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For the last month, or so, the Dow has been clinging to the 8000 level and the NASDAQ at around 1650-1700. They both should have seen the start of a sell-off, by now, but haven’t, at least not yet; and we think we know why, sort of. The Fed, by pumping trillions into the system and keeping interest rates artificially low, has been forcing investors to take bigger risks in hopes of scoring bigger gains in stocks. This is borderline criminal for a number of reasons. First, it chokes people living on a fixed income. Next, it is laying the groundwork for massive inflation down the road. And, lastly, the Fed’s action is creating bogus high prices for many stocks that should not be trading at current levels, especially the financials. Our major concern is that when the money spigot stops flowing, for whatever reasons, this house of cards will fall, and will fall hard and deep.
In short, it would have been better for the markets to have had “the great washout” because it would have probably occurred by now, and true valuations would have been much clearer. As things stand, no one has a real clue as to what companies are really worth. So, be very careful. This also applies to our own picks, which are still in Death Valley; however, some have been stirring, such as many of our recommendations of the past twelve months.
Here are the headlines since the last Newsletter about companies in our Current Portfolio; dates in parentheses are when we first picked them. We are not giving updates about stocks on the “Endangered List” unless we feel the news to be highly significant.
The Hackett Group (HCKT)(4/20/09). Sets earnings call for May 11.
Durect (DRRX)(4/20/09). Sets earnings call for May 6.
CSP, Inc (CSPI)(4/5/09). Earnings news slated for May 6.
TheStreet.com (TSCM)(4/5/09). Sets earnings call for May 5.
Isilon Systems (ISLN)(3/20/09). Quarterly numbers about what were expected; balance sheet still looks strong. City of Hope and The Personal Genome Project deploy company’s technology. Argus upgrades the stock to a “buy”.
O2Micro (OIIM)(3/20/09). Company beats on revenues and on earnings by nine cents; balance sheet still looks strong. Key LCD TV/LCD monitor patent granted to OIIM; also gets patents on power management and selector circuit architecture technologies. BTW, we’ll be closing this, soon, since it has passed our 50%-plus target.
Virage Logic (VIRL)(3/5/09). Quarterly loss horrendous due to certain non-recurring charges; balance sheet still looks strong. To present at the AeA Micro Cap Conference on May 4.
Ligand Pharmaceuticals (LGND)(2/20/09). To hold 1stQT results conference on May 6. Wyeth and Ligand bone drug for women gets European approval.
AuthenTec (AUTH)(2/5/09). Earnings call set for May 12. Adds enhanced touch-based functionality, features to its new TrueNav 2.0 input control software. Earns ISO certification. AUTH sensors on ASUS netbook.
SuperGen (SUPG)(2/5/09). Recent balance sheet still looks strong. Presents PIM kinase inhibitor SGI-1776 at annual cancer research meeting.
Aetrium (ATRM)(1/5/09). Recent numbers not great; balance sheet still looks good.
Endwave (ENWV)(1/5/09). Recent quarterly numbers not great; balance sheet still looks good. Stock soars as company sells its defense and security business to Microsemi for a total equity value of $28 million in cash plus some liability assumption.
AXT (AXTI)(12/20.08). Latest numbers look miserable; balance sheet still looks good.
Market Leader (LEDR)(12/20/08). Although revenue drops in 1stQT, losses are greatly pared; balance sheet still looks strong. Enters partnership with Realty Executives Int’l.
Oilsands Quest (BQI)(10/20/08). Announces secondary equity offering.
Akeena Solar (AKNS)(10/20/08). Quarterly numbers miss estimates; balance sheet looks so-so. Company’s solar panels used in first joint solar project between Morgan Stanley Solar Solutions and State of California.
SCM Microsystems (SCMM)(10/5/08). Teams up with Bluehill ID on contactless, RFID technology for identification markets. Stockholders approve proposed merger with Hirsch Electronics.
Lexicon Pharmaceuticals (LXRX)(9/20/08). Balance sheet still looks good. Provides update on clinical pipeline.
Insure.com (NSUR)(9/5/08). Recent numbers show growth and income; balance sheet still looks good. MSN Money names Insure.com among the 100 most useful web sites.
Uranium Energy (UEC)(8/20/08). RBC Capital upgrades stock.
