Author: Gehman Capital
Covestor model: Undervalued Growth Companies
Disclosures: Long WAVX, TSEM, QUIK, MVIS, LSCC, FNSR, DRWI, ANAD, XOMA, TWER, EZCH
Last month, May, 2011, most of my stocks were hammered again. The market chose to ignore any good news and in most cases brought the stocks lower.
Once again, I counsel patience. The companies, in almost all cases, are performing within reasonable expectations.
I believe this is an opportunity to buy exciting companies at low valuations.
Two of the stocks in my portfolio moved up in price in May (all pricing information from Google Finance):
EZchip Semiconductor Ltd. (NASDAQ: EZCH) – The company confirmed earlier projections that their NP-4 chip is in the final stages of testing, and is expected to go into production in the last half of 2011. Pre-production orders indicate that the profits on the NP-4 chips should be much higher than the profits of earlier chips. EZCH is already developing the NP-5 chip that is expected to have higher capabilities and wider proft margins than the NP-4 chip. EZCH is my largest holding.
Towerstream Corporation (NASDAQ: TWER) – The company is in an excellent position to increase revenues by making their towers available to a broad range of customers. They also are able to buy up smaller operators at good prices.
One stock was unchanged for the period:
XOMA Limited (NASDAQ: XOMA) – XOMA is a waiting game. The company has many patents and licenses for new drugs, but one of them will have to “hit” for the business’s prospects to improve enough to give the stock a chance of significant appreciation.
Eight of the stocks in my portfolio went down in price – some of them significantly. I believe all of their business models are in place and will benefit when the market recovers (all pricing information from Google Finance):
ANADIGICS, Inc. (NASDAQ: ANAD) – The company has had some great opportunities, but has been late on delivery. Their chips are occupy a niche in the marketplace. Their top management has turned over. They have confirmed their close working relationship with Qualcomm, but it is not confirmed they will meet all delivery schedules. I am going to stay with the current management, unless I learned something new and unfortunate.
DragonWave, Inc.(USA) (NASDAQ: DRWI) – DRWI supplied the largest amount of equipment to Clearwire for their build-out of microwave broadband Ethernet/IP radio transmission facilities. If Clearwire secures financing, DRWI’s business should increase significantly in shorter order. In the meantime, DRWI has a proven product that is significantly cheaper to install than fiber. The company has competition, but it will have many other opportunities in the second half of 2011.
Finisar Corporation (NASDAQ: FNSR) – The stock had a terrible month of May, but I believe we’ll see demand for fiber optic components and subsystems increase dramatically going forward. On June 14th, FNSR reported low projections for the next quarter. I believe that FNSR is executing well though, and I believe the long-term demand for fiber products will take this stock higher.
Lattice Semiconductor (NASDAQ: LSCC) – LSCC occupies a niche in the chip market under the radar of some of the larger companies. They have developed a customer related marketing and product development strategy that should allow them to make significant profits. I believe the stock has just suffered with the marketplace.
Microvision, Inc. (NASDAQ: MVIS) – The company announced their SHOWWX+ (i.e., laser pico projector made for iPod, iPhone and iPad) will be made available in Apple’s online stores in Europe. The stock may be under pressure because the company could be selling equity to raise cash. If the market were stronger, this news might have caused the stock to rally.
QuickLogic Corporation (NASDAQ: QUIK) – Time. Time. Time. Chip companies work for years to develop products, generate interest from a customer and then modify and test the products for final production. QUIK has a number of projects in the hopper. Qualcomm may be close to using QUIK’s VEE/DPO technology. We expect good news in 2011, but in the meantime this market only wants definite confirmations, and the stock price suffers.
Tower Semiconductor Ltd. (USA) (NASDAQ: TSEM) – TSEM reported Q1 earnings slightly lower than expectations and also guided slightly lower than expectations. The company also purchased a Japanese chip fabrication plant from Micron Technology (MU) that doubles TSEM’s capacity. There were rumors that negotiations were moving forward to resolve the uncertainty of the amount of stock dilution that would result from the conversion of Capital Notes that were sold to save the company from bankruptcy. The company is executing well, and I expect the stock price could recover when the market develops a better feel for the business.
Wave Systems Corp. (NASDAQ: WAVX) – Wave Systems has announced additional closing of contracts with large companies. This should increase their cash flow. WAVX could show profits, but they choose to increase research expenses to develop products that will attract new clients. The market wants profits.
Factors that I expect to eventually have a positive impact on WAVX:
(1) almost 500 million Trusted Computing Chips installed on corporate computers,
(2) successful hacking attacks are being made on large corporations (Sony, Lockhead Martin, etc.)
(3) Trusted Computing is being endorsed by many government and private agencies as a means to increase computer security
The market for small cap technology stocks was extremely “heavy” in May. I’m hopeful that my investments will benefit from the tremendous growth in demand for products related to internet activity. Each company has its own story, but my portfolio is built on the assumption that fundamentals should eventually drive the strong companies higher in price.
