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Posts from the ‘Oclaro (OCLR)’ Category

Oclaro Second Quarter Update: No sign of the inflection yet

I’ve owned Oclaro since last spring, first wrote about the company here, and subsequently here.  Oclaro has their year end in June, so the company recently reported their second quarter results.

Oclaro had another very good quarter, which had been expected after a preliminary announcement two weeks prior.  Revenue grew 14% sequentially and 64% year over year.  I calculate that adjusted EBITDA was $41 million in quarter, more than double what it was in the first quarter.

oclrincomestmt

Digging a little further, the growth came almost entirely from the telecom/line side of the business.  Just to recap (see my earlier posts for more details), Oclaro makes transceivers and laser components that are used for optical data transfer.  Oclaro divides this business up between a client side, which consists of shorter length lasers (they have names that start with CFP or QSFP 28), and line side, which consists of longer length lasers of which the most significant is their new CFP2-ACO product.  Below is the breakdown between the telecom and datacom sides.

oclrrevenuebreakdown

Growth coming from telecom/line means that the aforementioned CFP2-ACO product was responsible for much of it.  This is a relatively new transceiver (see here for a bit of background) that was pioneered by Oclaro.  Being first to market, they are enjoying a window of 100% market share as the competition races to develop their own versions of the transceiver.  The CFP2-ACO was expected to be the growth driver in the quarter.

Competition is going to come into the market beginning in 2017, as the company conceded on the conference call.  Acacia, Finisar and Neophotonics is are developing their own CFP2-ACO products.

Still Oclaro has a significant lead and has used their head start to lock down customers for this fiscal year (ending June) and their fiscal 2018.  From the conference call:

[We] negotiated or are completing negotiations of several multiyear contracts or extensions contracts for some key product like the ACO that run as long as through calendar year 2018

The CFP2-ACO sales have centered on North America and Europe so far, but Oclaro did say on the call that they are seeing sales from China begin to pick up.  China buys a lot of Oclaro products (40% for the quarter), and in the past these have been lower end of the spectrum transceivers (the modulators and lasers that go into the transceivers).  China revenues for Oclaro grew 9% sequentially in the second quarter.

While the telecom side drove growth last quarter, the client side products continued their strength of prior quarters but are constrained by production limitations.  The lower end CFP product remains sold out (probably in part because of China?).  Oclaro hasn’t gotten as much traction on the higher end products (CFP2, CFP4, QSFP28) but they expect this to pick up, and they “do expect to shift [to] the CFP2, CFP4 and QSFP28 transceivers to accelerate through the summer”.

Its worth noting that the CFPX and QSFP28 will have lower average selling prices (ASPs) than the CFP, which could be a drag on top line revenue, but that margins for these products will be higher than the CFP, so the bottom line should improve.

At the Needham conference in January (here is the replay) Oclaro said that the growth of their business relied on 3 end markets: Datacenter, Metro 100G and China.   There wasn’t anything on the second quarter call or in the guidance Oclaro gave to suggest any of these 3 markets have slowed yet.

For the third quarter Oclaro guided $156 million to $164 million, which is another sequential increase from the $154 million in the second quarter.  To a large degree growth is being driven by the sold-out conditions of many of their products.  Management gave some color around how they would like to ramp production faster than they have been able to.

I’ll continue to hold Oclaro.  I’ve expressed my concerns in the past about not knowing when this cycle is going to peak.  The color I get from listening to the company and its competition is that we are still at least a few quarters off.  There is much talk of consolidation in the space, and I would hate to sell just before an offer comes in for the company.  So I will continue to management my uncertainty via a reasonable position size, and hold out for a selling price in the mid teens.

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Week 266: Loving the lack of volatility

Portfolio Performance

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Top 10 Holdings

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See the end of the post for my full portfolio breakdown and the last four weeks of trades

Thoughts and Review

Its been a good market for my approach to investing.  Volatility is low and the market isn’t really making any big moves.  Individual companies are being judged on the merits of their business and the macro picture is taking a back seat.

I believe I have also benefited from being more selective.  As I have written previously, I’m taking fewer flyers, being more suspicious of value, staying away from dividend payers and focusing on growing businesses and emerging trends.

As a result these have been the best couple months that I have had in a while.

I made a number of changes around the edges of my portfolio, adding starter positions in a number of names, reducing position size in others, but I remained relatively constant in spirit: I have two large positions: Radcom and Radisys, and a number of small 2-4% positions where I am waiting for a reason to make them bigger.

With respect to my two biggest positions, nothing was said or reported over the last month, including their second quarter results, that deters me in my allocation.  I will give a quick synopsis of Radcom’s quarter below.  With Radisys I spent a lot of time on them a couple of months ago so I will wait until the next update to say more. In short though, the results were fine, they are engaged with a lot of carriers, they seem extremely confident that those engagements will lead to more deals and we will wait and see what new business the second half brings.

I did add five new positions to my portfolio in the last month.  I’m not sure what it was about this month that made it such a boon for ideas.  It wasn’t because I worked unusually hard to find them.  I just went about my usual process and for some reason kept coming up with interesting stocks.

I’ll talk about 3 of those positions (Bovie Medical, Hudson Technologies and Sientra) in this post.  In the interest of space I will leave the other two, Mattersight and CUI Global, for next month.  This being an August update I have a lot of earnings news I want to talk about and I don’t want things to go overly long (though I suppose it always goes overly long, so relatively anyways).

With that I will cut-off my general comments and get straight to it, starting with some company updates followed by my new positions.

Radcom – waiting on the next deal

Radcom announced results on August 8th but more importantly was a separate news release giving an official endorsement of Radcom’s technology from AT&T along with the recognition of the role Radcom will be playing in AT&T’s open source NFV backbone ECOMP.

The press release from AT&T validates the work that Radcom has done, and should make the company the go-to player for other service providers following in AT&T footsteps with ECOMP.  I have always felt the big risk with Radcom was the execution of such their large and cutting-edge deployment with AT&T and that something went off the rails.  That seems off the table now.

As an aside, I found this webinar, which includes a description by AT&T of what they are trying to accomplish with ECOMP, to be quite useful in trying to understand the platform.

While the second quarter results were inline, on the conference call Radcom’s CEO Yaron Ravkaie made a number of bullish comments.  He said that Radcom was now in discussions with 9 carriers, up from 5 in the first quarter, and that the earlier discussions had progressed positively, with feedback coming back from carriers that “this is exactly what we need and we want to progress with it”.