Digirad (DRAD)(8/20/08). Recent numbers show revenues holding steady as company posts a profit; balance sheet still looks strong.
ICAgen (ICGN)(8/5/08). To report 1stQT results on May 5. Completes enrollment in Phase II Allergen Challenge asthma trial. Presents results of Phase I program of ICA-105665.
Energy Focus (EFOI)(6/5/08). Sets earnings call for May 4.
Bridgeline Software (BLSW)(6/5/08). BtoB Magazine names BLSW as a top interactive tech company in America.
GlobalScape (GSB)(5/20/08). Wins additional multi-million dollar U.S. Army contract.
Kopin (KOPN)(4/20/08). Stock shoots up on pretty nice earnings news; balance sheet still looks very strong.
Biolase Technology (BLTI)(4/5/08). Announces FDA 510(K) clearance of its ezlase diode laser for pain therapy and relief.
ActivIdentity (ACTI)(3/5/08). Sets earnings call for May 7.
IncrediMail (MAIL)(2/20/08). Will present at the AeA MicroCap confab on May 5. To release quarterly results on May 4.
Amicas (AMCS)(1/20/08). Slates 1stQT earnings call for May 11.
Hollywood Media (HOLL)(1/5/08). Latest numbers not great but company pares losses compared to a year ago; balance sheet still looks good.
Santarus (SNTS)(11/20/07). Sets earnings call for May 6.
American Technology (ATCO)(10/5/07). GET EARNINGS NEWS!!!!!!!! Receives new LRAD order for bird control and protection.
XATA Corp (XATA)(9/20/07). Sets earnings news for May 4.
Radcom (RDCM)(7/20/07). Releases some pretty crummy quarterly numbers, so, we’re tossing in the towel and placing this on the “Endangered List”.
Alliance Fiber Optic (AFOP)(7/20/07). Recent numbers not great; balance sheet still looks good.
Heska (HSKA)(7/5/07). Recent numbers not bad as company shows a small profit; balance sheet still looks okay.
Pharmacyclics (PCYC)(6/20/07). Recent balance sheet looks so-so. Announces global strategic alliance with Les Laboratoires Servier. Updates positive clinical responses in its PCI-24781 clinical program targeting HDAC.
Xenonics (XNN)(6/5/07). Announces $2 million NightHunter order.
Oncolytics (ONCY)(6/5/07). Sets annual and special shareholder meeting for May 5.
TTI Telecom (TTIL)(3/5/07). Launches Netrac FaM Cruiser 10.2 which automates the administration of Fault Management procedures.
Urologix (ULGX)(2/20/07). Presents novel data on tailored treatments for enlarged prostate disease. Launches new catheter. Latest quarterly numbers show paring of losses; balance sheet still seems okay.
UQM Technologies (UQM)(2/5/07). PowerPhase 125 Electric Propulsion System powers Citroen C4 hybrid rally car. Introduces 145 kW system for propulsion and generator applications.
Endologix (ELGX)(1/20/07). Releases some pretty good-looking numbers; balance sheet still looks good.
HealthStream (HSTM)(10/20/06). Latest numbers upbeat; balance sheet so-so.
Hydrogenics (HYGS)(9/20/06). Announces fueling station installations in Germany and France. Earnings due out on May 13. Continues to advance fuel cell programs in North America.
The Inventure Group (SNAK)(3/5/06). Recent numbers look pretty good, as does balance sheet.
8×8 (EGHT)(1/20/06). To present at the AeA Micro Cap confab on May 4.
RAE Systems (RAE)(10/5/05). Sets earnings call for May 6.
Nova Measuring (NVMI)(11/5/04). Earnings call set for May 6.
Our picks for this Newsletter include a software and services company and an auto parts dealer in China, both are NASDAQ-listed.
SONIC SOLUTIONS, INC. (NASDAQ: SNIC) – $2.19. Twelve-month hi-low has been $10.25 – 57 cents. Based in Novato, CA, with about 730 employees, this business software and services company has 26.6 million shares outstanding, $41.09 million in total current assets, $68.1 million in total assets, little debt, and $42.04 million in total liabilities. Institutional ownership is around 76%. One analyst gives the stock a “strong buy” and four have it as a “hold”. www.sonic.com
Most companies have taken their lumps over the last year and Sonic Solutions is no exception, but it still has a decent balance sheet, a seemingly steady revenue stream and a wide customer base.
