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Hello Readers,
Since the last Newsletter, we have closed two more positions, one for a nice gain and one for a loss that had an unexpected and abrupt ending.
INSWEB (1/20/05). Closed position 9/27/05 at $4.56 for a 58% GAIN.
TRANSGENE (3/5/04). Closed position 9/26/05 at $2.75 for a 24% LOSS.
Insweb had been climbing pretty steadily over the last few weeks and then shot up after announcing it was broadening their distribution model. We had fits over Transgene because, for the past month, the stock was making a nice comeback and the company had just raised a pile of money. Then, without warning, it lamely announced that it was voluntarily delisting from NASDAQ and will trade solely on the Eurolist Paris Market, and it is listed in the Pink Sheets. We have never encountered anything like this in our nearly nine years of publishing; “strange” would be an understatement.
Who’d have thunk it? Another hurricane, and this one really crippled the Gulf Coast refineries, making Rita, in some respects, more harmful to the economy than was Katrina. As we said last month, the markets were not deceminated after Katrina, which was surprising. Nor were they destroyed after Rita, although this storm did take the wind out of the markets for the time being.
Here are the headlines since the last Newsletter about companies in our Current Portfolio. Dates in parentheses are when we first recommended them.
Dyadic (DIL) (9/20/05). Brokerage firm Sanders Morris Harris initiates coverage on the stock with a “buy”.
EntreMed (ENMD) (9/5/05). Reports positive Phase II prostate study.
Staktek (STAK) (9/5/05). Signs licensing pact with SMART Modular Technologies for ArctiCore and Stacking technologies. Introduces ArctiCore module for high-speed, high-capacity systems.
@ROAD (ARDI) (8/20/05). Slates earnings call for Thursday, October 27. Its telco, cable and utilities suite receives 2005 Utility Mobile Solutions of the Year award. Introduces solution for on-demand automated field service delivery. Gets customer wins in transportation and distribution.
Zi Corp (ZICA) (8/5/05). Named one of Canada’s fastest growing techs in 2005 Deloitte Canadian Technology Fast 50 program.
N.A. Scientific (NASI) (8/5/05). Gains approval of Chinese regulators for sale of its Peacock cancer tomotherapy system to treat hard-to-reach tumors.
CDC Corp. (CHINA) (7/20/05). Seeks to have China.com shares trade in the U.S. Online gaming subsidiary achieves 9 million registered accounts. Another subsidiary wins CRM Magazine award for outstanding ROI on Pivotal CRM initiative. Pivotal subsidiary expands strategic alliance with Microsoft.
Electric City (ELC) (7/5/05). Exel Logistics and Fischer Scientific to participate in ELC’s VNPP development for ComEd.
Tele Systems (TSYS) (6/20/05). Vonage introduces TCS VoIP Verify. TCS and Level 3 execute agreement for VoIP E9-1-1.
Sirenza Microdevices (SMDI ) (6/5/05). Increases 3rd QT guidance; sees revenue of $16.5 million to $17 million.
Vion Pharma (VION) (5/20/05). Licenses heterocyclic hydrazones. Begins Phase 2 trials of Cloretazine in small cell lung cancer.
Optical Communication Products (OCPI) (4/20/05). Adds industrial temperature option to its gigabit ethernet CWDM SFP transceiver product line. Says DWDM SFP product line MSA compliant modules for OC-48/STM-16 80km applications.
Verticalnet (VERT) (4/5/05). Dutton Associates now rates stock a strong speculative buy with a $1.80 price target.
Loudeye (LOUD) (4/5/05). Teams with Qpass on integrated mobile media services.
AEHR Test Systems (AEHR) (3/20/05). First quarter loss narrows and company sees profitable 2nd QT; balance sheet still looks good.
Centra Software (CTRA) (2/20/05). Wins Best of Show Award at TeachLearn2005.
Mindspeed (MSPD) (2/20/05). Its Concerto VoIP processors are shipped in Vierling’s VoIP-enabled GSM wireless gateway.
B.O.S. (BOSC) (1/5/05). Increases its ODEM stake to 87.7% Secures second financing round.
Applied Micro Circuits (AMCC) (11/20/05). Sets new standard for SATA II hardware RAID with 3ware 9550SX controllers. Names new CFO.
Net2Phone (NTOP) (11/5/04). To report quarterly and yearly numbers on October 5. Launches suite of enterprise calling solutions. Remember, IDT is still attempting the takeover.
Chordiant Software (CHRD) (9/20/04). T-Mobile Austria selects Chordiant software. Partners with Infogain to deliver integration services to its global client base.
AIXTRON (AIXG) (7/5/04). South Korean LED companies select AIXG/Thomas Swan MOCVD.
Bindview (BVEW) (6/5/04). Advances Internet security with capabilities that provide hackers view of the network.
GlowPoint (GLOW) (5/20/04). Showcases Instant Video Everywhere service. Chosen to deliver multi-site “distance edutainment´high definition video solution.
GoRemote (GRIC) (5/5/04). Gets 480 EZCORP stores connected with Secure Managed Services. Company must file amendments restating past two quarters’ revenues; could be a problem, wait and see.
AVI BioPharma (AVII) (4/20/04). Introduces ESPRIT with initial application in muscular dystrophy. Starts Hepatitis C clinical trial. Initiates Phase II cardiovascular clinical study in Europe.
Palatin (PTN) (4/5/04). Gets $10 million payment from King Pharmaceuticals for impotence drug.
Socket Communications (SCKT) (3/20/04). Company’s SD Scan Card now supported by SAP NetWeaver Mobile.
OpenTV (OPTV) (3/20/04). Spanish broadband cable operator to deploy OPTV’s Core Middleware and HTML package.
