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Hello Readers,
In the last Newsletter, we said the markets looked tired, but every time we have expected a sell off, the averages keep moving upward. And, surprise that is exactly what happened, thanks to the Fed’s constant overly-generous helpings of liquidity. Of course, the adverse effects to this are higher commodity and oil prices, due to an ever falling dollar. As the deficits keep piling up and the Fed continues to print money, investors are flocking to commodities; and the oil producers keep raising their prices to protect themselves from the ever-shrinking dollar – supply and demand has little to do with it. It is sort of like watching a hamster on a wheel. The problem is that we are the hamster.
It isn’t an aberration. We did not close any positions since the last Newsletter. This shouldn’t be a surprise since these things occasionally happen.
Here are the headlines since the last Newsletter about companies in the Current Portfolio; dates in parentheses are when we first recommended them. We are not giving updates about companies on the “Endangered List” unless we feel the news to be highly significant.
Vical, Inc (VICL)(4/5/11). Sets earnings call for May 5. Announces encouraging H1N1 flu vaccine Phase 1 results.
ThermoGenesis (KOOL)(4/5/11). To announce 3rdQT results on May 5. Says BoyaLife, a major stem cell bank in China, has committed to implement company’s cord blood products.
Jamba, Inc (JMBA)(3/20/11). Signs second international franchise pact to open 40 stores in the Philippines. Signs letter of intent with Venus Williams to open stores in D.C. market. Completes refranchise initiative with sale of 41 stores in Mid-West market.
Network Engines (NEI)(2/5/11). Although company releases some pretty good-looking year-end numbers, company guides 3rdQT guidance downward; balance sheet still looks good.
Sprint Nextel (S)(1/5/11). The usual several dozen releases and articles. Most notable is probably that the company released numbers that The Street seemed to like. It halved its 1stQT loss and added over one million new subscribers.
Trident Microsystems (TRID)(12/20/10). Sets earnings call for May 3, the day after we post this Newsletter. Announces sale of five patents.
SuperGen (SUPG)(12/5/10). Comes out with a pretty good quarterly report; balance sheet still looks very healthy.
Pixelworks (PXLW)(11/20/10). Quarterly numbers could have been better; balance sheet still looks good.
RELM Wireless (RWC)(11/5/10). Sets earnings call for May 5.
Inovio Pharmaceuticals (INO)(10/20/10). Will present at the JMP Securities Research Conference on May 9 and at the MDB Bright Lights Conference on May 11. To collaborate with two other pharmaceuticals on heterologous prime-boost therapeutic vaccination against Hepatitis C.
Banner Corp (BANR)(8/5/10). Pares losses quarter over quarter by nearly 40% and is upbeat in quarterly report.
Adolor Corp (ADLR)(5/5/10). Balance sheet still looks good as company has encouraging quarter. Waiting for Phase II data on ADL-5945.
NovaBay Pharmaceuticals (NBY)(4/20/10). Spotlights positive results from NeutroPhase study of 26 patients with chronic non-healing wounds.
Novavax (NVAX)(4/5/10). Names new CEO.
Cerus Corp (CERS)(3/20/10). Appoints new CEO. Company says 1stQT results provide a good start toward achieving guidance of 20% revenue growth this year; balance sheet still looks good.
Cytokinetics (CYTK)(2/5/10). Recent balance sheet still looks very good.
CytRx Corp (CYTR)(1/5/10). INNO-206 receives FDA approval for orphan drug designation for pancreatic cancer. Increases clinical sites to 15 in Tamibarotene Phase 2b clinical trial in first line non-small-cell lung cancer to expedite patient recruitment. Announces publication of peer-reviewed case report documenting Tamibarotene’s successful elimination of recurrent advanced-stage leukemia.
BioSante Pharmaceuticals (BPAX)(9/20/09). To present at the Deutsche Bank Health Care Conference on May 3, the day after we post this Newsletter. Announces pancreatic and prostate cancer vaccine license.
USA Technologies (USAT)(6/5/09). A few months ago, we had this on the “Endangered List”. Now, it has turned into a super star thanks to the news that it is partnering with Verizon Wireless to deliver industry-leading cashless payment services and M2M solutions for vending and automated retail industries.
GlobalScape (GSB)(5/20/08). To announce earnings on May 12.
Move, Inc (MOVE)(1/5/08). Sets earnings call for May 5. Company and Zillow, Inc. sign new listing syndication accord for ListHub.
YM Biosciences (YMI)(11/5/06). Reports positive updated anemia response data for its JAK1/JAK2 inhibitor CYT387.
Our picks for this Newsletter are a maker of pollution controls and the other is a software and services provider, both NASDAQ-listed.