Interesting new opportunities are also opening up.  Radcom has soft launched a new adjacent product to MaveriQ that Ravkaie called a “very important component of NFV implementation”.  I am assuming this was a joint effort with AT&T to some degree since the product is already being used by AT&T even though they have only started marketing it to other carriers.

A final interesting comment was made at the end of the call when Ravkaie referred to a Tier 1 carrier that was recently in their office in Tel Aviv, their “head of their NFV program spend hours with them”, he went “deep into their NFV strategy” and was interested in “partnering” and “co-creation of cutting edge stuff”.

The negative with the story is timing; we don’t know when the next deal signs and telecom providers are notoriously slow footed.  I felt like Ravkaie was cautious about timing, making the following comment on the second quarter call:

the next coming quarters is going to change some of these into deals, and again I can’t really comment on when it’s going to happen, and on exactly when is the next order is going to come in, because everything is so new, so it’s hard to predict. And because as of the end of the day, big solutions in the telecom’s environment, so it does take time

Nevertheless it remains a great story.  The stock has moved up strongly since earnings.  I’m not sure where it goes in the short run, it all depends on the “when” with the next deal, but I see no reason to believe they won’t get that next deal done at some point.

Willdan looks good

The single sentence story on Willdan is that the company had very strong second quarter results, beat estimates significantly, guided higher for the year, said on the conference call that they have signed contracts that will be deployed in 2017 that they just can’t announce yet, said that revenue in 2017 will show further sequential growth, and said that their micro-grid strategy is taking hold with “increasing evidence to suggest that overall spending on microgrids will increase significantly in the coming years and we are well positioned to capitalize on this emerging market opportunity.”

Willdan reminds me of Argan, which was a little engineering, procurement and construction company that I found on the Greenblatt Magic Formula list back in 2011 (I just checked and its still there!) when the stock was $8.   I bought the stock but sold it a few months later at $14.  Argan continued to run from single digits to almost $50 now on the back of successful growth of their engineering services.

Argan demonstrates how engineering services can be very profitable if you have a team of the right professionals and you are delivering a service along the right trend.  I have said before that I think that we are on the cusp of changes to the power grid that will mirror what we saw first in computing and storage (ala the advent of the datacenter) and currently in telecom service providers (which is why Radcom and Radisys are my biggest positions).  If I am right about that Willdan is positioning itself to be in the middle of the build-out.

Oclaro was fine but Infinera made it a bit of a debacle

Oclaro had an excellent quarter, beating estimates and putting out strong growth guidance which was good news.  Unfortunately I only held about half the position that I had only a few days before.

I got turned around by a report out of Needham entitled “Optical Super Cycle”.  I don’t get Needham research, but I caught wind of a report they had in mid-July that described an optical upgrade super-cycle and managed to get my hands on it. Its compelling; the explosion of data is causing metro, long-haul and data-center interconnect to require upgrades simultaneously.

Its exactly the reason I am in Oclaro.  But after being convinced by Needham, I felt like I needed more.  So I went with one of their recommendations, a company called Infinera that seemed to be well positioned in long-haul, had the ability to take market share in metro, and wasn’t expensive compared to its peers.  No problem right?

Well Infinera announced results three days later and gave probably the worst guidance I have EVER seen.  Ever.   The company guided third quarter revenues of $180-$190 million versus Capital IQ consensus of $271 million.

This caused a couple of things to happen.  First I lost a large chunk of my investment in Infinera.  Second, it really shook my confidence in Oclaro, which is a much larger investment for me.  After some back and forth I decided to cut the position in Oclaro in half.

My reasoning hear was admittedly a bit suspect.  Infinera didn’t appear to be a big Oclaro customer.  Oclaro has significant business in China, a market where I don’t think Infinera plays at all.  The evidence from the call was that much of Infinera’s problems were internal, in particular that they weren’t gaining share in the metro market like they had anticipated and that a recent acquisition wasn’t bearing expected fruits.  Nevertheless what Infinera’s disaster highlighted to me is something that I have always worried about with Oclaro; that I will be the last to know when the optical cycle turns, and that these cycles turn quickly.

Well Oclaro announced their results and they were stellar.  Both their results and those of some others suggest that the cycle hasn’t turned yet.  Oclaro said they expect at least 30% growth in 2017.  Gross margins are expected to expand into the mid-30s from the high 20’s they were only a quarter ago.  Their 100G transceiver business has doubled in the last year.  The company is well positioned with the two vendors in China (Huawei and ZTE) where their growth depends.   The stock has continued to go up since, nearly hitting $7 on Friday.

But I can’t add.  I’ll stick with my half position but that’s it.   The cyclicality scares me, in particular the fact that they don’t really get to pass through price increases even when the cycle is in their favor, so the benefit is all volume and when the cycle ends or when inventory builds they will be smacked.   Needham could very well be right and maybe that doesn’t happen for 3+ years.  But I haven’t been able to put together enough knowledge to feel really confident about that.   So I think I’ll just leave that one as is.

What is going on with BSquare and DataV is interesting

Here is why I added to BSquare.   They had a crappy quarter. The stock tanked.  The company has a market capitalization of $54 million but subtracting cash the enterprise value is only $27 million.  The market has left them for dead but I’m seeing data pointing to how their new DataV product might on the cusp of taking-off.

Right now DataV has one announced customer, a $4.3 million 3 year contract with an industrial company.  Because this company is so small, and because DataV has 70% margins, it won’t take many contracts to be meaningful.

In my last blog post I highlighted a career opportunity I read about on the BSquare site.    In particular I noted the following language in one of the sales job postings:

Bsquare is investing significantly in marketing demand generation tied to its industry leading DataV IoT platform.  Market response has overwhelmed our current sales capacity, and we are looking for proven inside sales dynamos to join our team

I thought that was pretty positive.  Last week I went and looked at the job postings again.  There were a bunch of new one’s for android developers but also I found they updated the posting I referenced before, (its here) with the following additional language about responsibilities:

Responsible for making 30-70+ outbound calls (including follow up) per day to inbound leads

I don’t know if this is saying what it reads, but an inbound lead should be a company that has first contacted BSquare, so 30-70+ calls to those leads is an awful lot.  Are they exaggerating?  Or is there that much interest in the product?

They also quietly published this interview on their website, describing the integration of DataV with a heavy-duty truck environment.   Whats confusing about this is that there was a question on the first quarter call that suggested to me that the one DataV customer they had was VF Corp, which is not a trucking or industrial company.

