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Hello Readers,
Since the last Newsletter, we have closed three positions, two for some nice gains and one for a dismal loss.
BIO-IMAGING (12/5/05). Closed position 1/24/06 at $4.65 for an 85% GAIN.
CROSSROADS SYSTEMS (2/5/04). Closed position 1/24/06 at 70¢ for a 77% LOSS.
CDC CORPORATION (7/20/05). Closed position 1/19/06 at $4.36 for a 57% GAIN.
For the life of us, we have not a clue as to why Bio-Imaging went on a tear, and with an 85% gain, we don’t care. During the last few months, CDC had been trading in a narrow range, but then was able to squirt pass our 50%-plus threshold. Crossroads, which we placed on the “Endangered List” a few months back, was a major disappointment and we closed it for an ugly loss.
Our enthusiasm for the markets remains unchecked, and we will say this for the umpteenth time: Barring a major disaster or oil shock, the markets, by and large, should have a pretty good year. Patience and a little long-term thinking may be a good idea, right now.
Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.
The new picks follow the updates.
8X8 (EGHT) (1/20/06). Third quarter revenue numbers show pretty good growth, but net loss widens which dampens spirits and stock price dips a little.
Dynacq Healthcare (DYII) (1/20/06). Announces reviewed financial results for its quarter ending November 30, 2005. We didn’t pick up any surprises.
Digital Angel (DOC) (12/20/05). Hires new president/CEO. Its electronic RDID microchip is selected for special international canine search/rescue team.
Napster (NAPS) (11/20/05). Cuts ten management jobs. Passes half million subscriber milestone.
Iona Technologies (IONA) (11/5/05). Launches services packages for customers utilizing ObjectWeb Celtix open source ESB project. Recent quarterly report has some upbeat news/numbers; balance sheet still looks decent. Brokerage firm gives the stock a “buy” rating. Forms strategic partnership with Industria.
Westell Technologies (WSTL) (10/25/05). Third quarter profit slumps on lower sales, but stock holds up. Launches new compact DSL modem for the home. Acquires HyperEdge Corp., which is billed as a leading developer of systems to ease the delivery of telco network access products.
EntreMed (ENMD) (9/5/05). Initiates multi-center Phase 2 study with MKC-1. Starts Phase 2 studies with Panzem NCD.
Zi Corporation (ZICA) (8/5/05). Claims now to be world’s number one mobile device language database provider.
Electric City (ELC) (7/5/05). Names new CEO.
Telecommunication Systems (TSYS) (6/20/05). Teams with NCI Information for $4.1 million task order with the U.S. Army. Adds Reuters to wireless service. Enters into a strategic alliance with Ocean Tomo to monetize patents.
Vion Pharma (VION) (5/20/05). Gets EU orphan drug status for Cloretazine for treating acute Myeloid Leukemia.
Verticalnet (VERT) (4/5/05). Subsidiary is finalist for one of IBM’s Beacon Awards. Bags Capgemini Energy as a new customer; and also lands a leading pharma.
Loudeye (LOUD) (4/5/05). LOUD and EMI sign dual-mode download service pact. Introduces “triple play” digital music service. As we’ve said for the last few months: this one is making us a little nervous.
Mindspeed (MIND) (2/20/05). To present at the Thomas Weisel tech confab on February 6. Quarterly report shows net loss narrows and company expects 2% to 6% revenue growth this quarter; still appears to have a good cash position. Product release about is Burst-Lode laser driver.
Applied Micro Circuits (AMCC) (11/20/04). Forges partnerships with D&H Distributing, Nimbus, and Team F1. Quarterly results slightly beat estimates and gives stock a nice nudge: balance sheet still looks very healthy.
Chordiant (CHRD) (9/20/04). Sets earnings call for February 9.
Network Engines (NENG) (6/5/04). Puts up some pretty good-looking quarterly revenue numbers; balance sheet still looks very decent. Partners with Fusion Distribution to sell security appliances across the Middle East. Integrates NS Series appliances with Websense web security suite.
Management Network Group (TMNG) (4/20/04). Teams with National In-Store to help cable companies improve retail distribution.
NexMed (NEXM) (4/5/04). To present at small cap confab on February 1. This one is on the “Endangered List”, but company has just raised $8.3 million through a private placement.
Socket Communications (SCKT) (3/20/04). Unveils what it claims is the industry’s first cordless ring scanner for Bluetooth enabled mobile computers.
Somera Communications (SMRA) (2/20/04). Preliminary 4th QT results not good as company goes through organization restructuring. We’re putting this on the “Endangered List”.
Actuate (ACTU) (1/5/04). Will have earnings call after market close of 1/31, the day we post this Newsletter. ACTU, IBM, Pentaho, Scapa, and Zend commit to Eclipse BIRT 2.0. Selected as IBM cluster ISV partner for banking.
Active Power (ACPW) (11/20/03). Receives 11-megawatt U.P.S. order from Caterpillar. Slates earnings call for February 1, the day after we post this.
Insmed (INSM) (11/5/03). Raises over $7 million through note conversion and warrant exercises, resulting in around 5.8 million new shares of stock issued.
Art Technology (ARTG) (8/5/03). Sets earnings call for January 31, the day we post this Newsletter.
Our picks for this Newsletter are a well-known computer maker that trades on the NYSE and a NASDAQ-listed IT services provider.
