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Hello Readers,
The last ten trading days have been the ugliest that the markets have had in nearly six months, and, as a consequence, it probably explains why we didn’t close any positions since the last Newsletter. It also explains why our Current Positions portfolio doesn’t look as good today as it did a few weeks ago. What has caused the carnage? The reality of the impact from the hurricanes coupled with the effect that higher energy prices will have on last quarter’s, and this quarter’s, earnings reports has finally sunk in. Then, to make matters worse, Greenspan and several Fed governors sounded alarms about inflation, which may cause rate increases to continue longer than the markets had anticipated.
Now, having spouted all of this pessimism, we still believe that the current sloppiness is short-term. Sometime over the next few months, it should dawn on investors that the Gulf Coast really does need a major rebuilding and that should be a nice lift for the economy.
Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.
RAE Systems (RAE) (10/5/05). Clarifies release issued by UDTT.
Discovery Partners (DPII) (10/5/05). Slates earnings call for November 1. Sells division to Lexus Biosystems.
EntreMed (ENMD) (9/5/05). Posts positive results for anti-tumor drug. Says arthritis drug works in rats.
Staktek (STAK) (9/5/05). Demonstrates ArctiCore module technology. Will release earnings on November 3.
@ROAD (ARDI) (8/20/05). Earnings call planned for October 27.
N.A. Scientific (NASI) (8/5/05). Introduces serial tomotherapy advanced treatment solution. Secures new credit line from Silicon Valley Bank.
Zi Corp. (ZICA) (8/5/05). Launches downloadable Predictive Text Suite.
CDC Corp (CHINA) (7/20/05). China.com signs supplementary contract with E-Mobile division. Subsidiary forms online games subsidiary, CDC Games. E-Mobile subsidiary inks deal with Newpalm. CDC subsidiary to acquire leading casual games platform in China.
Electric City (ELC) (7/5/05). Nestle and SANYO Logisitics to participate in ELC’s VNPP development for ComEd.
TeleCommunication Systems (TSYS) (6/20/05). Named one of Maryland’s fastest growing tech companies in Deloitte’s Technology Fast 50 program. Joins forces with VoIP, Inc. for VoIP E911. Signs deal with 8×8 to provide E911 capabilities for all Packet8 subscribers. Providing Sprint with location-based services technology.
Sirenza Microdevices (SMDI) (6/5/05). Slates earnings call for Occtober 26. Named in Deloitte’s Colorado Technology Fast 50 program. Surpasses 100 million units shipped for its high-performance SiGe RF products.
EXACT Sciences (EXAS) (5/20/05). To webcast BIO Investor Forum presentation on October 19. American College of Gastroenterology accepts four abstracts submitted by company.
Verticalnet (VERT) (4/5/05). Slates earnings release for November 3.
Loudeye (LOUD) (4/5/05). Named on of Washington State’s fastest growing tech companies in Deloitte’s Fast 50 program.
Centra Software (CTRA) (2/20/05). Being acquired by Saba Software, a former pick of ours, for $56.6 million. Deal will be a cash and stock swap and should be finalized by May, 2006. We’ll be closing this at some point for a loss, but those of you who wish to go through with the swap may be allright.
Mindspeed (MSPD) (2/20/05). Announces high-density VoIP aggregation solution. Sets October 24 for earnings release.
Xycte (XCYT) (1/20/05). Announces quarterly dividend for 6% convertibles. Even though the company has a very healthy-looking balance sheet, we have placed this on the “Endangered List” since the stock doesn’t look like it can break out of current levels, and, if it doesn’t, it could face NASDAQ delisting.
Applied Micro Circuits (AMCC) (11/20/04). Sets earnings call for October 26. Stock upgraded by Goldman Sachs.
Net2Phone (NTOP) (11/5/04). Year-end numbers not great but balance sheet still looks half decent.
Nova Measuring Instruments (NVMI) (11/5/04). Provides positive outlook for third quarter.