The company has like zero following.  There were no questions at all on the last conference call.  The only intelligent questions I’ve heard in the last few calls is some private investor named Chris Cox who I am presently trying to hunt down (feel free to drop me a line if you read this Chris!).  I don’t think anyone cares about this name.  Maybe there is good reason for that.  But maybe not.

RMG Networks – will have to wait another quarter for the inflection

RMGN results were somewhat lackluster, the CEO had said that they would be growing revenues sequentially from here on out on the first quarter call and that didn’t happen. Revenues were flat, the issue was that the international business lagged and some timing of sales issues.  In particular it sounded like the Middle East was down a lot sequentially.

So it wasn’t a great press release but the color on the call was very positive.  In a separate news release they said they had a sales agreement with Manhattan Associates and gave further color on that relationship on the call.  RMG Networks had previously been something called a bronze partner with Manhattan which meant they would be recommended by sales if it came up but there was no compensation to the sales staff for any sales they created.  The new agreement integrates them into the selling package, most importantly now is that sales gets commission on the RMG products that they sell.  Because the products are complimentary this is expected to drive sales.  Manhattan Associates is a supply chain solution company so the partnership is right in line with what RMGN is trying to expand into and is also a $4B company so much bigger than RMGN.

They also said they have similar relationships that have been agreed to in principle but are not press releaseable quite yet with two other partners.

The second positive is that the 3 supply chain trials that they have referred to in the previous quarter has progressed into the purchase phase.  We should start to see revenues from those in the coming quarters.  The CEO gave a lot more color around the sales pipeline and how many leads they are generating and also with respect to the team that they have put together.  He really tells a good story, though that can be taken both ways I guess.  He is bringing people aboard that the market likes, signing agreements and getting their foot in the door where needed so I am inclined to believe this is just a waiting game to see how it translates into revenues in coming quarters.

Medicure has lots of catalysts, have to wait for them to materialize

As for Medicure, results again were probably a bit weak, I would have liked to see revenue at $8 million but $7.7 million is still pretty strong.  The bottom line was hurt by a large stock option expense, and they price their options as awarded so it all hits in a single quarter, you don’t get the spreading out of the option effect that most companies see.

Overall the idea is still there, they are continuing to gain market share with Aggrastat, hospital bags purchased increased 16% sequentially, the company said that June was their highest sales quarter since December and in a response to one of the questions on the Q&A they implied that the disconnect between sales and scripts should resolve itself into high sales, likely in the third quarter.

They are on-track to hear back from the FDA with respect to the bolus vial in the second half of the year, and the Complete Response they got from the FDA back in June for the STEMI indication sounds rectifiable.  They said there were 7 concerns that FDA had identified, 6 have been addressed and agreed to by the FDA and the seventh they have sent in their modification and are awaiting the response.

They also provided some color on Apicore.   It sounds like they expect to plan to purchase the other 95% of the company, said that Apicore  continues to grow over and above the $25 million of revenue they generated last year, and they have a new cardiovascular generic that they are developing along with Apicore that they expect to submit.  They were asked again about the price for their purchase option on Apicore and they again said they wouldn’t disclose, which is unfortunate.  They commented that they have built out their sales and administrative staff in response to the higher Aggrastat demand and it now has the ability to support multiple products.  In particular they can add this new generic with no additional staff increase.  They are also on the hunt for acquisitions of other drugs that are complimentary and low risk.

Vicor was Disappointing

I was disappointed in the second quarter results from Vicor given the expectation they had set the last quarter.  Much of Vicor’s backlog depends on a server standard called VR13.  The new server standard is in turn dependent on a new Skylake chipset being delivered by Intel and the chipset has been delayed (again), this time until the second half of 2017.

The consequence is that rather than orders beginning to ramp beginning in the second half, they likely won’t start receiving order for another 6 months.

I reduced my position on the news.  The company still is a technology leader and they still have the best power conversion solution for the next generation of datacenters, but six months is a long time and I’m betting I can build back the position at lower prices.

As I do continue to hold Vicor, I’ll be sure to follow Intel more closely to see where they are at with the chipset. In the mean time the best Vicor can hope for is to tread water.

New Position: Bovie Medical

I came across Bovie Medical doing a scan of 52-week highs on barchart.com.  This is a scan I like to do as much as possible during earnings season; you can catch stocks that are starting their next leg up because of recently released results.

Unfortunately I was on vacation at the time and so I caught Bovie a little later than I might have otherwise.  I bought the stock at $2.60, which was a couple of days after they had announced earnings. That was up from $2.05, which is what it had opened at the day of their earnings announcement.

Bovie Medical operates in 3 segments:

The “core business” is made up of electrosurgical medical devices (desiccators, generators, electrodes, electrosurgical pencils and lights) and cauteries.  This segment makes up largest percentage of revenues and has flat to low single digit growth historically.   Bovie has said they want to grow the business at mid-single digits which they were able to accomplish in the first half of this year.

The OEM business segment manufactures electro-surgical generators for other medical device companies.  It generated $1.6 million of revenue in the second quarter, up from $941,00 in Q1 and $648,000 in Q2 2015.

The growth from the OEM segment this year was somewhat unexpected.  It was partially due to contract restructuring that staggered contracts – they said that contracts are typically front-end development, back end production so they staggered the contracts to even out the revenue.  The company did say after the second quarter that the expected the growth rate to slow in the second half of the year but still show growth.  From the Q2 conference call comments:

…second quarter performance benefited from purchase orders signed last year and several new contracts were signed in the second quarter that should contribute to revenue growth over the next several quarters.

So the OEM business is posting some interesting numbers but the real reason I bought the stock is a new product called J-Plasma that Bovie recently developed.   J-Plasma is a tool that improves the outcomes of surgeries through an ionized helium stream of plasma. The result is better precision and coagulation without significant heating of the tissue.

The J-Plasma system consists of a helium plasma generator and tool disposable.  Here’s a screen cap of the disposable tool just to get an idea of what it looks like.

j-plasma

The generator (called the ICON GS plasma system) ionizes helium and produces a thin beam of the ionized gas.  You use the beam for cutting, coagulating or ablating the soft tissue.  The disposable is the hand piece for delivering the ionized gas stream.  It sounds like you replace the disposable with nearly every surgery.  There are different disposable hand pieces offered depending on the surgery being performed.  The procedure can be used on delicate tissues like fallopian tubes, ureters, the esophagus, ovaries, bowels and lymph nodes.

