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Hello Readers,
Our opinions haven’t changed much since the last Newsletter. And, even if those views seem somewhat on the bearish side, we are really not bearish. For us, the bull market is in a state of suspended animation and will stay there until we all figure cut what the impact of $50 oil will have on the economy. It is affecting GDP, interest rates, and the cost of vegetables. And did we mention gasoline, or do we need have to?
Of one thing we are pretty certain and5 that is most stocks seem grossly oversold, but for the markets to get back to bull-mode, we may need a major cataclysmic sell off. So, brace yourselves.
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). Receives a follow-on to its MAV contract with Israeli Defense Agency.
ViroLogic (VLGC) (7/20/01). Slates earnings report for Monday, May 2, the day we post this Newsletter.
Generex (GNBT) (8/5/02). Begins testing new vaccine for breast cancer patients. Receives Australian patent for novel vaccine technology. Collaborator reports an advance in intra-tumor gene therapy for cancer. All of this news gave the stock a little shot in the arm, but until we see more, it stays on our “Endangered List”.
Art Technology (ARTG) (8/5/03). Revenues grow 31% year over year and ARTG posts a first quarter profit, but stock hardly budges. As we have been lamenting for the last several months, not even good to great news seems to be helping most stocks, because of the lousy market conditions. This, too, shall pass.
Targeted Genetics (TGEN) (10/5/03). First quarter balance sheet still appears healthy. Still on the “Endangered List”.
Insmed (INSM) (11/5/03). Initiates Phase II trial with SomatoKine in Type A extreme insulin resistance. CE Unterberg initiates coverage on stock. INSM begins Phase II HIV-associated Lipodystrophy trial with SomatoKine. Patent infringement suit against company is dismissed.
Active Power (ACPW) (11/20/03). Stock upgraded by RBC Capital Markets. 1st QT balance sheet looks very strong.
Actuate (ACTU) (1/5/04). Here’s another prime example of what’s been driving us nuts. Stock drops 10% since the last newsletter even as it receives an upgrade by JMP Securities and the company posts a profit for the first quarter, balance sheet looks good. Channel1Q selects ACTU for real-time sales reporting.
Peerless Systems (PRLS) (1/20/04). Announces new PeerlessTrapping SDK.
Crossroads Systems (CRDS) (2/5/04). Expands management team. Will announce quarterly results May 25.
Somera Communications (SMRA) (2/20/04). Quarterly results pretty upbeat; balance sheet looks okay. Launches RecoveryPLUS asset management services. Signs lifecycle management contract with XO Communications.
Oplink (OPLK) (2/20/04). Quarterly numbers aren’t bad; balance sheet still looks amazingly unbelievable.
Transgene (TRGNY) (3/5/04). To present at Rodman and Renshaw annual global healthcare conference on May 4.
Open TV (OPTV) (3/20/04). Sound Choice, which was developed by OPTV, to be offered on first nationwide interactive karaoke TV channel. Slates earnings call for May 10. Builds interactive advertising solution for FOXTEL and MCn.
Socket Communications (SCKT) (3/20/04). First quarter numbers not great.
NexMed (NEXM) (4/5/04). Will also present at the Rodman & Reneshaw conference on May 4.
Palatin (PTN) (4/5/04). Another one presenting at the Rodman and Renshaw conference. PTN and King Pharma announce publication of clinical study results of co-administration of PT-141 and Viagra.
AVI BioPharma (AVII) (4/20/04). And yet another one presenting at the Rodman and Renshaw confab. Presents positive results with NEUGENE antisense drugs at American Association for Cancer Research meeting.
Management Network (TMNG) (4/20/04). Schedules earnings news for May 5.
Glenayre (GEMS) (5/5/04). Finally, a stock that responded favorably to decent earnings news; balance sheet still looks strong.
EMCORE (EMKR) (5/20/04). Consolidating solar panel operations.
GlowPoint (GLOW) (5/20/04). NFL Network goes long with Sony and GLOW with 40 installations around country. Backs 1st QT revenue guidance and slates earnings call for May 3.