GATEWAY, INC. (NYSE: GTW) – $2.75. Twelve-month hi-low has been $5.23 – $2.35. Based in Irvine, CA, with about 1900 employees, this computer maker has 373.1 million shares outstanding, $1.56 billion in total current assets, $1.9 billion in total assets, and $1.63 billion in total liabilities, of which $300 million is long-term debt. Institutional ownership is around 49%. Seven analysts have the stock as a “hold”, two as a “moderate sell”, and one as a “strong sell”. http://www.gateway.com/index.shtml
Sometimes we pick a stock out of what may seem to be sheer madness. Two years from now, we will either look like geniuses or absolute morons as we add Gateway, Inc. to the Current Portfolio. Why? The company still makes good products and has been profitable for the last two quarters. Their next earnings/year-end report is due February 2, two days after this Newsletter is posted. So, hang on.
Founded in 1985, and public for over a dozen years, Gateway is one of the leading sellers of PCs, perhaps right behind HP and Dell. Until a few years ago, much of its sales were generated by their retail stores, which have been shut down. Today, most sales come from third-party retailers, web site and telephone call centers. The company provides a line of Gateway and eMachines-branded PCs, and Gateway-branded servers. It also offers services that are enabled by or connect with PCs (Convergence/nonPC) to its customers. Convergence/nonPC products are services consisting of various products and services other than the PC, such as plasma and liquid crystal (LCD) televisions, digital music players, peripherals, software, accessories, extended warranty services, training, Net access, and enterprise system, as well as networking products and services.
In addition, the company offers customized web sites, known as eSource sites, to facilitate order management requirements of business, government, and education customers; and Gateway eMarketplace for online purchases and sales of various tech products. Gateway and eMachines systems are now sold in more than 7000 retail locations in the U.S. and Canada and in another 2000 locations internationally.
At the beginning of January, Gateway announced that it plans to integrate Intel Viiv technology into its desktop PCs, which should enhance digital media. Also, at that time, GTW introduced its new notebook PCs powered by advanced Intel Centrino duo mobile technology. On a sour note, a class action was filed against the company in mid-December alleging that Gateway sold defective plasma TVs.
For FY2004, ending 12/31/04, revenue was $3.64 billion with $567.6 million in losses. During the first nine months of FY2005, ending 9/30/05, revenue was $2.72 billion with $27 million in net income.
Many of the gurus and techies have long complained that a major rub against GTW is that it hasn’t launched a breakthrough product in some time, i.e. Apple’s iPod. We wonder if the company needs to so long as it continues making good basic products and continues in the black; however, some revenue growth would help.
Our 24-month target for the stock is $5.00 to $6.00.
For more information, contact GTW’s Marlys Johnson at 949-471-7000; marlys.johnson@gateway.com
MIND C.T.I. LTD. (NASDAQ: MNDO) – $3.28. Twelve-month hi-low has been $5.65 – $2.50. Located in Yoqneam, Israel, with about 250 employees, this IT services provider has 21.3 million shares outstanding, $15.4 million in total current assets, $56.7 million in total assets, little debt, and $8.53 million in total liabilities. Institutional ownership is around 15%. One analyst rates the stock a “moderate buy”. http://www.mindcti.com
Over the years, we have recommended nearly a dozen or more Israeli companies, and, to the best of our recollection, only one, maybe two, ever really let us down. So, how can we overlook another like MIND C.T.I. Ltd. that appears to have a good balance sheet and makes money. Although 2005 revenue fell a little, MNDO seems to be taking steps that could put it back on the growth curve.
Founded in 1995, and public for nearly six years, MIND bills itself as a global provider of real-time, product-based mediation, billing, and customer care solutions for voice, data, video, and content services for wireless, wireline, and other carriers that provide voice, data, and Internet protocol services. Its billing and customer care software, known as MIND-iPhonEX, is used for voice, data, video and content services in both prepaid and post-paid payment models. This allows communication providers to launch, manage, charge, and bill multiple services. The company also offers two call management systems, PhonEX and METPS, used by organizations for call accounting, traffic analysis, and fraud detection.
In addition, MIND provides professional services, mostly to billing and customer care clients. These services include installation, customer support, training and maintenance, customization, and project management, as well as turnkey project implementation services. The company offers its products and services primarily in the Americas, Asia, Africa, and Europe. MIND’s customers service and bill millions of subscribers in over 40 countries; customers include ARTelecom, China Unicom, H3G Italy, Intelco, Sing Tel, Telefonica Del Peru, Sri Lanka Telecom, and Verizon.
In August 2005, MIND acquired Sentori, Inc., a provider of customer care and billing solutions to wireless carriers and mobile virtual network operators (MVNOs). Sentori, which was bought for about $5 million in cash, has 16 North American customers and is based in Silver Spring, MD.
For FY2004, ending 12/31/04, revenue was $17.8 million with $6.87 million in net income. During the first nine months of FY2005, ending 9/30/05, revenue was $10.56 million with $2.75 million in net income. MIND has set its year-end earnings call for February 20 and expects 4thQT revenues to be about $4.6 million.
The Sentori acquisition should strengthen the company U.S. presence and in the overall mobile market. Yes, 2005 was a revenue setback, but the future seems brighter.
Our 24-month target for the stock is $5.50 to $6.50.
For more information, contact MNDO’s Andrea Dray at +1-888-270-4056; investor@mindcti.com
Look for the February 20, 2006 Newsletter to be posted on 2/16 or 2/17.
Thank you, George