ENERGY RECOVERY, INC. (NASDAQ: ERII) – $3.08. Twelve-month hi-low has been $6.40 – $2.88. Based in San Leandro, CA, with about 125 employees, this maker of pollution and treatment controls, has 52.6 million shares outstanding, $88.19 million in total current assets, $133.91 million in total assets, little debt, and $13.12 million in total liabilities. Institutional ownership is around 34%. One analyst rates the stock a “strong buy”, eleven have it as a “hold” and one as a “strong sell”. www.energyrecovery.com
It is rare that we see a dozen analyst following a small cap company the likes of Energy Recovery, Inc., which, BTW, is not really what its name implies. The company does not extract oil or other forms of energy, but we like its unique technology, which is used to enhance our most precious natural resource; and we also like the company’s balance sheet.
Founded in 1996, and public for a little less than three years, Energy Recovery makes and sells energy recovery devices and pumps primarily for use in seawater desalination worldwide. Keep in mind that less than 1% of all fresh water is readily accessible for human use and almost two billion people lack adequate access to drinking water. Historically, desalination has been unaffordable in poor regions due to the significant amounts of energy the process consumes. ERII has designed and developed technology that it claims dramatically reduces the energy required for desalination. Its Pressure Exchanger (PX) device recycles much of the energy used in seawater desalination by continually reclaiming the otherwise lost pressure energy from the reject or brine water with up to 98% efficiency. This is supposedly improves the energy efficiency of seawater reverse osmosis (SWRO) by up to 60%. The PX device is three times tougher than steel and does not corrode in seawater. The company claims it has captured 70% of global market share in newly constructed large desalination plants worldwide.
ERII’s PX devices currently save more than 900 megawatts of energy and are reducing CO2 emissions by more than 4.6 million tons per year. More than 7000 PX devices are in the market, supporting the production of drinking water for an estimated 25 million people globally.
For FY2010, ending 12/31/10, revenue was $45.85 million with $3.61 million in losses compared to FY2009 revenue of $47 million and $3.68 million in net income. For the current FY, the company sees even less revenue and a poorer earnings picture because due to the long sales and construction cycle for large plants, the global recession and credit crises did not really hit ERII’s business until 2010, which is a predictable pattern for capital intensive industries. Think of it as turning around an aircraft carrier.
During 2011, the company sees increased activity for smaller projects and a rebound in larger ones over the next 12 to 18 months. This could be worth the wait.
Our 24-month target for the stock is $5.00 to $5.50.
For more information, contact ERII’s Audrey Bold at 510-746-2529; abold@energyrecovery.com
INNODATA ISOGEN, INC. (NASDAQ: INOD) – $2.60. Twelve-month hi-low has been $4.03 – $2.24. Located in Hackensack, NJ, with over 5000 employees, this provider of Internet software and services has 25.15 million shares outstanding, $36.8 million in total current assets, $52 .24 million in total assets, and $12.81 million in total liabilities, of which $1.6 million is long-term debt. Institutional ownership is around 26%. www.innodata-isogen.com
Periodically we stumble across a company like Innodata Isogen, Inc., which really does not have much sizzle, but has been around for a long time, has a good balance sheet, and a chart that reads like a roller coaster ride; and that chart is currently at the low end of the railings. Also, let’s not forget that the company has some meat to it.
Founded in 1988, and public for over 17 years, Innodata Isogen (INOD) provides knowledge process outsourcing (KPO) and publishing and related information technology (IT) services worldwide with additional offices in Dallas, Paris, and Beijing. Simply put, the company helps organizations create, manage, and maintain their products. Its client base includes top defense, aerospace, IT, and telecommunications firms. INOD’s publishing services include digitization, conversion, composition, data modeling, and XML encoding. These services also include conversion of books to eBook-ready formats. The KPO services target processes that demand information analysis and interpretation, as well as decision making and include content creation and enhancement, analytics, taxonomy, and controlled vocabulary development, hyperlinking, indexing, abstracting, technical writing and editing, copy editing, and general editorial services, including the provision of synopses and annotations.
In addition, INOD offers technical services comprising systems integration, custom application development, applications maintenance, tool evaluation, and training; and consulting services consisting of content supply chain optimization, technology architecture and strategy, global sourcing, product and market strategy and development, and deploying content technologies.
For FY2010, ending 12/31/10, revenue was $61.51 million with $747,000 in losses compared to FY2009 revenues of $76.71 million and $7.31 million in net income. Yes, 2010 was sort of crummy next to 2009, but in the 4thQT, the company began an important new relationship with Apple to provide online ePublishing service for the iBookstore. Separate from this, it increased new business bookings relative to the 3rdQT. In total, INOD claims the projected value of the new business booked in the second half of 2010 was more than twice the projected value of new business booked in the first half.
As we said above, nothing sexy here, but the stock is at the low end of its range and INOD seems to be beefing up for the future.
Our 24-month target for the stock is $4.50 to $4.75.
For more information, contact INOD’s Corey Luskin at 201-371-8055; cluskin@innodata-isogen.com
Look for the May 20, 2011 Newsletter to be posted on 5/16 or 5/17.
Thank you,
George