscal years will be better.
Our 24-month target for the stock is $4.25 to $4.75.
For more information, contact DYII’s Holly Hubenak at 713-378-2000; info@dynacq.com
Look for the February 5, 2006 Newsletter to be posted on 1/31 or 2/1.
Thank you, George