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Hello Readers,
Since the last Newsletter, we have closed another seven positions; five for gains and two for loses.
OPTIBASE (OBAS) (5/20/02). Closed position 7/10/03 at $4.48 for a 72% GAIN.
INTERWOVEN (IWOV)(3/20/03). Closed position 7/10/03 at $2.96 for a 58% GAIN.
MAGNETEK (MAG) (6/5/03). Closed position 7/10/03 at $3.56 for a 58% GAIN.
SPECTRUM PHARAMACEUTICALS (SPPI) (5/5/02). Closed position 7/9/03 at $5.05 for a 68% LOSS.
SABA SOFTWARE (SABA) (11/20/01) Closed position 7/9/03 at $5.40 for a 69% LOSS.
INTEREP NATIONAL RADIO SALES (IREP) (2/5/03). Closed position 6/30/03 at $3.00 for a 71% GAIN.
BRUKER AXS (BAXS) (6/20/02). Closed position 6/30/03 at $3.46 for a 57% GAIN.
Optibase received a nice boost shortly after announcing its first commercial deployments of MGN 5100. Magnetek flew when brokerage B. Riley gave the stock a “buy” and a target of $6.50, which could happen. No news moved Interwoven, but we suspect it caught the recent tech stock updraft. It was time to take the losses on both Spectrum and Saba Software, both of which shot themselves in the foot with their reverse splits (our opinion). We said in the last Newsletter that we would be closing Interep and Bruker, soon, since each had reached our 50%-plus threshold.
A few months ago, when this rally began, we posed, “do we dare hope for 500 on the Russsell 2000 by year end?” At this pace, we could see that by the end of this month, if not sooner. And by September, we could see 10,000 Dow and a 2200 Nasdaq. Huh? You query. Yes, because there are still too many gurus expecting this upturn to fizzle, soon. What they cannot get into their heads is the massive amounts of liquidity flowing into the markets that were created by low interest rates and, now, the tax cuts. Also throw into the mix a much better midset from individual investors. But, there is a caveat and that is beware of unexpected events, i.e. war, terrorism, etc.
Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.
Draxis Health (DRAX) (3/20/00). Realigns executive management team. Company and Bristol-Myers Squibb Medical Imagining expand and extend radiopharamaceutical partnership in Canada.
DOR BioPharma (DOR) (9/20/00). Executes exclusive worldwide license agreement for injectable rights to Ricin vaccine technology. Although this is on the “Endangered List”, we may be tempted to remove it, soon.
RateXchange (RTX) (1/20/01). Announces completion of exchange offer, which firm says will lower interest expense and move it closer to profitability.
InSite Vision (ISV) (4/20/01). Wills Eye Hospital director incorporates ISV’s OcuGene in Glaucoma Management Program. Company snags $400,000 interim financing.
Arotech (ARTX) (6/5/01). FBI academy purchases Arotech IES simulator. Company completes first milestone of Phase 3 Electric Bus program.
ViroLogic (VLGC) (7/20/01). Says study supports use of Repligen capacity as a predictor of clinical progression to AIDS.
Orthovita (VITA) (12/20/01). Calls for redemption of common stock purchase warrants.
Superconductor Technologies (SCON) (1/5/02). Added to Russell 3000 and Russell 2000 indexes. This helped move the stock 50¢ since our last issue.
Airspan (AIRN) (1/20/02). Dedicado of Uruguay selects AIRN’s wireless DSL technology. Launches North American WipLL distribution program with Alliance Corp.
VASCO Security (VDSI) (2/5/02). Launches Digipass G03. Upgrades 2nd QT outlook. Completes sale of its VACMAN Enterprise.
Catalyst Intl (CLYS) (3/20/02). Acquires Catalyst Consulting Services. This one is still on the “Endangered List”.
Magic Software (MGIC) (3/20/02). Joins growing EAI industry consortium.
Argonaut (AGNT) (4/20/02). Introduces a new reagent toolkit to optimize key steps in drug discovery and development. New reagent adds diversity to chemical libraries and simplifies purification.
Immersion (IMMR) (6/5/02). Study says IMMR simulator improved training and reduced patient pain during invasive exams. Med students learn physical exam skills using IMMR virtual patient software on any PC.
Hemispherx (HEB) (7/5/02). Reports new HIV treatment data on Ampligen. Completes $5.5 million private placement.
Generex (GNBT) (8/5/02). Discloses changes in certifying accountant and financial statements and exhibits.
Millennium Cell (MCEL) (9/20/2). Receives patent for improvement of manufacturing process of sodium borohydride.
Titan Pharmaceuticals (TTP) (11/20/02). Reports new positive Pivanex study.
Interactive Intelligence (ININ) (12/5/02). Sandy Corp. purchases ININ communications software. Listed in analyst firm’s report.
Cyro-Cell (CCCEC) (5/5/03). Restates earnings for 2001 and 2002, which was anticipated. Several more law firms pile on.
MIPS Technologies (MIPS) (5/20/03). Brokerage firm B. Riley gives a “buy” on MIPS. We’re starting to think that these Riley people must read this Newsletter.
Sequenom (SQNM) (6/5/03). Announces genetics discovery collaboration with Bristol-Myers Squibb. Sells MassARRAY technology to University of Hong Kong for international HapMap project.
Jacada (JCDA) (6/20/03). Release version 4.0 of Jacada Integrator.
Caliper (CALP) (7/5/03). Completes acquisition of Zymark.
