Bargains in the Technology Trashcan

As most stocks/companies in the technology universe have been going through weeks of trashing from all of the media outlets, I see some of the best long-term investments taking shape. If you look beyond the doom-and-gloom being predicted by all of those who are supposed to know about technology, there is a lot of money to be made, and with relatively safe investments.

We focus on insider trading, and so all of the companies I’ll identify here are technology companies which have seen some very good purchasing recently. However, to kick it up a notch, I wanted an added level of security, call it a back-stop if you like. On top of the insider purchasing, I’m only going to provide those technology companies with insider buying, are posting profits,  and are paying dividends. I’ll call this the Technology Investment Trifecta!

What’s the biggest issue plaguing the technology companies today? If you believe the IT technorati who are supposed to know better, you’d think it’s the complete demise of the PC business, along with near obliteration of every device which does not begin with a lowercase “i”. The fact of the matter is that mobile and iDevices may be able to provide a good portion of what consumers need in a computing device. However, there are things which that mobile device will never be able to do (well) and so a home-based PC is still going to be required. Further, in the office, it will be a decade or more before you see iDevices or Apple products making any major dent at the employee desktop. Lastly, Apple products will likely never be running corporate data centers. I won’t go in to all the details regarding my points here, but, personally, I have 25 years experience in IT, so my view is well-founded.

In any case, let’s get to those technology investments that might make us some money and with a low amount of risk because they meet my TIT criteria. These are not presented in any particular order, all meet the TIT criteria, and should be investigated further for your own investment potential.

Symbol Company Share Price 52 week hi/lo Dividend Yield Last Insider Purchase
CY Cypress Semiconductor $9.54 $20.42 / $9.43 4.6% 10/24/2012
DELL Dell Inc. $9.41 $18.36 / $9.11 3.4% 2/23/2012
MSFT Microsoft Corporation $28.83 $32.95 / $24.30 3.2% 5/8/2012
HPQ Hewlett-Packard Company $13.61 $30.00 / $13.60 3.8% 6/5/2012
ADTN ADTRAN Inc. $17.61 $38.95 / $15.38 2.0% 7/15/2012
NATI National Instruments Corp $23.41 $28.98 / $23.13 2.4% 10/31/2012

Now, I’m not advocating anyone go and blindly purchase this basket of potential technology Easter Eggs. However, considering that these companies are surely not going to disappear anytime soon, they are paying good dividends considering the interest rate environment, they are (currently) all profitable, they are all leaders in their segments, and they have senior management willing to invest their own money purchasing the shares, they warrant a good objective look.

The stocks/companies I’ve provided are just a few which meet my TIT criteria. There are a bunch more where the only thing missing is the insider purchases – they have been beaten up, they are profitable, and paying dividends. You can use a stock screener on one of the major sites (e.g. http://screener.finance.yahoo.com/stocks.html) to scan for those if they are of interest.

Lastly, as always in my book, if you do buy any of these, never plow all-in with one purchase. Be patient and take a small position. If the stock trends lower, buy some more. If your research is good and you believe the stock/company is undervalued, then look at it as a gift that the price might go lower before the rest of the market realizes what you already have. The market can be irrational a very long time. If you invested a large amount at one time, you can be easily scared out of your position. Play it safe and never invest too much in one security or at one time – you’ll sleep much better, and likely see better returns over the long-haul.

8/13 Focus Stock – Nautilus Inc. (NLS)

Most everyone has heard of the Bowflex from a late night infomercial enticing you with fabulous abs. Maybe some other home exercise equipment with the Nautilus name. If not, then if you’re a member of a gym, you’re familiar with Nautilus equipment either directly by its brand name, or one of the other brands it produces – like Universal weights, or possibly others under the Schwinn name.

In any case, Nautilus popped up on one of our custom reports on Friday. We produce a few custom reports for some of our clients, and this particular report highlights stocks/companies where more than one insider transaction takes place. An important item regarding this custom report, we don’t exclude option-related transactions. Many times, people will ignore option related transactions when reviewing insider trading activity. We believe the information should not be ignored. Maybe not as important as outright purchases or sales, but it is still an important data point as we’ll see here.

