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Hello Readers,
Since the last Newsletter, we closed another position for a nice gain:
SCM MICROSYSTEMS (10/20/04). Closed position 12/7/04 at $4.56 for a 57% GAIN.
It’s not too often when a pick takes off after spending less than two months in the Current Portfolio, but SCM Microsystems did just that on news SCMM is to supply MPC computers with Smart Card readers for U.S. government programs.
This year has turned into one of the best for small stocks since the mid 1980’s and it also looks to be our best year since our inception in 1996. In 2004, we closed nearly 40 positions, all but six for gains of 50% or better. And yes, we know that of the 47 Current Positions that are still open, about a dozen are over a year old. However, that seems pretty good to us, considering that in the last eight years we have recommended over 430 stocks.
What will 2005 be like? We don’t know about the whole year, but the first few months of it should be explosive ones for the markets, especially for small stocks, barring, or course, unforeseen world calamities or government missteps. Keep an eye on the new Social Security reforms and talk of a national sales tax. Now, as for our Portfolio, most of our positions have had some good updrafts during the last few weeks.
Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.
Arotech (ARTX) (6/5/01). Gets N.Y. subway simulator pact valued at nearly $2 million. Presents latest in training and simulation products at Orlando conference.
ViroLogic (VLGC) (7/20/01). Completes Aclara acquisition.
V.I. Technologies (VITX) (11/20/03). This one has a slew of news, which means absolutely nothing to us since it is on the “Endangered List” and we should be closing it, soon, for an ugly loss.
Actuate (ACTU) (1/5/04). Equips spreadsheets to meet compliance requirements.
Peerless Systems (PRLS) (1/20/04). Quarterly numbers not great but not bad, either; balance sheet so-so. Ships high performance controller for Konica Minolta bizhub C350.
Crossroads Systems (CRDS) (2/5/04). Settles class action securities suit.
Transgene (TRGNY) (3/5/04). Names new CEO. Gets financing commitment through 2005.
OpenTV (OPTV) (3/20/04). Receives a nice plug on TheStreet.com.
AVI BioPharma (AVII) (4/20/04). Updates third-generation Neugene antisense program.
Glowpoint (GLOW) (5/20/04). Names new CFO. Worldwide electronic design automation company doubles use of GLOW video services at U.S. locations. Powers Australian IP-based network for video communications. Competes for “Fast 50” award. Sues Gores Technology for breach of contract.
Network Engines (NENG) (6/5/04). NENG’s NS6300 firewall appliance allows Xpress Source to expand customer base and increase profits.
Bindview Development (BVEW or BVEWE). This one made us slightly nervous last month, but the stock has taken a nice upswing. Some upbeat product news.
Avanex (AVNX) (7/20/04). Alcatel sells 7 million AVNX shares. Company names Deloitte & Touche.
Tripath (TRPH) (8/5/04). In the last Newsletter, we placed this on the “Endangered List” as the stock fell to 88¢, but it made a nice rebound to current prices after a presentation at the Lehman Brothers T4 Conference. Wait and see; there may be more class action suits.
Vitria (VITR) (9/5/04). Launches enterprise-class business process management solution for service-oriented architectures. BusinessWare achieves AS2 certification.
Intraware (ITRA) (9/20/04). To announce quarterly results on 12/21. Misys IQ extends agreement for ITRA’s SubscribeNet service.
Chordiant (CHRD) (9/20/04). To acquire KiQ, Ltd. For $19 million. Presents process-driven marketing solution and new multi-channel process-driven retail finance solutions at various conferences.
Net2Phone (NTOP) (11/5/04). Releases quarterly numbers, which are about what was expected, but NTOP signs multi-year contracts with five more cable operators bringing total homes under contract to more than 1.9 million.
Applied Micro Circuits (AMCC) (11/20/04). Names interim finance chief. Gets a nice plug at TheStreet.com.
StemCells (STEM) (11/20/04). Like OPTV and AMCC, this, too, received a nice plug at TheStreet.com.
AXM Pharma (AXJ) (12/5/04). BioProgess pic grants AXJ exclusive distribution rights in China and Taiwan to market some of their dissolve-in-the-mouth films drugs. Company also begins selling its Whisper Line of feminine hygiene products.
Our picks for this Newsletter are another drug developer/biotech and another semiconductor, both NASDAQ-listed.
ADVANCIS PHARMACEUTICAL CORPORATION (NASDAQ: AVNC) – $3.75. Twelve-month hi-low has been $10.15 – $2.50. Based in Germantown, MD, with around 80 employees, this drug developer has 22.8 million shares outstanding, $37.96 million in total current assets, $66.57 million in total assets, and $21.23 million in total liabilities, of which $1.82 million is long-term debt. Institutional ownership is about 23%. One analyst rates the stock a “moderate buy” and two have it as a “hold”. http://www.advancispharm.com
So, we add another biotech/drug developer to the Current Portfolio, and like AXM Pharma, that we picked in the last Newsletter, Advancis Pharmaceutical Corp. appears to have its worst lumps behind it. With a good-looking balance sheet, the company feels it can remain healthy until 2006. AVNC recently guided downward for FY2004 revenues and lost some of its GlaxoSmithKline business, but that doesn’t appear to be devastating.
