OK, I promised to feed a few more “safe penny stock” teasers into the Thinkolator today … so here goes …
The first one, if you remember, was a little semiconductor company that makes accelerometers and similar gizmos — that was MEMS, you can go back and check out that article here if you missed it the first time around. It’s OK, we’ll wait for you.
Well, as I said yesterday, this is a similar ad to one that the WSD Insider/White Cap folks have run several times over the years, though they usually slot in new companies as their “Safe Penny Stocks that can h and you astounding gains no matter what the market does.”
So what are the others? Well the clues are very brief so we might miss some of ‘em — they tease a hydraulic fracking company as #2, for example, but tell us only that their revenue increased by almost 2,400% at some point. That’s obviously a huge jump, but there isn’t a company alive that’s generating that kind of growth on any kind of consistent basis so it must have just been a company that dramatically ramped up its business at some point in the last year, probably in some kind of one-time move based on a big equipment purchase or a merger. Who is that?
Beats the hell out of me. There are several energy services firms that are in or affiliated with the hydraulic fracturing space that have posted big revenue jumps in fairly recent quarters, including jumps of several hundred percent for stocks that you’ll often see touted by newsletters like CJ Energy Services (CJES) and Heckmann (HEK), and even the beaten-down GasFrac (GFS in Toronto) has posted revenue gains of over 100% in a quarter at least once over the past year. I’ve looked through a few dozen of the likely suspects and didn’t notice a decent match, and that’s not quite enough to feed to the Thinkolator … so we’ll move on to one that we can solve (if you know the fracking one, by all means, toss it out there for us with a comment below).
“PENNY CAP STOCK #3
“The Biometrics Revolution Leader
“Personal and corporate security is more critical than ever, and we’ve isolated a small company with blue-chip clients like Dell, Motorola, Nokia and LG. Not surprising, when you consider its biometric fingerprinting sensors are the most accurate on the market… and it works on everything from personal computers to smartphones to tablets. Demand for this technology is set to skyrocket as consumers discover the importance of keeping private information more secure than Fort Knox.”
Interestingly enough, I was just reading about a different kind of biometrics security — a new one that uses the unique (I guess?) pattern of your heartbeat, though I have no earthly idea how they can get your heartbeat to be consistent. My heartrate changes a lot during the day, depending on how often I have to take calls from telemarketers and how Mrs. Gumshoe is dressed, among other things, but I guess there must be some kind of algorithm that can identify folks regardless of their level of stress or excitement. That particular one was a little company called Idesia (they were private) that just got bought by Intel (INTC). I do own Intel, but not because of that.
That’s off track though — which one are the WSD Insider folks teasing? This is again a limited dose of clues, but the Thinkolator can give pretty solid accuracy in estimating that they’re probably teasing: Authentec (AUTH)
Authentec is a real company, with a market cap of almost $200 million and a long-standing position in the biometric security biz — they’re certainly not the only company trying to develop these types of security products and processes (Intel didn’t just buy Idesia for fun, after all, they and the other big chipmakers and tech companies are all focused on security), but they’re probably the most prominent one with an established, revenue-generating business that comes close to being a “pure play” on this niche. They’ve never posted an annual profit (they’ve been around for more than ten years, they sold their first fingerprint sensor in 1999 and they’re a “tech wreck” survivor), but they have sold millions of sensors as a niche provider over the years and analysts do believe that they’re going to become profitable this year or next.
Buying a tech company just as it’s on the cusp of beginning to be sustainably profitable can certainly be very profitable, but that transition from ignored money-chewing chip company to profitable business is often anticipated well before it happens — I haven’t checked, but I’d wager that there have probably been forecasts from management or from analysts that AUTH was going to be profitable “next year” several times over the last five or six years. That’s not necessarily fair to AUTH, since I didn’t check to see if it was true, but it’s typical of many stocks like this — creating a sustainable business, especially one that relies on a surge in demand for a new kind of product, is not as easy as anyone might hope.