If you quickly review the report, and jump to the Nautilus entry we see that on Thursday Aug 9, there were two insider filings. One was by William McMahon (Chief Operating Officer), the other by Linda Pearce (Chief Financial Officer). Of particular note here – Ms. Pearce was awarded options on 30,000 shares (vesting over three years) on Thursday at $2.47/share – the very day she was given the CFO position. However, a press release of the appointment was not issued until today, two business days later. So, first key item – we knew on Friday that Ms. Pearce was hired as CFO – the SEC Form 4 stated it.

NAUTILUS, INC.(NLS) What Shares Price
MCMAHON WILLIAM B COMMON STOCK 100 2.47
MCMAHON WILLIAM B COMMON STOCK 200 2.48
MCMAHON WILLIAM B COMMON STOCK 500 2.47
MCMAHON WILLIAM B COMMON STOCK 7,200 2.50
PEARCE LINDA M. STOCK OPTION (RIGHT-TO-BUY) 30,000 0

On Friday, a third insider transaction was noted for Wayne Bolio, SVP of Law and HR for 5,000 shares purchased at $2.37/share, bringing his total ownership to 35,800 shares.

It’s my belief that it was no small coincidence that the insider purchases all took place on Aug 9 along with the option grant to Ms. Pearce.

Investors would be wise to take note of the transactions, in conjunction with the latest earnings report.

I’ll go through my general analysis which provides additional reason to be purchasing NLS shares at the current price, and any lower.

1. How many shares were bought or sold in relation to the amount owned before the transaction(s)?

As mentioned above, Mr. Bolio went from 30,800 to 35,800 shares for about a 16% increase in holdings. Mr. McMahon went from 17,760 shares to 25,760, an increase of about 45%.

View: Positive

 2. Is the stock price near its recent or long-term high or low?

The stock is in the middle of the 52 week high and 52 week low. However, the current price is a sharp drop from the 52 week highs it was flirting with just a few weeks ago and 25% off of the price of just the prior week.

The insiders jumping in and purchasing a fair number of shares shows they believe the stock is undervalued at the current price. Additionally, the awarding of options to Ms. Pearce at a price of $2.47 was done after the fall in the stock, likewise, to get her a good entry point.

View: Positive

 

3. What do the fundamentals and earnings picture of the company look like?

Nautilus has gone through a few tough years. The recession has hurt companies which rely on discretionary spending very hard. However, Nautilus is on the rebound. The swift plunge in the stock price attributable to the earnings report just filed was way too harsh. The earnings posted were extremely good, indicating a continued return to profitability, and a strong balance sheet.

Why has the stock been so harshly attacked over the past few days? A loss was posted for the quarter. However, it was expected, and is still a marked improvement over a significantly larger loss in the same quarter a year ago. Honestly there is no especially good reason for the haircut seen over the past week of trading. Fortunately, for investors who can look beyond the games that Wall Street plays, bargains present themselves. Nautilus is one of them.

To summarize, year over year profit is up, year over year revenues are up 14%, profit margin is up, and long-term debt has been eliminated – this company is debt free. In each of the past four quarters, the company has beat profit estimates handily.

Make no mistake, this is a turnaround situation, and it has made the turn back to profitability. The back half of the year is where the seasonal strength is seen, so with the plunge in the share price, now is the time to be looking to take a new position,  increase or average down an existing position.

View: Overly Positive

4. Are there any other items of interest that may raise red or green flags?

a) Insiders have a decent history of purchasing/supporting the stock. They’ve routinely purchased shares over the past year, and they’ve decided to purchase again, now, with the stock down 25% in just a few days.

b) Analyst estimates are for continued increasing profitability. FY2012 is estimated at 25 cents/share – more than triple prior year, and FY2013 is estimated at 36 cents/share an increase of 44% over 2012. A quick calculation gives a 2012 PEG of 0.05 at the current stock price (2012 EPS of 25 cents, growth of about 200%). Forward PEG ratio calculation at the current share price gives about 0.15 (EPS of 36 cents,  growth of 44%) – clearly a strong buy.

c) A week ago, Forbes wrote that should the stock fall to $2.90, it would technically be oversold.

View: Positive


Overall View: Very Positive

I try to stay away from making stock picks and recommendations here, and simply focus on what we can infer from the insider transactions. However, in this case, if your portfolio is looking for some exposure to a small bit of speculation, Nautilus is an excellent choice. The company is debt free, it has returned to profitability, and the remainder of the year is seasonally the strongest, you can get it at a 25% discount, and you have insiders purchasing right along side of you.