The initial generator purchase is in the $20,000 range, and the hand tools average $375.  Bovie said on its second quarter call that they are shifting to a pay per use option with a leasing program to bypass the upfront capital expense of the generator.

The success of J-Plasma didn’t happen immediately.  The company has had the product on the market since January 2015.  For the first year growth was in fits and starts.  In particular, the capital required from the up-front generator was a stumbling block.  The company said the following about the slow progress as recently as the fourth quarter conference call:

The operating metrics and leading indicators for J-Plasma product adoption were strong in the fourth quarter, but sales were below our expectations. We continue to face an exceedingly slow pace of J-Plasma generator sales. While we know that the long sales cycle for capital equipment is an industry wide issue, we also know that our VAC approval track record has been outstanding at over 92%, which makes this situation even more frustrating.

The company is targeting two verticals.   They are currently selling J-Plasma into gynecology (estimated total addressable market, or TAM, of $2 billion) and are moving into the plastic surgery business (estimated TAM of $440 million).

j-plasma-TAMThere are a number of other markets they can expand into including cardiology, urology, oncology and ENT.

There is also the opportunity for the J-Plasma system to be used in robotic surgeries.  Bovie has an expert in robotic surgeries on their medical advisory board that has begun to use J-Plasma in trials.  Results are expected in the first half of next year,  Bovie is also developing an extension to the product, due to be out in 2017, that will integrate into existing robotic surgical systems.  They said on the second quarter call that they are exploring relationships with “existing and emerging surgical robotic systems”.

Sales of J-Plasma increased substantially in the second quarter.  J-Plasma sales were $766,000.  This was up from sales of J-Plasma of $356,000 in the first quarter, which was up from $284,000 in the first quarter of 2015.

The company made a couple of moves in the second quarter that should increase exposure of the product further.  On the second quarter call they announced sales partnerships with two large distributors: Hologix (developer, manufacturer and supplier of premium diagnostic and surgical products) which will add them to their GYN and GYN Surgical line of products ($300mm line), and Arteriocyte, which will start selling J-Plasma to their network of plastic surgeons.

Given that Bovie’s sales force currently consists of a mere 16 employees and 30 independent sales reps, this should increase the reach significantly.  The company said that the two agreements are going to expand their salesforce “by multiples”.

One thing I like about Bovie is that they have a small revenue base to grow from.  In the second quarter revenue was $9.2 million.  This is up from revenue of $7.2 million in the first quarter.

Even though J-Plasma revenue remains in its infancy, incremental growth is still quite accretive to the top line because of the simple math that comes along with the company not being very big.

So we will see how things go in the upcoming quarters.  The one negative of note is when I model the growth out to next year, the company is still only borderline profitable after assuming a similar sales pace to the last couple of quarters.  So we may be a ways away from a real earnings inflection.  Nevertheless, I’m not sure that will matter much if J-Plasma sales can continue at the pace they are at.  If they do, profitability is an eventual inevitability and that is what the market will focus on.

New Position: Hudson Technologies

In an unfortunate turn of events I was listening to the Hudson Technologies presentation at the ROTH conference (the presentation is no longer available but I could send a copy I made if someone wants it) on my bike ride home a few weeks ago.   I was thinking wow, this sounds like a really interesting idea.  So I get home, take a look at the chart and boom!  The stock had jumped from like $3.50 to $5 that very day.

Sigh.

Nevertheless I continued to dig and found that in some ways the stock is actually a better idea now than it was pre-spike.

Hudson is the biggest refrigerant reclaimer in the United States.  The stock jumped on July 18th (the day of my bike ride) because of the announcement of a contract with the department of Defence:

[Hudson] has been awarded, as prime contractor, a five-year contract including a five-year renewal option, by the United States Defense Logistics Agency (“DLA”) with an estimated maximum value over the term of the agreement of $400 million in sales to the Department of Defense.  The fixed price contract is for the management and supply of refrigerants, compressed gases, cylinders and related items to US Military Commands and Installations, Federal civilian agencies and Foreign Militaries.  Primary users include the US Army, Navy, Air Force, Marine Corps and Coast Guard.

So this is a big deal for a little company.  But it wasn’t the primary reason I was looking at the stock.  The story that intrigued me centered around their reclamation of R-22 refrigerant volumes.

R-22 refrigerant, also known as HCFC, is an ozone depleting substance, much like the CFC refrigerant that we all remember from the 1990s.  In fact, R-22 took the place of CFC’s in many applications.  But because R-22 also has an negative environmental impact it was decided by a number of governments t phase the refrigerant out.  In the United States, between now and 2019, production of virgin R-22 will go to zero, as ruled on by the Environmental Protection Agency.

This article did a good job outlining the phase-out cycle by the EPA:

In October 2014, the EPA announced its final phasedown schedule regarding the production and importation of HCFC-22. The order called for an immediate drop from 51 million pounds allowed in 2014 to 22 million pounds in 2015, 18 million pounds in 2016, 13 million pounds in 2017, 9 million pounds in 2018, and 4 million pounds in 2019. No new or imported R-22 will be allowed in the U.S. on or after Jan. 1, 2020.

With R-22 production being phased out, the remaining source of R-22 will be from reclaimed refrigerant.  This is where Hudson comes in as the largest reclaimer in the U.S.  Hudson should benefit from the production restrictions as they gain market share as well as benefit from price.

Its price where things get really interesting.  Over the time period where CFC’s were phased out the price spiked from $1 per lbs to $30 per lbs.

Already we are seeing the price rise.  R-22 ended last year at $10/lbs (up from$7.50), it rose to $12/lbs in the second quarter and prices are currently at $15/lbs.  The company said on their second quarter call saying they are “showing signs of further price improvement.”

Hudson benefits directly from the price rise.  The company has said that they expect that for every $1/lbs rise in the price, 50c should fall as margin.

The opportunity won’t continue forever, but it appears to me that the runway will be measured in years.  While new air conditioning units do not use R-22, the economics of repairs for existing units work in favor of R-22.  At the Roth conference the company said the following:

…lets say you want to repair unit outside of your house, has 10lbs of refrigerant, repairs are $2,500, even if refrigerant is $100/lb its $1,000… [in comparison] new unit is going to cost you $8,000

Hudson has a market capitalization of around $165 million and there is about $30 million of debt.  The company announced 15c EPS in the second quarter.  Keep in mind that this number includes no impact from the department of Defense contract and that R-22 prices have risen another $3 in the third quarter.

I honestly thought the stock was going to take off after the second quarter.  While it flew in after hours (and sucked me in for a few more shares) it gave up those gains the next day and actually traded down 10% in the in suing days.