IGATE (IGTE) (10/20/04). Subsidiary releases quarterly results.
TriPath(TRPH) (8/5/04). Introduces new Class-T amplifier for subwoofers and powered speakers. Remember, this one is on the “Endangered List:
Avanex (AVNX) (7/20/04). Slates earnings release for November 8. Enters into supply pact with Alcatel. This, too, is on the “Endangered List”.
Aixtron (AIXG) (7/5/04). Completes installation of Thomas Swan CCS technology at Blue Photonics production reactor.
Bindview (BVEW) (6/5/04). A slew of releases. Remember, this is being acquired by Symantec and deal should be done by year-end. We’ll be closing this, soon.
Network Engines (NENG) (6/5/04). Announces support for Microsoft’s Windows server system midsize business promotion.
Glowpoint (GLOW.PK) (5/20/04). Here’s another one that we add to the “Endangered List”, albeit reluctantly. GLOW was booted from NASDAQ for what appears to be late filings. However, stock holds up probably due to contracts from Court TV and the U.S. government.
GoRemote (GRIC) (5/5/04). Partners with Opti-Fi Networks to expand global wireless network. GRIC and Skype bring free Internet phone calls to mobile workforces. GRIC’s Branch Office solution selected by Party City Corp.
AVI BioPharma (AVII) (4/20/04). Releases good Neugene animal data showing positive results against four lethal agents. Could get up to $22 million in Defense funding for FY2006.
Palatin (PTN) (4/5/04). To present at the BIO InvestorForum on October 19. Coverage initiated by Rodman & Renshaw.
Socket Communications (SCKT) (3/20/04). Launches performance-level ruggedized cordless hand scanner for Bluetooth enabled devices.
Oplink (OPLK) (2/20/04). To report quarterly results on October 27.
Actuate (ACTU) (1/5/04). Partners with Payerpath. Will release quarterly numbers on October 26.
AVANT Immuno(AVAN) (12/5/03). To present at BIO InvestorForum on October 19. Completes enrollment of TP10 Phase 2b study in women undergoing cardiac bypass surgery.
Active Power (ACPW) (11/20/03) Numeric Power Systems agrees to sell CleanSource in India.
Trio-Tech (TRT) (10/20/03). To sell Irish test facility for $8.85 million Euros.
Targeted Genetics (TGEN) (10/5/03). Initiates next clinical trial of tgAAC94 in inflammatory arthritis. Granted broad patent covering siRNAs targeting Huntington’s. This is on the “Endangered List”.
Art Technology (ARTG) (8/5/03). Earnings calls set for October 25.
Monogram Bio (MGRM) (7/20/01). Studies demonstrate utility of eTag assays in oncology.
Our selections for this Newsletter are an AMEX-listed maker of voice processing systems and a communications equipment provider that trades on the NASDAQ.
COGNITRONICS CORPORATION (AMEX: CGN) – $2.35. Twelve-month hi-low has been $5.00 – $2.12. Based in Danbury, CT, with about 70 employees, this maker of voice processing systems has 5.7 million shares outstanding, $13.35 million in total current assets, $16.54 million in total assets, little debt, and $3.8 million in total liabilities. Institutional ownership is around 8%. http://www.cognitronics.com.
There are still plenty of small techs with decent-looking balance sheets and interesting technology and that is why we are adding Cognitronics Corporation to the Current Portfolio. Founded in 1961 and public since 1992, Cognitronics provides voice processing systems in the U.S. and Europe. It primarily designs and manufactures equipment for telephone networks in the U.S. and Europe; and distributes equipment for use on customers’ premises in Europe. CGN’s products include Network Media Servers, Cognitronics Exchanges (CX) Messaging Systems, and call management and voice processing products. These provide voice mail, unified messaging, and automated attendant functions. CGN sells directly to telecommunication service providers, switch manufacturers, IP-based communication systems manufacturers, systems integrators, and value-added resellers. Dacon Electronics is a distributor of Congitronics’ call management and voice processing products in Europe.