Do you own NLS? Have any thoughts on these insider purchases? Other thoughts? Let’s discuss it.


6/19 Focus Stock – PharMerica (PMC)

This article was carried by Seeking Alpha this past week

Key Insider Purchases at PharMerica


Do you own PMC? Have any thoughts on these insider purchases? Other thoughts? Let’s discuss it.


6/8 Focus Stock – Dynamics Research (DRCO)

 

This article was carried by Seeking Alpha this past week

Insider Purchases Pick Up at Dynamics Research


Do you own DRCO? Have any thoughts on these insider purchases? Other thoughts? Let’s discuss it.


5/26 Focus Stock – Maxwell Technologies (MXWL)

My focus stock this week is a niche player in green technology – Maxwell Technologies.

Maxwell manufactures ultracapacitors. To cut to the chase, ultracapacitors can store a charge for a longer period than run of the mill capacitors. The benefit is that it makes running on electricity more viable in more situations. Read this article for a good example of how they can be utilized –

http://www.environmentalleader.com/2012/05/17/ultracapacitors-give-power-lift-to-automated-guided-vehicles

Let’s have a review of Maxwell and the recent insider transactions using my research points.

1. How many shares were bought or sold in relation to the amount owned before the transaction(s)?

The insiders who purchased shares over the past few weeks are shown below:

Who Date Shares Price Shares After Purchase
SCHRAMM DAVID 4/30/2012 5000 10.04 135,789
ROSSI MARK 4/30/2012 20,000 9.60 86,664
SCHRAMM DAVID 5/3/2012 2000 9.50 137,789
GOESCHEL BURKHARD 5/3/2012 5000 9.59 27,997
ROSSI MARK 5/4/2012 5000 9.60 91,664
ROSSI MARK 5/14/2012 5000 8.07 96,664

The key point which needs to be made here is that the last time when any insiders purchased shares in the company was December 2008, in the range of $4.50 to $4.90 per share after falling from $12 per share just two months earlier.

Further, in addition to the above purchases, on April 30 Robert Guyett (a director) exercised options for 11,000 shares ranging from $6.20 up to $7.44 per share. Now, understand, he had to pay the roughly $68,000 out of his pocket. This was done on the day the stock was trading at about $10. Normally, we see insiders immediately turn around and sell the shares which were purchased – not here, Guyett bought the shares and is holding them.

View: Very Positive

 

2. Is the stock price near its recent or long-term high or low?

The stock has hit a new 52-week and/or multi-year low almost daily for the past several weeks.

View: Negative

 

3. What do the fundamentals and earnings picture of the company look like?

The fundamentals are very good. Maxwell is a known leader in the ultracapacitor space. There is room for major growth in the market segment as there are many untapped uses in a wide range of industries. Maxwell is profitable, is experiencing good growth, the balance sheet is very clean/strong. The only possible thing which could be viewed negatively is that the stock trades at a very high P/E as profit is not huge at this time. However, revenues are growing nicely, and this is a high-tech company.

Key idea to keep in mind – the company is at the point where it’s just turned the corner from posting losses, to posting profit. With continued growth, earnings/profit will increase, that P/E is going to begin coming down, and many more people are going to be seeing this stock/company on their radar screens.

The recent earnings report showed quarterly sales up 11% from prior year, and for the quarter a profit of 2 cents/share compared to a loss of 3 cents/share in the quarter a year ago.

View: Positive

4. Are there any other items of interest that may raise red or green flags?

a) Insiders do not routinely buy shares in the company. So, the fact that multiple insiders have made purchases, and that they haven’t made any since the last time the stock fell to this level is clearly a positive signal. Should the stock continue lower, it makes the case even stronger.

b) An analyst came out with a downgrade and had negative things to say about the company just yesterday. My understanding is that this analyst did not check his facts and because he went to press with misleading information, it resulted in some havoc in the stock causing it to fall nearly a dollar per share (12%) on very heavy volume.

c) There’s only 29 million shares outstanding with insiders holding about 7.5% and institutions holding about 84% – so there’s not a lot of stock trading in the market. When buying comes back, the stock will move up swiftly.

