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Hello Readers,
Since the last Newsletter, we closed two positions for some nice gains and a third for a loss.
GLENAYRE TECHNOLOGIES (5/5/04). Closed position 6/10/05 at $3.72 for a 60% GAIN.
THREE-FIVE SYSTEMS (2/5/05). Closed position 6/9/05 at 60¢ for a 65% LOSS.
EMCORE (5/20/04). Closed position 6/2/05 at $4.22 for a 52% GAIN.
For the last month or so, Glenayre had been moving up and then started spurting on several pieces of product news; GEMS could go higher, but a 60% gain feels good, right now. As you know, we recently put Three-Five Systems on the “Endangered List” as it faced NYSE delisting, which did occur, and we had to close it for a bad loss. EMCORE, like Glenayre, had also been on a steady rise over the last month or two, and then got legs when it announced acquisition of JDS Uniphase’s CATV business; we would have liked to hold it a bit longer, but in this unsettling market, we take the 52% gain.
Despite the good PPI and CPI numbers showing super low inflation, the markets are having difficulty believing those numbers, thanks to oil spurting once again to $55. It’s quite a paradox. How can these inflation figures be so low while oil is so high? When does the big whammy get here?
Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.
Generex (GNBT) (8/5/02). Presents Oral-lyn clinical trial results. This is on the “Endangered List”.
Art Technology (ARTG) (8/5/03). Announces certified support for Jboss open source application server.
Targeted Genetics (TGEN) (10/5/03). Announces successful preclinical trials in congestive heart failure. Still on “Endangered List”.
Insmed (INSM) (11/5/03). Stock dives even more as FDA delays review of SomatoKine. We are somewhat concerned but let’s wait and see.
Active Power (ACPW) (11/20/03). Receives a 2 MVA UPS order that is to be installed at a food processing facility in Northern Africa.
Actuate (ACTU) (1/5/04). Launches BIRT Fast Start service.
Oplink (OPLK) (2/20/04). Coverage initiated on company by Merriman Curhan Ford.
OpenTV (OPTV) (3/20/04). Coverage initiated by B. Riley. To offer standards based MHP solution for European and Asian markets. Selected by UGC for accelerated digital rollout in The Netherlands.
Socket Communications (SCKT) (3/20/04). Partners with Everypath to deliver integrated solutions for the mobile workforce.
NexMed (NEXM) (4/5/04). Will make five presentations at BIO 2005 between June 19 – 22.
Palatin (PTN) (4/5/04). PTN and Mallinckrodt agree on licensing terms for European marketing rights for NeutroSpec. Will also present at BIO 2005 being held June 19 -22.
AVI BioPharma (AVII) (4/20/04). Announces positive results with Neugene antisense drugs at Endocrine Society meeting.
GoRemote (GRIC) (5/5/04). Comes out with pretty good quarterly numbers; balance sheet still looks good.
Glowpoint (GLOW) (5/20/04). Stock, which had been in the dumps, gets a nice uplift on news that company is teaming with Sony to launch “Instant Video Everywhere”; says service now available.
Network Engines (NENG) (6/5/04). Showcases multi-layered Internet security protection solution with SurfControl. Signs En Pointe as NS Series channel partner. Teams with ePartners to deliver NS series security appliances.
Bindview (BVEW) (6/5/04). Presents IT security compliance best practices for the certification and accreditation process. BVEW and Shavlik shares Best Practices for Patch Tuesday. Builds product momentum with Microsoft SQL server 2005 support. Extends comprehensive IT security compliance to Novell servers, directories with support for ZENworks, Nsure Audit. To provide security compliance capabilities for new HP OpenView compliance manager.
Avanex (AVNX) (7/20/04). Wavelength blocker successfully completes extended qualification test.
Intraware (ITRA) (9/20/04). To announce quarterly results on June 30.
Chordiant (CHRD) (9/20/04). Stock gets an upgrade by Pacific Growth Equities.