Some of CGN’s partners are Baypackets, Cedar Point, Cisco, D-tel, dyamicsoft., iperia, Italtel, Lucent, Siemens, Natural Convergence, Sonus Networks, Spectel, Syndeo, Tekelec, Telcordia, Telica, and Veraz.
The company’s main media server product is the CX Series that operates in both traditional circuit switched networks, but also is able to deliver network voice announcement and media services solutions in the latest packet networks. The CX Series allows carriers to move quickly and easily to the advanced packet switched technologies. Back in August, CGN received purchase orders aggregating about $2 million for CX 4000 Network media servers from a major telecommunication service to be delivered during the current year.
For FY2004, ending 12/31/04, revenues were $14.22 million with $554,000 in losses. During the first six months of the current FY, ending 6/30/05, revenue was $4.36 million with $2.45 million in losses. Although the first-half numbers weren’t pretty, the company is expecting substantive orders for CX Media Servers. CGN has taken lumps for most of the current year, but with its attractive balance sheet, the company may have time on its side.
Our 24-month target for the stock is $4.00 to $5.00.
For more information, contact CGN’s Harold Mayer at 203-830-3400; investor@cognitronics.com
WESTELL TECHNOLOGIES, INC. (NASDAQ: WSTL) – $3.90. Twelve-month hi-low has been $7.86 – $3.56. Located in Aurora, IL, with about 870 employees, this telecommunications equipment maker has 70.1 million shares outstanding, $96.28 million in total current assets, $183 million in total assets, little debt, and $36.1 million in total liabilities. Institutional ownership is around 49%. Three analysts have the stock as a “hold” and one as a “strong sell”. http://www.westell.com.
Sometimes it may pay to go with a popular company whose stock has been battered due to disappointing earnings news, and expects more of the same for the current quarter, because it may prove to be a turnaround situation. Westell Technologies, Inc. has a very good-looking balance sheet that should help get it over the present rough road.
Founded in 1980 and public since 1995, Westell produces customer networking equipment (CNE) and network service access (NSA) product lines. The CNE product line includes broadband and DSL technology products that transmit data over the local loop. These products allow telecom companies to provide broadband services over existing copper infrastructure. The company’s broadband products also enable residential, small business, and small office home office users to network multiple computers, telephones, and other devices to access the Internet. Some of the CNE products have names like ProLine, UltraLine, VersaLink Gateway, and Media Gateway.
Westell’s NSA product line consists of manageable and nonmanageable T1 transmission equipment, associated mountings, and special service plugs for the legacy copper network. Through its 91%-owned subsidiary, ConferencePlus, Inc., the company also provides audio, video, and Web conferencing services to business and individuals. WSTL sells its products through domestic field sales and selected distributors to regional Bell operating companies in the U.S., as well as various other entities, including public telephone administrations outside the U.S., independent local exchange carriers, competitive local exchange carriers, ISPs, and businesses.
In mid-September, ConferencePlus announced its GuaranteePlus for new customers, a reliability program with a full money-back service guarantee for its AudioPlus conferencing services. For FY2005, ending 3/31/05, revenue was $270.26 million with $39.69 million in net income. During the first quarter of FY2006, ending 6/30/05, revenue was $75.64 million with net income of $4 million, marking Westell’s 13th consecutive quarter of profitability.
As alluded to above, Westell has guided below analysts’ expectations for the current quarter, however, the company has a good record of turning profits and should be able to ride over any pot holes without too much damage.
Our 24-month target for the stock is $7.00 to $8.00.
For more information, contact WSTL’s Nick Hindman at 630-375-4136; nhind@westell.com
Expect the November 5, 2005 Newsletter to be posted on 11/1 or 11/2.
Thank you,
George