View: Positive


Overall View: Very Positive

The bottom line here is that this is a great company to invest in. Clearly, the stock price is very turbulent right now, and with the way the market trades these days, that turbulence may well continue. However, if you look at the stock chart over the past 5 years, it’s clear that this stock is comfortable trading in the $15 to $20 range…and that was as the company was posting losses. Now, while posting profits it’s fallen 70% from the 52 week high – how much sense does that make?

I try to stay away from making stock picks and recommendations here, and simply focus on what we can infer from the insider transactions. However, in this case, if your portfolio is looking for some exposure to high tech with excellent potential for growth, this has the lights flashing and the bells ringing as a screaming buy. Maybe the stock trends lower even more from the current price ($6.96/share close on May 25), so, don’t bet the house all at once. Ease into it to accumulate your position.


Do you own MXWL? Have any thoughts on these insider purchases? Other thoughts? Let’s discuss it.


4/12/12 Focus Stock – AngioDynamics Inc. (ANGO)

My focus stock this week is a small medical device maker, AngioDynamics (ANGO).

Through the week, five Form 4 filings were made by four insiders purchasing a total of just under 15,000 shares. Similar to JVA last week, generally we do not see small purchases like this hit our screens unless there are few filings on a particular day.

The filings showed up in our alerts for filings made on Tuesday and Thursday which totalled about $94,000 and $31,000 respectively. Another smaller filing was made on Wednesday as well. The purchases made on Monday included 5,000 shares by the CEO, Joseph Devivo.

Though the purchases were relatively small in size and dollar amount, when viewed in a larger context, a nice picture develops.

Let’s have a review of AngioDynamics using my research points.

1. How many shares were bought or sold in relation to the amount owned before the transaction(s)?

The four insiders who purchased shares during the week along with the amounts are shown below:

Who Date Shares Price Shares After Purchase
BUCCI VINCENT 4/9/2012 2000   11.80 31,846 (D)
DEVIVO JOSEPH 4/9/2012 5000 11.82 36,000
KAPUSTA MATTHEW C   4/10/2012 1000 11.40 16,000
GOULD KEVIN J 4/11/2012 2700 11.72 2,700
BUCCI VINCENT 4/12/2012 4000 11.82 4,000 (I)

View: Positive

2. Is the stock price near its recent or long-term high or low?

The stock hit a new 52-week low at $11.35 during the week as the insiders were purchasing. The stock has not traded below $12 since mid 2009. Looking at the 5-year chart, it is clear that $10 is hard resistance.

View: Positive

3. What do the fundamentals and earnings picture of the company look like?

The fundamentals are good for the most part. Of particular note is a cash hoard amounting to over $5.50/share. Book value is over $16/share, and there is minimal long-term debt.

The recent earnings report showed quarterly sales down 2% from prior year, gross margins down 1%, and for the quarter a loss of 7 cents/share attributed to one-time costs largely for restructuring. Removing the one time costs gave a profit of 9 cents/share compared to 15 cents/share a year ago.

I don’t like one-time costs and companies that brush them off and claim what their profit would have been without them. Too often, we see companies taking these one-time costs year in and year out, and then they’re no longer one-time costs, but the norm of how business is conducted. There’s a reason why it’s called “non-GAAP”, because it is not part of accounting standards. So, in our book, ANGO posted a loss of 7 cents/share for the quarter and that’s the end of the story.

View: Neutral

4. Are there any other items of interest that may raise red or green flags? 

a) Insiders routinely buy shares. Going through the history, purchasing shares is the norm, they don’t sell. This is very positive. It shows management has skin in the game, and are willing to invest more should they believe shares are undervalued.

b) The company is in the process of completing an acquisition that will solidify it’s position as number one or two in each of its key markets. More information can be found in the prior link to the earnings report press release. This is a link to the full 10-Q.

View: Neutral


Overall View: Somewhat Positive

The company has been clear with its 2012 earnings guidance that this will be a year for rebuilding. With the acquisition of Navlyst Medical, some restructuring, and investment in quality control, profit will be held back as a result. However, the investments being made now, should translate into sales and profit growth going forward. With reduced earnings through the remainder of 2012, I believe it will make 2013 very good as comparables for 2012 should be easy to beat showing excellent growth.

Aside from the short-term restructuring issue, the balance sheet is very strong with $5.68/share in cash, and a miniscule $7 million in long-term debt. Book value checks in at $16.33/share.