Trikon (TRKN) (10/5/4). Company back in NASDAQ listing compliance as it completes restatements. Sells two Omega etchers to Zetex Semiconductors.
Net2Phone (NTOP) (11/5/04). Posts disappointing 3rd QT numbers; company still seems to have a pile of cash/equivalents.
Applied Micro Circuits (AMCC) (11/20/04). The Linley Group says AMCC remains number one worldwide vendor of merchant switch fabrics. Company COO to quit.
Zhone Technologies (ZHNE) (12/5/04). Bay Phones Telephone Co. picks Zhone’s MALC and network telco’s ISS 6000 Softswitch solution.
Advancis (AVNC) (12/20/04). Launches Keflex powder for oral suspension in the U.S. Releases disappointing results from PULSYS Phase III trial.
Brillian (BRLC) (1/5/05). Reduces MSRP on its Gen II LCoS 720p HDTVs to $5999.
Xcyte (XCYT) (1/20/05). Receives delisting notice from NASDAQ; has until 12/5 to get stock’s bid price over a dollar for a minimum of 10 consecutive business days.
Mindspeed (MSPD) (2/20/05). Coverage initiated on stock by Merriman Curhan Ford.
Centra Software (CTRA) (2/20/05). Claims product’s success at Cognex. Extends solution for online learning and training with 7.5 release.
Tumbleweed (TMWD) (3/5/05). Delivers next-generation managed file transfer solution. TMWD and Digital Technologies announces partnership in Japan. Granted new digital certificate patent.
AEHR Test Systems (AEHR) (3/20/05). Announces Fox-1 full wafer test system.
Loudeye (LOUD) (4/5/05). Virgin Megastores Hellas launches Greek digital music service powered by LOUD. Appoints former Oracle executive to board. LOUD subsidiary acquires patent from University of Tulsa covering anti-piracy on peer-to-peer networks.
Exact Sciences (EXAS) (5/20/05). Announces research collaboration with OncoMethylome Sciences.
Vion Pharma (VION) (5/20/05) Coverage initiated by CIBC World Markets.
Sirenza Microdevices (SMDI) (6/5/05). Announces production milestone for Phase-Locked Loop (PLL) synthesizer modules. Gets contract award with satellite system provider for space program.
Commerce Energy Group (EGR) (6/5/05). Reports year-over-year financial improvement and restates 2nd QT results. Expands into two new Texas markets. EGR and ACN launch big business program for CA, OH and TX markets.
Our picks for this issue are a company that makes bone grafts and another software supplier to the wireless industry, both are on NASDAQ.
OSTEOTECH, INC. (NASDAQ: OSTE) – $3.55. Twelve-month hi-low has been $7.61 – $2.88. Based in Eatontown, NJ, with about 370 employees, this health services provider has 17.2 million shares outstanding, $75 million in total current assets, $118.7 million in total assets, and $27.7 million in total liabilities, of which $9.41 million is long-term debt. Institutional ownership is around 47%. One analyst rates the stock a “strong buy”. http://www.osteotech.com.
Sometimes we add a company to the Current Portfolio for no other reason except that it appears to be a turnaround situation, as with the case of Osteotech, Inc. We do not like the debt all that much, but, given the total current assets, it seems to be manageable, right now.
Founded in 1986, and public for over a dozen years, Osteotech bills itself as a technology leader in orthobiologics; it processes human bone and connective tissue for transplantation, and develops and markets biologic, biomaterial and device systems for musculoskeletal surgery. With particular focuses on spinal, trauma, and total joint revision procedures, the company markets to the orthopedic, neurological, oral/maxillofacial, dental, and general surgery markets in the U.S. and Europe. Osteotech also processes human bone and bone connective tissue, known as allograft bone tissue, used for transplantation. The company claims to be the world’s largest processor of aseptic allograft bone tissue yielding over 2.3 million grafts for its clients. Used in spinal fusions, to replace cancerous tissue, fill voids caused by trauma, augment prostheses and replace damaged ligaments and tendons, bone tissues processed by OSTE are used in more than 500 transplant recipients every day.