It turns out that company executives sold a bunch of stock over that time.  The company released a press release on the 10th saying that various executives had sold 1.1 million shares.  That’s a lot of shares for a little company to absorb.

You could of course look at this negatively, but keep in mind that these say executives still hold 20%+ of the company, and so they sold down their positions by about 10%.  They’ve waited a long time for some sort of pay day, its hard for me to put too much stock in them cashing in a bit once it comes.

I really like this idea.

It seems to me that R-22 prices have no where to go but up, that upwards trend has already affirmed itself, and the stock really isn’t reflecting this.  Nor is it reflecting the full impact of the DoD contract, which should be worth around $40 million in annual revenue at similar to higher margins than the existing business right now.  While the stock hasn’t really moved up from my original purchase price so I haven’t been adding much, the size on the high side of what I usually allocate to a new position.

New Position: Sientra

I honestly can’t remember how I came across Sientra.  It was probably some sort of screen, but I have no recollection of what I was screening with.   I’m not getting enough sleep.

At any rate, I came upon the stock the day before it released earnings, which forced me to do some quick work and decide whether I knew enough to take a position or not.

I took a position on that day only an hour before the close.  I tweeted my thought in this tweet (as an aside I’ve decided to try to return to Twitter to comment on my portfolio adds.  I feel like I am missing out on a level of feedback that was often useful).

I always wince when I make a decision like this; I’ve been bitten by acting too fast before.  Yet what drove me to act quickly was because Sientra seemed like a time sensitive situation.

Here’s the scoop with Sientra.  The company sells a breast implant.  Their product was approved by the FDA in March 2012.  By most accounts it is a better product than those that already on the market from Allergan and Johnson & Johnson.  The company was taking market share and sales were increasing.  In the first six months of 2015 sales were $26 million, up from $21 million in the comparable period the year before.  In the third quarter sales were $13 million, up from $10 million in 2014.  Unfortunately the results were overshadowed by manufacturing problems that led to the company taking a $3 million allowance for product returns and suspending further production of the impants.

A few weeks before they announced their 3rd quarterr results the company announced that on October 2nd they had “learned that Brazilian regulatory agencies announced that, as they continue to review the technical compliance related to Good Manufacturing Practices (GMP) of Silimed’s manufacturing facility.”

On October 9th Sientra released a letter that they had sent plastic surgeons regarding the issues with the facility.  Sientra relied on a single source manufacturer.  The compliance issue caused the company to put a voluntary hold on sales.  The stock dropped from over $20 to $10.

Sientra did its best to come clean.  They worked with the FDA and hired a third party firm to verify the safety of the product.  The company was silent for two months and the stock continued to fall, eventually settling at $3 in December.

On January 8th, in a published letter to doctors, the company announced that they had “submitted all of the third testing data of its products to the FDA. He says that, in the company’s opinion, the results show that all are safe and present no significant risk to patients. If the FDA agrees, then their implants will be back on the market.”

The company said that while their investigation found that there were microscopic levels of particulate matter on the products, that data also revealed that even with well controlled manufacturing processes the presence of microscopic particles is unavoidable, and the level of particles from the shedding of a typical laboratory pad would have more particles than their products.

They started selling their implants again in March.  The second quarter was their first full quarter of results. Along with the results the company provided an update on their search for a new manufacturing partner.  As I had hoped, they announced a new partner.

Sientra has entered into a services agreement with Vesta, a Lubrizol LifeSciences company and a leading medical device contract manufacturer of silicone products and other medical devices…Under terms of the agreement, Vesta is establishing manufacturing capacity for Sientra and is working with the Company to finalize a long-term supply arrangement for its PMA-approved breast implants. Sientra anticipates that all project milestones will be achieved for the Company to submit a PMA Supplement to the FDA during the first quarter of 2017.

Sales in the second quarter were $6.2 million, which is only about half of the $14.2 million in sales they had the previous year, but still a very successful initial level considering their limited launch.  In fact the company has to be very careful about how much product they sell before they get manufacturing back up and running.  They do not want to risk another supply disruption.

The response to their return to the market has been positive.  The reason I was so interested in getting into the stock sooner rather than later is because management gave a very positive review of how quickly customers were coming back.  On the first quarter call by CEO Jeffrey Nugent:

We were removed from the market voluntarily and our primary competitors naturally came in and took over those customers that we were no longer able to serve. So what encourages us, and me particularly, is the relative speed and ease of converting those previous customers to come back from those products that they used as a replacement.

So, I could give you a number of other statistics. We have a very high level of analytics inside the Company. We know exactly who is ordering what. We’re following that on a very detailed basis. But as far as pushback, we’re not seeing much. There are virtually no concerns about the safety issues that were raised and we’ve been able to convince those customers that we have the confidence and are giving them the assurance that we are not going to allow them to go back on backorder.

So customers want the product and the market for growth is there.  The breast implant market is large compared to the size of Sientra.  I had to do some searching, and most of the numbers are behind expensively priced reports, but I was able to gather that the US implant market is at least $1 billion.  Sientra had a revenue run rate of around $50 million before it ran into troubles.  It seems that there is plenty of market share left to capture.

The one negative consideration is that this story isn’t going to play itself out in the next couple of months.  The company remains supply constrained and are relying on inventory for sales.  While the details about the manufacturing partner are great, its going to be a while before they are producing new product.  The company said the fourth quarter of 2017, which I believe is probably conservative, but regardless new product is still some time off.

Nevertheless, with a positive response from customers and the path to new product clearing, I suspect we will see the stock move higher as we inch towards that date.  My hope is that we eventually get the stock back to the $20 level, where it was before the roof caved in.

What I sold

I reduced my positions in Air Canada, Granite Oil and Intermap.  Air Canada and Granite continue to be slow to develop.  I did like what I read from Granite’s second quarter earnings release on Friday, and I may add to the position again in the coming days.

Air Canada just continues to lag regardless of what results they post.  I’m keeping what amounts to a start position here, but after seeing the stock struggle for the better part of two years even as the business continues to improve, I just don’t know what it will take for a re-valuation to occur.

Intermap just keeps dragging along with no financing in place.   I sold a little Intermap in the high 30’s but mostly decided to reduce after lackluster news along with the quarterly results released Friday.

In all three cases there is also the consideration that I have come across a number of new ideas as I discussed above and prefer to make room for them.

