“Small-Cap Superstar That Cisco, Verizon and Comcast Can’t Do Without!”

Sniffing out a PowerTrends "takeover target" teaser

By Travis Johnson, Stock Gumshoe, July 29, 2013

I thought we’d take a look at a new teaser from Chris Versace today, someone I don’t think I’ve ever written about before.

This one caught my eye because it’s being pitched not just as an unknown semiconductor maker in a sweet spot for one of what Versace calls global “Power Trends”, but because he pitches it as a takeover target that should hit $20 before the end of the year … a more than 300% gain. Dunno if he’s right, of course, but that kind of promise means I do want to figure out who he’s talking about.

The newsletter is called PowerTrend Profits, by the way, and Versace’s publisher is pitching it at $49 in a special now, I’ve seen it advertised as having a “list price” of $249 and discounted at $99 before … and it’s one of those letters that’s a wee bit sneaky with the renewal price, they say they’ll automatically renew you after a year at “the prevailing renewal price.” I guess it can’t be all that sneaky, since the Wall Street Journal does the same thing in raising its renewal fees without asking permission, but I prefer it when newsletters lock in a rate for future renewals if they’re going to use autorenew. That’s what we do with our Irregulars, just FYI.

Here’s the intro:

“Meet the One Company Comcast, Verizon and Cisco Can’t Do Without …

“It’s a juicy takeover target whose $5 share price is set to hit $20 before year’s end.

“One day soon, you’ll be watching Fox Business and you’ll see a message crawl across the bottom of the screen. It’ll describe a small, West Coast chipmaker whose price has doubled, almost overnight….”

Except for the “watching Fox Business” part, that sounds pretty good — I can tolerate small doses of CNBC, though I’d probably be a better investor if I didn’t, but Fox Business makes my brain itch.

So what’s the story with this stock?

“Today, a single small-cap U.S. company is producing an irreplaceable semiconductor chip.

“It’s already enabling your television’s beautiful HD picture… Controlling the Wi-Fi signal you need to surf the web in your house… And enabling connectivity for every online device in your home.

“They’re in everything from set-top DVRs to cable boxes, from broadband routers to converters… You really can’t do much in the digital age without them.

“If you’re reading this email at home, no doubt, you’re surrounded by these chips.

“Yet incredibly, shares of the company making these chips are still less than $5 each.”

That makes this a good opportunity to remind you that a low per-share price doesn’t mean a stock is cheap, tiny or more appealing (just ask anyone who’s owned Alcatel-Lucent (ALU) over the last few years) — though he does go on to say that it’s definitely a small cap, with a market capitalization of $405 million.

And apparently it’s going to grow like gangbusters this year, according to the ad:

“Their consensus estimate for second half of the year revenue increase is 217%!

“There’s no way growth like that can be ignored by Wall Street.

“Especially when the company’s also increasing its number of customers in the next 12-18 months by tens of millions, thanks to deals with China and India.

“It’s only a matter of time before the street’s Fat Cats take notice and start pouring in big money.”

So the potential is either that you profit from that dramatic revenue growth, or you get to see a nice pricey buyout from some big competitor — here’s how they put it:

“This company may not even survive to the end of the year.

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“That’s because one of the communications giants it already does business with — names like Comcast, Verizon, Cisco, Samsung, Motorola, Dish Network, DirectTV — could buy the small-cap chip maker out in a heartbeat.

“It’s just a question of which multi-billion-dollar monster beats the others to the punch….

“In May alone, no less than 9 directors or management team members redeemed stock options or bought shares outright. They’re loading up.

“When there’s insider activity like this, a deal’s imminent.”

So … it’s very likely not that simple (and insider buying is very different from insider stock option exercises), but it’s an appealing story.

What’s the stock? For that, let’s sift through some of the specific clues:

“This West-Coast small cap is a $405 million semiconductor company whose products and software are inside devices we use every day. In fact, they’re the only pure semiconductor play in the entire connected home segment.

“If you’re unfamiliar with the ‘connected-home,’ you’re not alone.

“A connected-home is one where all its entertainment/ communication/ Internet devices are linked — enabling shared internet connectivity, Apps, HD video streaming and HD calling.

“Simply put, the connected home is the next battleground in the hi-tech communications arena.

“And just like the leading smartphone and tablet companies (Samsung, HTC, and Apple), the business that assumes a leading position in the connected-home race, will make its investors rich….

“If you have devices in your home that connect to the internet, deliver HD television or allow HD calls, then you probably have this company’s chips in your house.

“They’re found in set-top DVR or cable boxes, broadband routers, modems, gateway devices, Wi-Fi signal ex