Founded in 1986 and public for nearly 15 years, Sonic Solutions creates and markets software relating to digital media that enables the design, management, and delivery of data, photographs, audio, interactive features, and video in digital formats in various playback platforms, including Internet, broadcast, mobile, and optical disc formats such as CDs, DVDs, and Blu-ray discs. The company has both a Consumer segment and a Professional division.
The consumer segment includes the Roxio Division, which offers consumer digital media software products under the Roxio brand name; and Advanced Technology Group, which develops software components for its operating units, as well as for licensing to PC and CE application developers under Roxio, AuthorScript, CinePlayer, and Qflix brand names. It sells and markets its products through OEMs; suppliers of related products; volume licensing programs; Web store; and retail resellers. The Professional arm develops and sells technical support for a range of authoring solutions that allow commercial content owners, such as Hollywood motion picture studios, to create and distribute high-end commercially released packaged media DVDs, Blu-ray discs, and other titles to mass consumer markets worldwide. It markets its products under the Scenarist, CineVision, and DVDit product names. This segment also sells content development technology, products, and services under the InterActual brand names; and licenses and/or bundles its professional authoring products to the third parties.
In February, Roxio released a range of enhancements for its online storytelling platform PhotoShow that allows families to turn personal photos and video clips into multimedia sideshows. Also, at that time, the company announced it had achieved a milestone with one million PhotoShows being created and viewed 22 million times since the Roxio-branded service was first introduced in April, 2008.
For the FY ending 3/31/08, revenue was $132.87 million with $5.54 million in net losses. During the first nine months of the current FY, ending 12/31/08, revenue was $87.71 million with a staggering $118.45 million in losses; much of this were non-cash charges related to goodwill and acquired intangibles, and restructuring.
The company expects to be profitable for next FY starting 4/1/09 and if Sonic does indeed have all the bad news behind it, the stock could be worth a shot.
Our 24-month target is $3.75 to $4.00.
For more information, contact SNIC’s Nils Erdmann at 415-893-8000; firstname.lastname@example.org
SORL AUTO PARTS, INC. (NASDAQ: SORL) – $3.10. Twelve-month hi-low has been $7.10 – $1.14. Based in Ruian City, China, with about 2000 employees, this auto parts maker has 18.3 million shares outstanding, $75.69 million in total current assets, $114 million in total assets, little debt, and $24.22 million in total liabilities. Institutional ownership is around 7%. www.sorl.cn
Afraid of buying a U.S. auto stock? Well, turn to China, if you can forgive them for being communist. SORL Auto Parts, Inc. has an okay balance sheet, steady revenue growth, and has been making money.
Founded in 2003 and publicly traded for nearly five years, SORL makes and distributes air brake valves and related components for commercial vehicles weighing more than three tons, such as trucks and buses. The company distributes both in China and internationally under the SORL trademarks with a product range that includes 40 categories of brake valves with over 800 different specifications. The China Bureau of Statistics ranks them among the top 100 automotive components suppliers in that country. SORL’s customers are split into three groups: the OEM market in China, aftermarket distributors in China, and international.
In the OEM market SORL sells its products to 39 vehicle manufacturers, such as FAW Qingdao Automobile Works and Beiqi Foton Motor Co. For the aftermarket the company has established a sales network of 28 authorized distributors that sell only SORL products and in turn channel them through over 800 sub-distributors. Internationally, the company has sold in over 72 countries though joint ventures. The company claims to hold the #1 market share in each segment in China, including 21% in heavy-duty vehicle air brake valves, 18% in OEM air brake valves, and 25% in replacement air brake valves.
For FY2008, ending 12/31/08, revenue was $130.89 million with $12.37 million in net income compared to FY2007 revenue of $115.76 million and $10.74 million in net income. In 2006, revenue was $84.89 million with $7.69 million in net income.
Despite the worldwide recession/depression, China is still growing (or so they claim), and, from the looks of it, so is SORL.
Our 24-month target for the stock is $5.00 to $5.50.
For more information, contact SORL’s Ben Chen at +86 (577) 6581-7721; email@example.com
Look for the May 20, 2009 Newsletter to be posted on 5/18 or 5/19.