So … are fingerprint sensors about to become standard in phones and laptops? We keep hearing that it’s definitely going to happen, and I suspect we might get there someday (there are plenty of companies that offer it as an option, and have for years, including the ones teased above as customers) … but remember, we’re still in a world where probably 95% of us use our pet’s name or our kids’ birthdays as our passwords and never ever change them. It’s a big leap from that to getting your Aunt Vera to use a fingerprint sensor to turn on her iPhone. I’d bet that mass adoption will come very, very slowly, as it has for a long time — the technology, after all, has been around and reasonably available since we saw it in James Bond movies in the 1980s, but it’s still not even widely available in the most security-demanding consumer applications (like bank ATMs).
Still, their products are getting better and better (and cooler, naturally), and consumer electronics and corporate IT equipment folks are dying to make their products more secure, so the market may reward them eventually if they remain the leading “pure play” on biometrics — they have not skimped on R&D over their decade of losing money (OK, to be fair, they were briefly profitable, by a sliver of a penny, in 2007, but that was clearly an aberration), so that’s a good sign that they’re not resting on their laurels … and the stock has been slowly trending higher over the last three years since the financial collapse (that collapse almost destroyed this company, along with many others, the share price was well into the teens before that and it’s around $4 now even after tripling off the 2009 lows).
Analysts expect six cents per share in earnings this year, and 15 cents in 2013, so you’re paying about 30X next year’s earnings for a stock that they think will increase its earnings by about 20% annually going forward — that’s not totally unreasonable, but neither is it inexpensive, you’ll have to “believe in the story” and see some pretty solid adoption of their products going forward, or a takeover by a larger tech firm, to be drooling at that kind of valuation.
I just noticed that they also threw in a couple more “safe penny cap” ideas — how about one more quickie?
“PENNY CAP STOCK #4
Grabbing a HUGE Chunk of a $50 Billion Industry
“This company’s a key player in an unusual niche market: logistics scheduling, tracking and shipping management. In short, it takes orders from its customers and farms out the shipping to thousands of independent operators. And it just got a massive $150 million investment from a big name investor whose last endeavor could’ve doubled your money. But this under-the-radar play could make you even more.”
That may be a niche market, but it’s also home to a lot of multi-billion-dollar companies, which makes for tough sledding for small caps — they really have to offer something different if they want to grow agains the likes of Expeditors International (EXPD) or even firms like UPS (UPS) that offer a lot of logistics-related services. Still, companies — especially small companies — hate dealing with shipping and customs and logistics, so there are revenues to be had providing these services as a middleman.
This particular one, says the Thinkolator, is XPO Logistics (XPO). They were a small company a year or so ago, with a market cap of well under $100 million, and then Bradley Jacobs offered to become the controlling shareholder with a $150 million cash investment … and with plans to use that cash to “roll up” other logistics companies and create a much larger firm. So with these guys, you’re not buying the earnings or revenue so much (they’re expected to earn two cents a share in 2013, not much for a $15 stock), you’re buying the “story” that Jacobs will again be successful in rolling up regional and local businesses into a big company with economies of scale — as he did previously with United Rentals and United Waste Systems (the first still around as a multi-billion-dollar firm the second taken over by a larger competitor years ago).
So what we have now is essentially an acquisitions vehicle with a huge cash pile (about $200 million in net cash), so the existing business is valued at about three bucks a share. I have no idea whether or not Jacobs will succeed in rolling up companies and creating a great and profitable logistics company, but he certainly might (this kind of story is not universally successful, particularly in the short term, as “rolling up” a lot of small businesses can take forever, and it can be expensive if everyone knows you’re trying to do it — but great acquirers can turn small caps into large caps with smart acquisitions and by compounding the earnings from those acquisitions into more acquisitions, which is really what investors in these firms are looking for). They’re not a “huge player” yet by any means, but they do have ambition.
Sound like your idea of fun? Want to invest alongside a proven company-builder in logistics, or buy into the biometric security trend? Let us know with a comment below.