Actuate (ACTU) (1/5/04). Touts independent study on company’s customer self-service applications.
Insmed (INSM) (11/5/03). Stock yo-yoed on what seemed to be conflicting news about iPlex, the company’s growth therapy candidate. End result seems to be that the FDA, despite all the hoopla, is still considering the issue, and the company claims that trial data showed increased height velocity.
Trio-Tech (TRT) (10/20/03). Releases pretty positive end-of-year numbers; balance sheet looks okay.
Art Technology (ARTG) (8/5/03). Introduces next-generation customer service and support suite.
Monogram Biosciences (MGRM) (7/20/01). Caris & Company initiates coverage on stock. CTO resigns.
Our picks for this Newsletter are an AMEX-listed maker of security systems and a biotech that trades on the NASDAQ.
RAE SYSTEMS, INC. (AMEX: RAE) – $3.40. Twelve-month hi-low has been $9.58 – $2.35. Based in Sunnyvale, CA, with about 670 employees, this security systems maker has 57.8 million shares outstanding, $52.1 million in total current assets, $71.29 million in total assets, and $19.4 million in total liabilities, of which $1.26 million is long-term debt. Institutional ownership is around 24%. One analyst rates the stock a “strong buy”, and two have it as a “hold”.
http://www.raesystems.com
Over the years, we have picked several security plays, and, to the best of our recollection, most did very well. With its nifty technology and decent-looking balance sheet, Rae Systems, Inc. could mirror our past successes.
Founded in 1991, and public since 1999 when the stock opened at around $100, RAE develops and manufactures rapidly deployable multisensor chemical detection monitors and networks for homeland security and industrial applications primarily in the U.S. The company offers portable single-sensor chemical and radiation detection products, portable single and multiple sensor atmospheric monitors, integrated systems, photo-ionization detectors, indoor air quality and security monitors, gas detection tubes, and sampling pumps. In addition, RAE’s products include portable, wireless, fixed chemical detection monitors, and gamma and neutron detectors.
RAE’s products allow the military and first responders, such as firefighters, law enforcement, and other emergency management personnel to detect and provide warning of WMDs and other hazardous materials. Its industrial applications include detecting toxic industrial chemicals, volatile organic compounds, and petrochemicals. The company’s detectors can gather part-per-billion readings with a device the size of a cellular pager. RAE has 18 issued and pending patents. It sells its products primarily to U.S. government agencies, including the departments of Homeland Security, State, and Justice, as well as the U.S. military and city and state agencies. RAE also sells to airline, automotive, telecom, computer, and oil industries in North and Latin America, Western Europe, and parts of Asia.
A few weeks ago, JMP Securities initiated coverage on the stock with a “market outperform”. Also, in mid-September, a federal judge denied a breach of contract injunction against RAE forcing the matter into probable arbitration. In July, the company reaffirmed its full-year guidance, estimating sales between $55 million and $60 million.
For FY2004, ending 12/31/04, sales were $45.79 million with net income of $2.46 million. During the first six months of FY2005, ending 6/30/05, sales were $25.87 million with $1.25 million in net losses. Security detectors/devices have rapidly become a huge industry that should boom for many more years.
It’s our guess that RAE should get a nice chunk of this business.
Our 24-month target for the stock is $6.00 to $7.00.
For more information, contact RAE at 408-952-8449; investorrelations@raesystems.com
DISCOVERY PARTNERS, INTERNATIONAL, INC. (NASDAQ: DPII) – $3.20. Twelve-month hi-low has been $5.47 – $2.79. Located in San Diego, CA, with about 190 employees, this biotech has 26.2 million shares outstanding, $94.53 million in total current assets, $110 million in total assets, little debt, and $7.67 million in total liabilities. Institutional ownership is around 67%. http://www.discoverypartners.com
It is rare to stumble across a small biotech with a strong-looking balance sheet and one that also hasn’t been bleeding a lot of red ink. In fact, Discovery Partners Int’l, Inc. had been showing some good revenue growth until it stumbled somewhat, recently, but we suspect that this is a short-term glitch.
Founded in 1995 as IRORI and public for nearly six years, Discovery Partners bills itself as a leader in drug discovery collaborations by offering integrated services and products that span the drug discovery continuum including target characterization, high throughput screening, lead generation, lead optimization, high throughput synthesis automation, and gene expression analysis. Its clients gain access to instrumentation, platforms, and processes required to conduct every step of the drug discovery process from an identified biological target through to the optimization of pre-IND lead candidates.
Here’s a more detailed look as to what DPII provides: It develops libraries of drug-like compounds, instruments, consumable supplies, drug discovery services, computational tools to generate compound libraries, and testing and screening services for various drugs. The company offers instruments and consumables that automate the process of making and storing collections, or libraries of chemical compounds; and chemistry services that include compounds, medical chemistry, drug discovery informatics, and compound repository services. Discovery also provides screening services and designs and conducts assays that generate information about the effect of chemical compounds on a drug target. Back in May, DPII projected slightly higher losses during the second half of 2005 due to additional R&D expenses at a newly acquired natural product operation in Heidelberg, Germany.
For FY2004, ending 12/31/04, revenue was $51.56 million with $3.9 million in net income. During the first six months of FY2005, ending 6/30/05, revenues were $18.43 million with $5.92 million in losses. The company’s Pfizer contract is due to expire in January, 2006, but the company is expecting new revenue from new business.
The company has had some recent setbacks, but with $80 million in cash/equivalents, Discovery should be able to snap back in due time.
Our 24-month target for the stock is $5.75 to $7.00.
For more information, contact DPII’s Craig Kussman at 858-228-4113; IR@discoverypartners.com
Look for the October 20, 2005 Newsletter to be posted on 10/17 or 10/18.
Thank you,
>George