Founded in 1999, Advancis focuses on developing and commercializing what are known as pulsatile drug products, which are based on novel biological finding that bacteria exposed to antibiotics in front-loaded, sequential bursts or pulses are killed more efficiently and effectively than those exposed to standard antibiotic treatment regimens. Based on this finding, AVNC has developed a once-a-day pulsatile delivery technology, called PULSYS. Last July, the company also acquired the U.S rights to the Keflex brand of cephalexin from Eli Lilly. Under terms of the pact, Advancis acquired the exclusive rights to make and sell Keflex (cephalexin, USP) in the U.S.
Advancis has four pulsatile drugs in Phase 1/2 clinical trials, four in late-stage preclinical development, and had been exploring pulsatile formulations for other antibiotics. However, last month, in a cost-cutting move, the company now plans to put major emphasis and resources on its ongoing Phase 3 trial for Amoxicillin PULSYS, which is being tested on adults with pharyngitis/tonsillitis. Advancis expects the results in the 2ndQT of 2005. The company expects to begin a similar Phase 3 trial in its “sprinkle” version of Amoxicillin PULSYS for children early in 2005. Also, next year, AVNC expects to work on value-added products for its Keflex line of antibodies to enhance the franchise.
Play the tape, again. Advancis is like many other small biotech/drug developers insomuch that it has little revenue and mega doses of losses. During the first nine months of this FY, ending 9/30/04, revenue was $4.24 million with $28.34 million in losses.
There are several things that could turn AVNC’s fortunes. First would be positive results from the Phase 3 trial mentioned above. Next is how fast the company can garner revenue from Keflex product sales.
Our 24-month target for the stock is $6.50 to $7.00.
For more information, contact AVNC’s Steven Shallcross at 301-944-6600; ir@advancispharm.com
QUICKLOGIC CORPORATION (NASDAQ: QUIK) – $2.60. Twelve-month hi-low has been $6.15 – $2.29. Located in Sunnyvale, CA, with about 160 employees, this semiconductor has 25.8 million shares outstanding, $40.6 million in total current assets, $56.27 million in total assets, and $15 million in total liabilities, of which $1.3 million is long-term debt. Institutional ownership is around 33%. One analyst rates the stock a “hold”. http://www.quicklogic.com
With Intel’s recent good to great news about its current and future progress, we feel even more emboldened in adding another semiconductor to the Current Portfolio. Not only does QuickLogic Corp. have a very decent-looking balance sheet, it also appears that the company has had sales growth in nine of its last ten years, which is rare in the chip industry.
Founded in 1988 as Peer Research, QuickLogic designs and sells field programmable gate arrays (FPGAs), embedded standard products (ESPs), associated design software and programming hardware. The company also licenses QuickWorks and QuickTools design software and sells its programming hardware. Its mature products are pASIC1, pASIC2, and pASIC3 while newer FPGA families are QuickRAM, QuickMIPS, Eclipse 2, and QuickPCI ESPs. The key components of the ESP and FPGA product families are its ViaLink programmable metal technology, user-programmable platform, and the associated software tools used for system design. The ViaLink technology allows QUIK to create smaller devices with low electrical resistance and capacitance and, consequently, supports higher signal speed and low power consumption. The company’s user-programmable platform facilitates full utilization of a device’s logic cells, clocks, and input/output pins, while its architecture maximizes interconnects at every routing wire intersection, which allows more paths between logic cells.
Last month, QuickLogic unveiled a wireless application portal on its web site. The portal discusses the challenges associated with wireless system design and provides users with solutions to these hurdles, particularly related to 802.11a/b/g Wi-Fi. In October, QUIK partnered with Renesas Technology to enable low-power solutions for the Wi-Fi market; the solution consist of Renesas’ SH processor and a programmable companion bridge from QuickLogic that enables connectivity to miniPCI and Cardbus based Wi-Fi modules or chipsets. Also, in October, the company introduced the QL92xxx family of programmable system-on-a-chip (SoC) devices.
For FY2003, ending 12/31/04, revenue was $41.96 million with $4.72 million in net losses. During the first nine months of this FY, ending 9/30/04, revenue has been $33.5 million with $2.8 million in losses. So, it appears that QUIK is on pace for another growth year.
There seems to be much here to like and not a lot to dislike.
Our 24-month target for the stock is $4.50 to $5.00.
For more information, contact QUIK at 408-990-4000; ir@quicklogic.com
Look for the January 5, 2005 Newsletter to be posted on 1/3 or 1/4.
Have a Happy Holiday!!
George