The “Don’t buy Facebook’s IPO” bit is not from me, just to be clear — I doubt I’ll want to pay whatever the price is that FB costs when it’s actually trading on Friday (if it goes through as expected), but if I could get shares in the actual initial offering at the offering price, before it spikes up when Joe Trader can buy it, I’d sign on to the IPO in a heartbeat.
Of course, almost no one can get those shares (there are a few consumer brokerages that have allocations, like Fidelity and Etrade, but they’re only offering them to their best customers, and even then it will be a tiny amount of shares). Maybe I’ll buy Facebook in the future, particularly if we get a dip in the price as folks start to seriously examine their current ad revenue, or when more insiders sell their shares late this year (right after the lockup, and before California taxes go up in January), but that will all depend on the price. It’s a great business that can be a great stock, but I doubt most of us can buy at a great price on Friday (I do own one of the Facebook owners and may trade around that position next week if things get wacky, but we’ll see — I posted a note on that for the Irregulars earlier today).
But anyway, that’s not the point … the point is, we’re receiving teaser ads for Christian DeHaemer’s Crisis and Opportunity newsletter all about buying “Network Leveraged Entities” instead of buying facebook itself. I think of DeHaemer as much more of a frontier market cowboy than a tech-stock analyst, but he’s certainly picked stocks in a wide variety of industries over the years — the latest ones that really got my readers fired up were Africa Oil, which Christian started touting last year to great success so far; and Petro Matad, which he touted a couple years back with huge initial success and then a complete collapse as their drilling in Mongolia disappointed.
This time, however, it’s all about companies that are teased as plays on facebook — albeit pretty indirect plays, from my perspective. He’s pitching these as part of a “free” (withpaidsubscription) special report called “Facebook Fever: The 3 Best Ways to Profit from the IPO of the Century.”
And what are they? Well, the hour is running late, friends, so let’s just skip the rest of our planned blather and jump into clues and answers for you:
“Network Leveraged Entity #1: The Technological Key to the iPhone and iPad
“In 1971, Holocaust survivor Dov Frohman was a recent addition to the newly-established Intel Corporation….
“Frohman would develop the concept for the first “erasable programmable read-only memory,” a complicated term for “a computer chip that doesn’t lose data when power is turned off.”
“This device is the granddaddy of the little-known device that makes it possible for the iPad, iPhone, and any other smartphone or tablet you’ve ever seen.
“The technology — called Solid State Disks (SSD) — is considered the new wave of energy storage.”
Sound familiar? Yes, we looked at another SSD teaser last week — it was for a different company pitched by Robert Hsu, but same basic idea: the storage solution of the future. And it’s hard to argue with it, though hard disks are certainly still much bigger and more trusted when you’re dealing with large-scale stuff — the last computer we bought at HQ had no hard drive, just SSD, and it’s far faster than the machines we bought just a year or two ago … but I also can’t afford an SSD big enough to store my terabytes of photos of the adorable little Gumshoes, so it takes all kinds.
And really, SSD or flash memory is a much closer tie to Apple than it is to facebook, as long as we’re debating indirect connections to popular stocks (since almost every Apple product contains flash memory or a SSD — an SSD, in our parlance, is really just a “hard drive replacement” made up of a stack of flash memory chips, though I could certainly be a bit off in my terminology). Though you can argue, as DeHaemer does, that facebook’s users and facebook itself will be using more solid state memory to speed things up for their data hog of a website. Here’s how he puts it:
“With so many revolutionary advantages compared to the traditional hard disk drives of the past, it’s no wonder SSDs have become the preferred storage devices for Apple, Dell — and yes, even Facebook…
“Or should I say, especially for Facebook.
“As one industry website says:
“SSD technology allows Facebook’s humongous global population to access their data at record speeds, a necessity for Facebook to increase their user base and secure their place as the IPO of the century.
“In short, SSD technology is critical to Facebook’s success.
“That’s why we expect big gains for SSD companies on Facebook’s IPO.”
I personally think that the implication that facebook’s IPO should drive SSD-making companies higher is a bit of hooey, though certainly we could see some kind of “network effect” where facebook enthusiasm drives up the valuations of lot of tech stocks.