This is a company I personally like and would consider purchasing the stock. The simple reason is that the company manufactures/sells tangible products, it is profitable, it has an excellent cash cushion, and negligible debt. I like companies with strong balance sheets because it gives them flexibility to ride out storms, make prudent acquisitions, and shareholders have tangible value (can’t get any more tangible than hard cash).


Do you own ANGO? Have any thoughts on these insider purchases? Other thoughts? Let’s discuss it.


4/6/12 Focus Stock – Coffee Holdings Inc. (JVA)

The markets were closed on Friday for Good Friday, and generally we don’t see many (if any) SEC filings as a result. So, when there are filings on a day the market is closed, there are usually just a few, and we see some of the smaller transactions which wouldn’t normally hit our screen. Nonetheless, it makes for interesting analysis.

On Friday, Form 4 filings by Andrew Gordon and David Gordon, President and CEO, and Vice President respectively, showed they sold a combined 600,000 shares for approximately $6 million the prior two days .

There are a couple of items I like to look at when making a decision on the meaning of a particular insider transaction:

  1. How many shares were bought/sold in relation to the amount owned before the transactions?
  2. Is the stock price near its recent or long-term high or low?
  3. What do the fundamentals and earnings picture of the company look like?
  4. Are there any other items of interest that may raise red or green flags?

1. How many shares were bought or sold in relation to the amount owned before the transactions?

Andrew Gordon sold 290,000 shares from a total 893,000 shares held indirectly. This represented over 30% of the original shares. David Gordon sold 250,000 of 805,000 directly held shares and an additional 60,000 shares of 180,000 shares held indirectly. Again, this was over 30% of the shares held prior to the sales.

View: Negative

2. Is the stock price near its recent or long-term high or low?

With the stock trading around $10/share at the time of the sales, this was a few dollars/share lower than the recent runup over the past several weeks which took the shares from the $7.75/share range up to almost $15/share. Prior to the runup, shares have been meandering between $7 and $9 since mid-November. The jump in the stock a few weeks ago can be attributed to a reasonably good earnings report, and what I’d call a pump/dump article posted on the Seeking Alpha website. With the stock falling back from that unjustified pump, I think that these two insiders were capturing the quick gains they saw over the prior few weeks, thinking the stock is going to fall back to prior trading levels (or lower).

View: Negative

3. What do the fundamentals and earnings picture of the company look like?

Quickly going through the fundamentals/financials things look pretty good on the surface. In that earnings report a few weeks ago, revenues more than doubled over the same quarter in 2011, and earnings per share were up just over 25%. The company carries minimal debt of under $2 million, there’s a bit over $1/share cash, it pays a quarterly 3 cents/share dividend which comes to about 1.2%/year.

I haven’t yet looked at the earnings picture going forward, but assuming the prior quarter numbers were not artificially inflated for some reason (like a one time gain), then even with flat to slightly higher results, things aren’t bad at all.

View: Positive

4. Are there any other items of interest that may raise red or green flags?

a) A key point to note is that there are only 6.3 million shares outstanding. So there’s not a whole lot to go around. This can result in more volatility in the stock price, either up or down.

b) There is currently a large short position of 21% of the float (953k shares). This is a significant number of shares in comparison to the float. I personally don’t believe in short squeezes, however, if you do, then this is definitely something you’d be interested in.

c) The stock trades an average of 700,000 shares a day. This is between 15% and 20% of the float – which is a fairly large amount in my mind, so I believe there is quite a bit of trading taking place rather than longer-term investors buying. I additionally believe, that for the simple fact that this is a coffee company, it gets lumped along with SBUX, GMCR, and PEET, and as a result has a fad component to it.

View: Neutral


Overall View: Somewhat Negative

Though I generally have lots of fodder to nail insider sales with, this one isn’t so bad. I believe that the selling here is likely more a result of taking advantage of a short-term anomaly (rise) in the stock, and an admission that the stock will likely fall a bit further.

If anything, this has now become a stock to add to my watch list for potential future purchase. A quick glance at the long-term stock chart indicates this is a $5 stock.  I’ll have to go research further, going through the prior year or two SEC filings to gain a better understanding of why the stock shot up over $25/share midyear 2011, and why it has come all the way back down since.

Should the stock trade back into the $7’s, only based on what I know thus far, I would probably consider a small initial investment.


Do you own JVA? Have any thoughts on these insider sales? Other thoughts? Let’s discuss it.


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