Abraxas Petroleum (ABP) (10/5/01). Updates drilling and completion activities in the U.S. and Canada.
Our picks for this issue are a Starbucks look-alike and, of all things, a broadband provider.
DIEDRICH COFFEE, INC. (NASDAQ: DDRX) – $3.00. Twelve-month hi-low has been $5.25 – $1.50. Located in Irvine, CA, with about 400 employees, this specialty retail chain has 5.2 million shares outstanding, $8.27 million in total current assets, $27.7 million in total assets, $3.2 million in debt, and $7.1 million in total current liabilities. Institutional ownership is around 12%. http://www.diedrich.com
So, we digress from the tech/biotech stocks and dabble in something else. For the last decade, there has been a coffee craze, which hit a mild bump during the last few years, but, with the economic outlook a little brighter, people may be inclined to sip the likes of Diedrich Coffee, Inc.
Founded in 1972, Diedrich is a specialty coffee roaster, wholesaler, and retailer. The company sells brewed, espresso-based, and various blended beverages primarily made from its own roasted coffee beans, as well as light food items, whole bean coffee, and accessories through its operated and franchised retail locations. There are now about 408 retail outlets, with 25% company-owned, throughout 36 states and 10 foreign countries.
It’s easy to think that Diedrich could be another Starbucks, since DDRX seems to be copying the titan’s playbook. The company also sells whole bean and ground coffees to over 300 wholesale accounts through a network of distributors in the office service market, restaurant chains, specialty retailers, and food service operators, as well as via mail order and the Internet.
The company’s brands include Diedrich Coffee, Gloria Jean’s and Coffee People. DDRX also operates a limited number of kiosks under the Coffee Plantation brand name. Those of us on the East Coast may not be familiar with Diedrich, since most of its coffee houses are west of the Mississippi and clustered in California, Colorado, Texas, and Oregon. Its coffees come from many countries including Java, Colombia, Costa Rica, Zimbabwe, Yemen, Sumatra, Mexico, Kenya, Ethiopia, and Antigua.
For the FY ending 7/3/02, revenue was $62.2 million with $1.26 million in net income. During the first nine months of this FY, ending 3/12/03, revenue was $39.3 million with $483,000 in net income; however, DDRX did lose $219,000 in the last quarter that it attributes to planned unit closures and divestitures, and a sales slump at some company-operated units.
We’re betting that a better economy will get Diedrich perking again (yeah, that’s bad), and while DDRX may not reach Starbucks fame, it has proven earnings potential.
Our 24-month target for the stock is $5.50 to $6.25.
For more information, call DDRX’s Matt Guinness at 949-260-6734.
PARADYNE NETWORKS, INC. (NASDAQ: PDYN) – $2.15. Twelve-month hi-low has been $3.87 – 95 cents. Based in Largo, FL, with about 500 employees, this broadband provider has 42.9 million shares outstanding, $73.4 million in total current assets, $88.6 million in total assets, little debt, and $13.9 million in total liabilities. Institutional ownership is around 16%. One analyst rates the stock a “moderate buy” and two have it as a “hold”. http://www.paradyne.com It may seem lug-headed to be buying a broadband stock since there is still an oversupply of the stuff, but with DSL prices dropping, that could soon spur demand, and companies like Paradyne Networks, Inc., which appears to have a very good balance sheet, should prosper quite nicely. Back in the crazy days of 1999 and 2000, the stock hit nearly $60 right after it began trading on NASDAQ. Paradyne bills itself as a leading developer and distributor of carrier-class, high-speed network access solutions for broadband voice, data, and video for network service providers (NSPs) and business customers. The company offers solutions that enable high-speed connectivity over the existing telephone network infrastructure and provide for cost-effective access speeds of up to 45 megabits per second.
A leader in DSL, SLM (service level management), and broadband voice and media gateway solutions, Paradyne offers to customers its award-winning GranDSLAM and BitStorm DSL systems, ReachDSL and EtherLoop products, Jetstream Media Gateway systems, and iMarc SLM systems. PDYN believes the Jetstream Media Gateway now leads the market in deploying voice over DSL.
Paradyne has more than 37,000 DSLAMS (DSL multiplexers) around the globe, representing over 4.7 million ports of maximum capacity, and over 200,000 lines of its unique EtherLoop solution, giving providers such advanced services as video over copper. The company’s SLM solutions have been deployed by such leading carriers as AT&T, Bell Canada, Broadwing, SBC, Sprint, Verizon, and WorldCom.
Recently, Lightship Telecom and Adam’s Mark have selected PDYN products, which the company seems to go through great pains to keep upgraded. We should also note that in June Paradyne announced a corporate restructuring that will reduce its workforce by 55 employees; however, this could help future bottom lines. Also, PDYN is still defending itself from alleged “fraudulent” reporting during 1999-2000, but we sense this may no longer be a drag on the company.
For FY02, ending 12/31/02, revenues were $112 million with net losses of $17.2 million. During the 1stQT of this FY, ending 3/31/03, revenue was $19.29 million with $3.5 million in losses. Paradyne is an interesting paradox. It has to deal with many past ills while, at the same time, implementing for the future. So far, it seems to be maintaining this balancing act.
Our 20-month target for the stock is $3.75 to $4.50.
For more information, call PDYN investor relations at 727-530-2529; ir@paradyne.com
Look for the August 5, 2003 issue to be posted on 8/4 or 8/5.
Thank you,
George