Network Engines (NENG) (6/5/04). Quarterly results so-so; balance sheet still appears strong.
BindView (BVEW) (6/5/04). Quarterly numbers sort of lackluster; balance sheet still looks okay. Advances Password Management to meet global regulatory requirements.
Avanex (AVNX) (7/20/04). Elects new chairman and names new CFO. Announces restructuring of French operations. Quarterly numbers about as expected.
Chordiant (CHRD) (9/20/04). Natexis Assurances improves marketing efficiency and optimizes costs with Chordiant Marketing Director. Quarterly numbers not great, but balance sheet still looks good.
IGATE (IGTE or IGTEE) (10/20/04). Releases positive year-end report; balance sheet still looks pretty good.
Applied Micro (AMCC) (11/20/04). Releases year-end numbers; balance sheet still looks good.
Zhone Technologies (ZHNE) (12/5/04). VALOR Telecom selects Zhone’s Raptor ATM/IP DSLAM. 1st QT numbers seem pretty good; balance sheet looks strong.
Advancis Pharma (AVNC) (12/20/04). Will also present at the Rodman & Renshaw generally conference on May 4. Quarterly loss widens but balance sheet still appears generally healthy. Raises $27 million through private placement. Closes strep trial enrollment. Signs commercial supply pact with Clonmel Health Healthcare.
Brillian (BRLC) (1/5/04). Stock got a little lift from upbeat quarterly numbers; balance sheet weakens somewhat, but company announces $4.5 million institutional financing. Enters into strategic partnership with Suntron Corp. to manufacture its HDTVs.
Mindspeed (MSPD) (2/20/05). Company’s VoIP processors offered with Siemens family of SURPASS Media Gateways. Stock took a nasty hit on quarterly numbers; balance sheet still looks pretty good. Stock downgraded by Pacific Growth Equities.
Centra Software (CTRA) (2/20/05). Schedules earnings call for May 5. Sees 1st QT loss; CEO quits and a new one is hired. Iron Mountain picks Centra for enterprise-wide customer support and collaboration initiatives.
Tumbleweed (TMWD) (3/5/05). Deploys Salesforce.com globally for automated sales and support infrastructures. Even though company shows 18% increase in revenues from a year ago, stock drops as losses widen; balance sheet still looks pretty good. Defense Logistics Agency deploys TMWD software.
AEHR Test Systems (AEHR) (3/20/05). Receives production order for FOX full wafer test system.
Loudeye (LOUD) (4/5/04). To release quarterly results May 3. Deploys Coding Technologies aacPlus into its mobile music platform.
Verticalnet (VERT) (4/5/05). Quarterly numbers in range of expectations.
Optical Communications (OCPI) (4/20/05). Quarterly numbers about as expected; balance sheet still looks amazingly strong.
Nuance Communications (NUAN) (4/20/05). Gets a nice mention in BusinessWeek Online.
Our picks for this issue are a wireless accessories wholesaler that trades on the AMEX and another supplier to the semiconductor industry that is NASDAQ-listed.
INFOSONICS CORPORATION (AMEX: IFO) – $2.45. Twelve-month hi-low has been $6.50 – $2.38. Based in San Diego, CA, with about 40 employees, this wireless accessories wholesaler has 5.2 million shares outstanding, $18.34 million in total current assets, $18.7 million in total assets, little debt, and $6.28 million in total liabilities. Institutional ownership is around 2%. http://www.infosonics.com
Over the last few months, hundreds of seemingly good companies have seen their stock prices get hammered into what should be labeled as “grossly oversold” territory, and this is why we are adding InfoSonics Corporation to the Current Portfolio.
Founded in 1994, and trading on the AMEX for little under a year, InfoSonics claims to be one of the largest distributors of wireless handsets and accessories in the U.S. and Mexico, and these products are sold to dealer agents and network operators. The company also sells cellular phone subscriptions for a national cellular provider through Axcess Mobile that it acquired in 2000. When IFO bought Axcess it also took on a string of mall-based retail locations from which it mostly disengaged last year, and the cost of these closings put a big dent in the company’s 2004 bottom line.