I also sold Iconix in mid-July but bought back my position before earnings.  However, as I am want to do, I neglected to add back the position in my tracking portfolio and didn’t realize that I had not done so until I reviewed the positions this weekend.  So I will add it back Monday morning.

Portfolio Composition

Click here for the last four weeks of trades.

week-266

Week 250: Getting back to even

Portfolio Performanceweek-250-yoyperformance

 

week-250-Performance

See the end of the post for the current make up of my portfolio and the last four weeks of trades

Thoughts and Review

I’ve been trying to stick to core ideas over the last four weeks, not taking fliers and taking a very close look before I purchase anything.  If you remember, last month I reflected back on the last year, where I really didn’t do all that well, and concluded that my so-so performance could be attributed to too many mistakes with peripheral ideas that I either held too long or should not have gotten into in the first place.

At the same time I’ve been willing to tweak my exposure to stocks up a notch because my two main worries have abated.  As I wrote in my February post what worried me was:

  1. The collapse of oil bringing about energy company bankruptcies that a. lead to investor losses that start to domino into broad based selling, and b. lead to bank losses and bond losses that cause overall credit contraction
  2. The collapse of China’s banking system leads to currency devaluation and god knows what else.  Kyle Bass wrote a terrifying piece (which I would recommend reading here) about how levered China’s banking system is, how their shadow banking system is hiding the losses, and about how government reserves are not large enough to pacify the situation without a significant currency devaluation.

Both of these events seem off the table, with the first maybe completely eliminated and the second at least postponed.

Still the market is back to that 2,100 level and it is difficult for me to get excited about another move higher.  Where I can I have added some index shorts and also some individual tech name shorts to balance in case of a pullback.

Still finding new ideas

Even as I try to be cautious, I still have found a lot of new stocks this month.  I added positions in Swift Energy, Clayton Williams Energy, Granite Oil, Medicure, Rentech and Oclaro.  It was a busy month and there are lots of stocks written up below.  I feel pretty good about all the ideas, with the usual caveat that if oil starts to go south my oil stock positions will be reduced quickly (not Swift though, which is a special situation as I will describe).

Canadian Dollar Doldrums

I’ve had some decent gains in the last month and am back within a a few percent of my highs.  But quite honestly my portfolio would be back to its high already if this damn Canadian dollar wasn’t killing me.

About half of my portfolio is in US stocks but as a Canadian I report my gains and losses in Canadian dollars.  Lately, every day the market is up the Canadian dollar is up (usually a lot) and because of that a chunk of my gains disappear.  To give it perspective: since the beginning of the year the Canadian dollar has gone from about 1.38 US to 1.27.  Every $100,000 I had in US dollars was worth $138,000 at the beginning of the year; today its worth $127,000.  Its been a headwind.

I’ve been saved by picking some US stocks that have done very well.  Radisys continues to be huge.  Apigee is a big winner off its lows.  Clayton Williams has doubled in a few weeks.  Both Iconix Brands and Patriot National have had big runs off their lows.  Things would really be rolling if I didn’t have to deduct 10% from the aggregate sums.

Oh well.  The Canadian dollar going up means that oil is going up, and living here in Calgary I can tell you that is a good thing.  Things are unquestionably slow in the city.  If you are in the oil and gas sector, its depressing.

Cowtown Slowdown

As an aside with respect to my home town; I honestly don’t see the Armageddon situation that some have described. I bike past downtown condos every day and while the sun is up so I can’t count the lights, I can count bbq’s and bicycles on the balcony in these supposedly empty apartments.  I live in one of the downtown “high-end” neighborhoods where its been said that “every second house is for sale” and yet I see only a smattering of for sale signs and a number of them sold.  The restaurants I walk by still seem busy.  To be sure, things are slow and if you work downtown in the patch they are miserable, but overall it seems not very different than a year ago.  Is this what depression looks like?  Or do I just not have the clear perspective of an outsider, what I see being distorted by a home town bias?

Oil move

I’ve given up trying to predict whether this is the real move in oil  and if not when that move will come.  So just like all the other head fakes, I’ve added positions on the move up with the expectation I can be nimble enough to squeeze out some profits even if this turns out to be another short term blip.

I will repeat what I wrote in September about oil, which could be paraphrased to say “I don’t think anybody really knows”:

But with all that said, I remain neutral in my actions.  I’m not going to pound my fist and say the market is wrong.  I’m just going to quietly write that I don’t think things are as certain as all the oil pundits write and continue to be ready to pounce when the skies clear enough to show that an alternate thesis is playing out.

With that let’s talk about some stocks because I have a lot to say, starting with two of the three oil stocks I bought (I’ll talk about Clayton Williams at a later date).

Swift Energy

I think this would could be a legitimate 20 bagger if it all pans out.  If only I had the confidence to make a Cornwall Capital style bet on it.  I tweeted about this last week because I wasn’t sure if I’d be able to mention it in a post before the effective date.  Unfortunately that looks to be the case as the stock was halted all day Friday.

Swift is in bankruptcy.  At the end of last year they prepackaged a plan with bondholders.  That plan has been approved by a judge and the company should be coming out of BK shortly.  In the plan existing equity actually does quite well, retaining 4% of the new company shares plus 30% of equity via warrants.  The warrants are well out of the money compared to the current pink sheet price.  But they are also very long term, with half of them expiring in 2019 and the other half in 2020.

The bankruptcy plan converts ~$900 million of bonds into equity.  The company that emerges from bankruptcy will have $325 million of bank debt and, net of cash, somewhere around $250 million of net debt.  So the balance sheet is very de-levered compared to the company pre-bankruptcy and also compared to its peers.

The pink sheet implies a market capitalization of around $240 million and an enterprise value of  just under $500 million.  That means that the market is giving Swift an EV/flowing boe valuation of $16,000.  Checking that against the RBC universe, peers trade at between $30K and $100K.  On an EV/cf basis, which I again compare off of the RBC price deck for 2016 ($40 oil and $2.50 gas), Swift gets a 5.5x multiple versus 10-20x average for the RBC coverage universe.

As I said the warrants are way out of the money but by my calculations they provide an extremely healthy upside scenario.  You get 7.5 warrants per share.  Half of those warrants are in the money at ~72 cents, with the other half at ~78 cents.  If you get a stock price of 90 cents by 2019 you are looking at nearly a $2 return on your ~20 cents purchase.  $1 gets you close to $3 return.  See the model below:

pinksheet-returns

Of course a lot has to go right for all this to happen but its a long runway and even at 90 cents you are looking at an EV/flowing boe of around $43K and EV/cf of 15x assuming flat production, $40 oil and $2.50 gas.