Osteotech has two segments. The Demineralized Bone Matrix (DBM), which processes and markets Grafton (a proprietary gel-like product) and private label DBMs. The Base Allograft Bone Tissue (Bone Tissue) processes mineralized weight bearing allograft bone tissue. In addition, the company markets and distributes metal spinal implant products domestically, and processes and distributes bovine bone tissue products in Europe, Asia, and the Middle East. The company has also acquired 90% of OST Development in France so as to expand its allograft business in Western Europe.
In April, OSTE introduced Grafton DBM Orthoblend which is to eliminate the need for surgeons to mix ingredients intra-operatively.
For FY2004, ending 12/31/04, revenue was $88.57 million with $5.3 million in losses versus FY2003 revenue of $94.43 million with $10.86 million in net income. During the 1stQT of FY2005, ending 3/31/05, revenue was $23.43 million with $831,000 in net losses. In May, the company guided below analysts’ expectations citing a decision to drop its metal spine implant business, and stiff opposition to its Grafton implant brands.
Despite the company’s 2005 projections, we can’t help but believe that sooner, rather than later, conditions should improve for Osteotech.
Our 24-month target for the stock is $5.50 to $6.50.
For more information, contact OSTE at 732-542-2800.
TELECOMMUNICATION SYSTEMS, INC. (NASDAQ: TSYS) – $2.22. Twelve-month hi-low has been $6.30 – $1.98. Located in Annapolis, MD, with about 580 employees, this software/services provider has 39.1 million shares outstanding, $55.55 million in total current assets, $97.4 million in total assets, $3.7 million in long-term debts, and $35.95 million in total current liabilities. Institutional ownership is around 31.4 %. One analyst rates the stock a “moderate buy”. http://www.telecomsys.com.
Over the last few month, the wireless industry has been pounded due to a lot of low expectations for the near future. But once the sector rebounds, TeleCommunications Systems, Inc. should bounce right along with it.
Founded in 1987, and trading on NASDAQ for nearly five years, TeleCommunications Systems provides mission-critical wireless data communications solutions in the U.S. to wireless carriers, enterprises, and government. Its wireless data offerings include location-based Enhanced 9-1-1 services and messaging and location service infrastructure for wireless operators, real-time market data and alerts for financial institutions, mobile asset management and mobile office solutions for enterprises, and encrypted satellite communications for government customers.
TSYS operates in two segments – Commercial Applications and Government. Commercial Applications offers carrier software system products that allow wireless carriers to deliver short text messages, location information, Internet content, and other services to and from wireless phones. Its 20/20 Delivery application performs such tasks as vehicle tracking and capturing digital signatures for proof of delivery. The company serves approximately 1200 enterprise customers and 60,000 wireless data subscribers. The Government segment designs, installs, and operates wireless and data network communications systems including SwiftLink deployable communication systems. More than 500 of these SwiftLink systems are now in use for security, defense, and law enforcement. Government customers include the U.S. departments of State, Defense, Justice, the GSA, and the City of Baltimore. TSYS also provides E9-1-1 service under contracts with 36 wireless carrier networks in the U.S. and Puerto Rico.
In May, TSYS launched its SwiftLink Global Satellite Service (SGSS) and its SwiftLink Deployable VSAT Modules (DVM). The company enhanced its marketStream service with the assistance of ComStock. And, earlier that month, it expanded its enterprise mobile office offerings under the name Mobeo.
For FY2004, ending 12/31/04, revenue was $142.9 million with a loss of $18.55 million. During the first QT of this FY, ending 3/31/05, revenue was $33 million with $2.1 million in losses.
We don’t believe that the wireless industry is in such bad shape, and, as we alluded above, once it comes back into vogue, so should TSYS.
Our 24-month target for the stock is $4.00 to $4.25.
For more information, contact TSYS’ Rita Thompson at 410-295-1865;
rthompson@telecomsys.com
Look for the July 5, 2005 Newsletter to be posted on 6/30 or 7/1.
Thank you,
George