And sure, I suppose that there’s some chance that facebook will use a big chunk of it’s $10 billion windfall from the IPO to build more data centers, and in those centers they might choose to use more SSD memory to speed things up, since they’ve got money to burn, which might be enough to impact the marketplace. So I guess that’s the framework for justifying a facebook connection to whatever stock it is that he’s teasing. That’s certainly been a big chunk of the argument for one of last year’s most volatile IPO’s, Fusion-io (FIO), a NAND flash supplier that counts facebook as a big customer (though FIO took a tumble lately, and trades for a thousand times last year’s earnings still).
But no, DeHaemer ain’t teasin’ either FIO or Hsu fave Silicon Motion (SIMO) — the stock he’s picking is under $10. So … some more clues, please?
“There’s one particular cutting-edge company that I am recommending to savvy investors right now.
Its clients include industry titans such as:
- U.S. Government
And that list of clients, along with the stock chart that he includes (it has bounced around between roughly $5 and $10 over the past year and a half), is just about it when it comes to clues. So what’s the answer?
Man, I hope the Thinkolator is gassed up for this one. Let’s see … get her revving, nice idle now, and feed in those paltry clues to get our answer, which is … OCZ Technologies (OCZ)
And yes, though the client list matches nicely we’re going just off of the stock chart that you can’t see to get certain confirmation — so you’ll just have to trust me. Or go check out the ad to confirm the chart match for yourself.
OCZ is a very small company, with a market cap of about $350 million and about $90 million in cash (all of that cash is from a recent public offering, they haven’t been generating cash on their own just yet) — they are a turnaround story, a company that was big in DRAM (yesterday’s story, apparently) and has turned itself into a big NAND supplier (the elephant brains of tomorrow).
And they’ve gotten clobbered of late, along with most of the flash memory companies who’ve reported less-than-inspirational quarters — the downtrend has hit everyone, from Fusion-IO and STEC (STEC) on the small end to jumbo industry bellwethers like SanDisk (SNDK) and Micron (MU). Not all of those are NAND companies, I think Micron is a DRAM supplier — but they’re all flash-related.
And actually, though pretty much all of these memory stocks look cheap right now after getting clobbered, OCZ looks more appealing than most — they’re not profitable on a trailing 12 months basis, but they have built up their capacity and ramped up revenue growth very quickly and strategically, with a significant focus on flash memory in the server/data center market. They just completed their fiscal year in the last quarter announced here, which press release basically lays out their bull argument for the strategic position of the company and their plans for the near term, but they are not profitable.
The “not profitable” situation is one that analysts see changing rapidly — they have improved their gross margins substantially with the switchover to NAND production, and analysts see them earning about 31 cents per share in the just-started fiscal year, so that’s a current-year PE of 16 or so. And more interestingly, those same analysts see them earning a dollar a share in the following year, which is a forward PE of about 5.
I have no idea whether or not that’s attainable, it’s worth noting both that their weak spring so far has led analysts to slash current-year estimates (they had been over 50 cents) while also raising next year’s estimate from 80 cents to a buck; and that the analysts covering this stock have so far been terrible at guessing the earnings number. That’s not that surprising for a company in the middle of rapid change, but it’s worth noting before you put too much stock in a forward PE estimate.
So for whatever reason (I’m guessing it’s the “hey, that looks cheap!” impulse), OCZ stands out as particularly appealing to me among the flash memory stocks that I’ve taken a passing glance at in recent months. Of course, I’d never heard of them before today, and it is just a passing glance, so I stand ready to accept any and all comments or ideas about the sector or the stock from those of you with far more experience with these companies … I don’t think I’ve owned a flash memory stock since a brief dalliance many years ago with Sandisk, so let’s hear what you think.
Come on, it’s not so scary — that’s why we have the friendly little comment box below. We’re ready, let ‘er rip.
And yes, don’t worry, we’ll take a look at DeHaemer’s other teased facebook-related buys next — I guess we’ll have to do it tomorrow if we’re to break down those clues before the actual IPO takes place and we all stand in rapt attention to the mighty billionaire in the hoodie, so … tune in tomorrow for more blatheration and wisdom!