The dream scenario is that natural gas prices go up some time between now and 2019.  If we hit $4 gas again Swift is going to make a lot of money, and a $2 billion enterprise value is not impossible (would still only be $62,000 per flowing boe on current production).  That would give you a 26x return on a 20 cent stock purchase.

On the downside, obviously management is not ideal.  Went into downturn with no hedges and way too much debt.  Operationally it actually seems like they’ve done pretty well though.  And the acreage they own, particularly Fasken, looks like some of the best of the Eagleford.

Granite Oil

This is an oil stock I’ve held in the past and that I bought again after it appeared that oil was going to make a legitimate run. I have added to it in the last week as oil has stayed very firm in the face of some bad news (Doha, Kuwait).

But I’m a bit worried.  Granite just doesn’t seem to be performing like it should. Below is a performance comparison I stole from this Investorvillage post:

peercompapr2016

The problem with investing in any of these Canadian juniors and intermediates is that production data comes out semi-publically through a subscription you pay for via IHS.  I of course, do not have access to this data.  So there is a chance that some are seeing declines in January and February and getting a head start selling on what will be a weak first quarter.

Granite also hasn’t put out a new presentation since February, which you can construe a few different ways, both positively and negatively.

Granite may also be in the penalty box because the same management team sold out their shareholders when they took an offer for Boulder Energy (of which Granite had split last year) at around $2.50 per share, or about one quarter of what Boulder traded at last year.  I imagine there are pre-split shareholders of both names that decided to jettison Granite in disgust after the Boulder news.

Granite currently trades at a $200 million market capitalization and has $40 million debt.  In the third quarter they produced 3,476 boe/d.  Their valuation is roughly inline with peers, though Granite’s low debt position should allow for some premium in my opinion.

They have proven themselves to be solid operators; in 2015 they “decreased capital costs by 29 percent through the year to $2.0 million per well” and operating costs from $7.50 per boe to $6.00 per boe (source).

What I have always found exciting about Granite is that they have a low-decline and relatively low risk development opportunity applying a gas injection enhanced oil recovery technique on known reserves.  But they also have a very large surrounding land position, which allows for a significant expansion of the program if oil prices recover and make them attractive to a larger acquirer.  Below is a map from their presentation to give you an idea of their current drilling focus and more importantly the expansive land package that surrounds it:

landposition

So I like Granite as a reasonably safe way to play a price recovery.  I am optimistic that the poor share price activity is an opportunity and not an omen.  The company remains reasonably priced with low debt and is one of the very few oil companies in Canada that can squeak out profitability with oil prices above $40.

Medicure

I got the idea for Medicure from a radio program we have in Canada called Moneytalks.  It used to be that Moneytalks was full of gold and silver interviews and end of the world enthusiasts so for a long time I did not make time to listen.   But lately Michael Campbell has been interviewing more real managers who have been giving out the odd gem of an idea with Medicure being one that I was enticed to buy.

Medicure was recommended by a PM at Maxam Capital.  I found this excerpt on the company in one of Maxam’s recent letters to clients:

maxamposition

Located in Winnipeg Medicure is a small pharmaceutical company with a drug called Aggrastat that prevents thrombosis and is used intervenously in hospitals.  Sales of Aggrastat have been growing rapidly since FDA approval first of recommended dosage in 2013 and then an expanded dosage regime in April of 2015.

aggrastatsales

On top of their ownership of Aggrastat, Medicure also has an option to purchase a growing generic manufacturer in India called Apicore.  This is where things get a bit fuzzy.   As part of a financing they orchestrated for Apicore in the summer of 2014 Medicure received a 6% interest in Apicore stock and an option to acquire the remaining shares at any time before July 2017.  But in a strange twist, the purchase price of the remaining shares of Apicore is undisclosed.  I looked all over trying to find an indication of what the option price is, but to no avail.  So trying to value the option is a bit of a guessing game.

Medicure gives a small hint in their presentation that it is probably worth more today than it was in the summer of 2014.  They provide the following information with respect to Apicore’s sales each of the last 4 years:

apicoresales

Clearly there has been significant revenue growth at Apicore since Medicure was granted the option to purchase the company.

The balance sheet accounting of the Apicore interest doesn’t help much because the only changes Medicure has made to the value of their position is due to currency fluctuations.

Medicure trades at a market capitalization of a little under $90 million.  They generated operating cash flow of $7 million in 2015 and do not have significant capital expenditures.  Aggrastat is growing and so one should expect increasing cash flow going forward.  And then you have Apicore on top of that, which must be worth something, though its not clear what.  So adding it all up, it seems that the current price of the stock does not reflect the cash flow generation capacity of Aggrastate let alone the value of the purchase option for Apicore.

Rentech

I got the idea for Rentech from @alex_estebaranz on Twitter.  Up until this year Rentech has operated two businesses: the first being wood processing (wood chips and pellets) with operations in Canada and the United States, and the second being fertilizer, with two plants producing nitrogen based fertilizer.

In 2015 the company decided to get out of the fertilizer business in order to reduce debt.  In August Rentech sold their East Dubuque fertilizer plant to CVR.  They followed this up with the sale of their Pasadena facility in March of this year.

The sale of East Dubuque to CVR was the more significant of the two deals.  Rentech received 1.04 units of CVR Partner stock in addition to $2.57 cash.   The proceeds have allowed Rentech to pay off about $150 million of debt.  Even after the payoff of Rentech retains 7.2 million units of CVR (valued at about $60 million).  They have $95 million of cash.

Rentech has 23 million shares outstanding so at $3.30, it holds an $82 million market capitalization.  The remaining debt they have is about $136mm. Subtracting what’s left of the CVR units and cash on hand and the enterprise value is low, only about $60 million.

What do you get for $60 million? A wood chip business called Fulghum Fibers, a US wood pellet business and a Canadian wood pellet business.  Below was 2015 EBITDA by segment in addition to an EBITDA forecast, which I will talk about shortly.

ebitdaforecast

As you can see the Canadian business is a bit of a mess.  They are ramping up new two new facilities and having trouble doing so.  It’s costing more money than anticipated, they’ve had to replace equipment and there is some question whether one of the facility can be ramped up to the original capacity expectation.

Nevertheless, even with reduced expectations Rentech expects that these facilities can generate between $13 to $16 million of EBITDA.  They sell their pellets to Quebec and Ontario Power for power generation, so they have steady customers for their product.