InfoSonics distributes products of several manufacturers such as Audiovox, Kyocera, LG, Motorola, Nokia, Panasonic, Samsung, and Sony-Ericsson. The company’s services include purchasing, marketing, selling, warehousing, order assembly, programming, packing, shipping, and delivery of handsets. IFO’s Mexican distribution is through its subsidiary, InfoSonics de Mexico, S.A.
Last month, InfoSonics signed a deal with Novatel Wireless so that IFO will distribute that company’s Merlin Wireless PC cards to its reseller distribution channels. Also, in April.
InfoSonics announced that its exclusive distribution pact with VK Mobile had been extended through April, 2006. Around the beginning of this year, IFO acquired the rights to distribute Samsung cellular phones and accessories in Argentina through January, 2007; the company has had a global relationship with Samsung since 1997.
For FY2004, ending 12/31/04, revenue was $73.4 million with net income of $38,000 compared to FY2003 revenue of $60.88 million and $1.13 million in net income. As mentioned, discontinued operations expenses ate into net income.
Yes, InfoSonics is pretty much a one or two-dimensional company, but they appear to be doing that well.
Our 24-month target for the stock is $5.50 to $6.00
For more information, contact IFO’s Jeffrey Klausner at 858-373-1600; ir@infosonics.com
THERMA-WAVE, INC. (NASDAQ: TWAV) – $1.42. Twelve-month hi-low has been $5.00 – $1.33. Headquartered in Fremont, CA, with about 320 employees, this semiconductor supplier has 36.2 million shares outstanding, $64.17 million in total current assets, $69 million in total assets, little debt, and $37.3 million in total liabilities. Institutional ownership is around 33%. One analyst rates the stock a “moderate buy” and one as a “hold”. http://www.thermawave.com
We’re placing Therma-Wave, Inc. into the Current Portfolio for much the same reason as InfoSonics above. The stock seems way-oversold considering the shape of the balance sheet and the fact that the company seems to be losing a lot less money than it did a few short years ago. Founded in 1990, and public since 2000 when the stock hit around $40, Therma-Wave makes and markets integrated circuit (IC) metrology equipment for the semiconductor industry. The company’s systems are used in monitoring process parameters so that semiconductor manufacturers can maintain overall manufacturing yield, reduce the size of the circuit features imprinted on the semiconductor, and increase their equipment productivity. TWAV’s product families include Therma-Probe, Opti-Probe, Opti-Probe critical dimensions (CD) and RT/CD (real-time critical dimensions), and Integra integrated metrology products. These products use the company’s technology to provide non-contact, non-destructive measurements for the basic building blocks, or process modules, in making ICs, such as ion implantation, dielectric film deposition and etching, conductor film deposition and etching, chemical mechanical planarization (CMP) and wafer patterning.
A few weeks ago, Therma-Wave signed an exclusive distribution pact with Hermes-Epitek Corp. whereby that company will distribute Therma-Probe and Opti-Probe products in Taiwan, China, Singapore, and Malaysia. This marks the start of TWAV transitioning from a direct sales approach to a representative model in select Asian markets. Also, in April, the company announced a streamlining by cutting 8% of its North American workforce, which, long-term, could be a good idea. In March, Therma-Wave bagged a multi-million order from a Taiwanese DRAM semiconductor manufacturer that will use TWAV’s metrology solutions in its 300-mm factory.
For FY2004, ending 3/28/04, revenue was $65.3 million with $18.1 million in losses. During the first nine months of FY2005, ending 12/31/04, revenue was $49.76 million with $1.76 million in net losses. In February, the company guided below analysts’ estimates for the fourth quarter and these numbers should be released within the next few weeks.
As we said above, the stock seems grossly oversold, and we still believe that the semiconductor industry should bounce back in the near future.
Our 24-month target for the stock is $2.75 to $3.25.
For more information, contact TWAV’s Ray Christie at 510-668-2200; rchristie@thermawave.com
Look for the May 20, 2005 Newsletter to be posted on 5/16 or 5/17.
Thank you,
George