Rentech has also said they are in the process of taking out $10 million to $12 million out of SG&A.

Basically with the sale of the fertilizer businesses it’s a story about turning around the Canadian business and cutting some costs.  If the cost cuts materialize and they can generate the expected EBITDA in Canada, EBITDA can probably touch a number north of $30 million.  That would make a $60 million valuation far too low and something at least double that would be more reasonable.

Oclaro

I got the idea for Oclaro from a friend who is always coming up with off the radar ideas.  Oclaro makes optical transceivers.  The optical transceiver business is not a great business; competition is high and there is always a higher speed device on the horizon to upset any market share gains that you might have scraped together.

You can witness this by taking a look at Oclaro’s gross margins, which tend to hover around the 25% range historically.  But Oclaro is on the right side of the cycle right now.  The move in the high end of the optical market is towards 100G transceivers, and Oclaro has a leg up in this segment.

In particular there is a large build of long-haul optical in China that Oclaro has been winning business from.  They have a contract with China Mobile for 21,000 plus line side 100G long-haul ports.  The China Mobile contract is going to be delivered in Q1/Q2.  There are also contracts with China Unicom and with China Telecom for 8,000-10,000 ports each so similar size to China Mobile, and these are scheduled for early second half of the year.  On top of this there is regional demand from metro China customers that is ramping.

The product wins are leading to a ramp of their 100G production lines:

We will ramp both manufacturing lines for the ACO over this calendar year and we expect to go from shipping hundreds per quarter to thousands per quarter by the end of this year. We continue to believe that the majority of the early demand will be focused on data center interconnect

On their last conference call (second quarter) management made the following interesting comment that demand is exceeding their capacity to build the transceivers:

Our growth in Q3 will not be gated by demand. We’re running very tight on capacity for most of our 100G products, as well as our tunable 10G offerings. As a result, we’re adding significant capacity in all these areas. Our ability to grow will be governed by how quickly our capacity comes online, as well as the capability of some of our piece-part vendors to respond to our increased demand.

In the spreadsheet below I’ve tried to model out what I see happening to Oclaro over the next couple of years and their strong 100G position takes hold.  Their fiscal 2016 is half over, with revenues of about $180 million, so I am forecasting some growth over the next couple of quarters there.

forecast

In 2017 I am making what is probably a pretty optimistic forecast, with 20% growth in revenue and gross margins increasing to 35%.  I’m doing this to get an idea of what Oclaro might be able to generate if things go well.   I suspect that the 40 cents of EPS that I estimate would lead to a share price in the $8 range, maybe higher if growth is expected to continue to be strong.

Health Insurance Innovations

I sold some of my Health Insurance Innovations position.  Not a lot, but enough to reduce my risk if something goes wrong.  I got this across my google alerts and while I don’t know what to make of it, it doesn’t sound positive.

Arkansas News Bureau

LITTLE ROCK — State Insurance Commissioner Allen Kerr said Monday he has issued a cease-and-desist order against a Florida-based company over allegations it has used deceptive practices to try to sell short-term health insurance plans in Arkansas.

Kerr also released a list of tips for avoiding falling prey to dishonest telemarketers trying to sell health insurance plans.

The cease-and-desist order directs Health Plan Intermediaries Holdings, doing business as Health Insurance Innovations, to stop immediately the sale, solicitation or advertising of any insurance plans using unlicensed agents and to stop intentionally misrepresenting the terms of contracts or applications.

Kerr said in a news release that in a phone call with Insurance Department investigators, a Health Insurance Innovations employee offered insurance plans and gave price quotes despite admitting he was not a licensed insurance agent. Also, several company representatives falsely told investigators that two short-term plans, HealtheFlex and Principal Advantage Plan, were in compliance with the federal Affordable Care Act, according to Kerr.

I don’t really know what to make of this news.  It’s probably nothing.  Still, I felt a little better with a little less exposure to the name.

Radcom

A couple of data points occurred with Radcom in the past month.

First of all Netscout did a call on the NFV market and their service assurance offering.  The call was broken into two segments, with the first segment being the more interesting of the two.

In the first segment is an industry expert from Analysys Mason gave a pretty good overview of the NFV opportunity, its risks and why service providers are inevitably going to move towards an NFV solution. His projections for assurance seem a little light based on what I see so far from Radcom, but I guess we will see how that plays out shortly.  The call is worth listening to in full.

Second, I listened to the Amdocs fourth quarter conference call.  Amdocs gave lots of commentary around what they are doing with NFV and even provided some reference to how RDCM fits in.  Here are the comments I note (I highlighted a couple comments in particular):

When speaking about who will be the winners in this new market:

we think that actually the early adopters would come and the disruptor will come from the small companies. There is a lot of startups in this field, and we believe that some of it will go to the tradition, Cisco or Ericsson and the like but a lot of it will go to smaller companies.

Speaking of carrier advantages of NFV and their role as consolidator:

You can imagine that if you have a network that is all software devices, if you want to accelerate capacity or to change features instead of sending a technician that go to the box and do something, you just tweak it on a control plane in the data center. It’s like managing a huge data center. So the bottom line is that the trend is absolutely there. The nets are trying to fight it as much as they can, we are the disruptor, there are very few others, definitely not in our scale. We believe we could be the integrator of small companies.

And in terms of which carriers are getting a head start on their deployment:

In terms of the geographic spread that you asked, AT&T is probably by far the most advanced company with its theory and its power line under the Domain 2.0. You see some activities in Singapore Telecom, in Bell Canada, in Vodafone Group.

So in the next 12 months to 18 months, you will see the big guys making decisions, that is to say Bell Canada in Canada, AT&T and Verizon in the USA, Singapore Telecom in Asia, Telefônica probably, Vodafone, these are the guys that will make decision.

Finally, what Amdocs will and will not do:

We will not try to build a better virtualized probe than the people that I expect on this or virtualized– if you see packet core (50:39) or something like this, we would not. So we are mainly after the high-end NFV component and maybe some services and integration on the SDN.

Radcom hasn’t performed terribly well as the market has recovered.  The stock has been essentially flat.  But this isn’t unexpected.  It’s still a $100 million dollar company that reported revenue of a little over $2 million last quarter.  I don’t expect a significant move in the stock until it either reports some big numbers, announces another contract, or gets bought out.  The problem is that the last two items are game-changing events, and you can’t predict if one of them is going to happen tomorrow or next year.  So I wait patiently.

Portfolio Composition

Click here for the last four weeks of trades.

week-250