Well, that went well.
It's been another rough two weeks for the portfolio (which, as the caveats clearly explain, is purely virtual). Synacor (SYNC) and Entropic (ENTR) both have both seen a significant retreat after their climb through November, now down to prices of $2.52 and $4.55 a share respectively. But once again, the bane of the portfolio is ornery little Peregrine Semiconductors (PSMI). After rocketing to the low 9s in late November, it has - since my last post - re-tanked down to the floor-hugging low of $7.92 a share. For a while, I had no idea why this would happen. I looked carefully, but could find no news about Peregrine Semiconductor, and certainly nothing that would warrant a nosedive. Then, it came to me, a dark, unwelcome revelation: Apple.
The tech world's resident hardware superpower casts a long shadow, and the news of Apple can have weirdly drastic effect on any number of companies, both logical and illogical. Peregrine is one such company. Because it's primary business model is antenna switch models for smartphones, it is viewed (semifairly) by most investors as a high-end smartphone component supplier and viewed (unfairly) by some investors as an Apple supplier. I have mentioned in an earlier post that characterizing Peregrine as an Apple supplier is a massive oversimplification, but that doesn't stop investors from making that mistake. As a result, a brief glance at the trajectory of AAPL and PSMI over the last month shows a striking similarity, with the variations made far more drastic in Peregrine's stock price due to the much lower level of investor scrutiny. (In an absence of information, a misconception or transient impression can propagate much more quickly and have much deeper effects.)
So why is AAPL going up and down? The main explanation appears to be China Mobile: for quite some time, Apple has been trying to ink a deal to sell the iPhone on China Mobile, the world's largest mobile phone operator, with 740 million customers. In late November, the two companies seemed on the verge of a deal, and Apple's stock jumped 7-8% in a week. Around the same time, Peregrine saw its stock jump over 12%. Then, rumors began to spread that the deal was going to fall through, and AAPL began to decline; the decline was relatively mild, only 3-4%, but the corresponding fall for Peregrine was much steeper, coming down to below $8 a share.
Of course, all this might just be a neat post-hoc explanation; but we have a convenient way to test our hypothesis. Earlier today (December 22), Apple and China Mobile announced that they had in fact reached a deal, and the iPhone will be sold on China Mobile starting January 17. This is likely to push Apple's stock a little higher, and, if our theory is correct, it should send Peregrine quite a bit higher soon. We'll see how things go in the coming week.
Sunday, December 22, 2013
Monday, December 9, 2013
Update: Existing Trades (Part 2)
As per usual, the caveats.
As I mentioned, at the same time I bought PSMI, I also purchased shares of Entropic Communications (ENTR). Since I never really explained the Entropic trade at all, I'll give a brief description here.
Briefly, Entropic is a semiconductor company that manufactures chips specifically designed to process, transmit, and receive high-density media information in the connected home. Their primary source of business, at the moment, is building chips that power set-top boxes used by TV providers, including DirecTV, Dish, Verizion, Comcast, and Time Warner. The company established itself with the first implementation of the Multimedia-over-Coax (MoCA) standard; they also manufacture chips for Ethernet-over-Coax (EoC) and processing complex overlapping signal demands in satellite dishes, making chips that go into dishes proved by DirecTV, Dish, and Sky Italia. Though they seem to be well-regarded in the industry, with better products and a strong intellectual property position, they are considerably smaller than their main competition, semiconductor behemoth Broadcom, and have had difficulty exhibiting growth since their IPO in 2007. Even more difficult, in 2013, they have seen a drop in revenues, and loss over the last several quarters.
So why would I place my bet on this one? Well, for starters, they're developing products that are going to be much more marketable in the next five years than in the last. TV and move consumption has shifted dramatically in the last five years, and one of the most important consumer demands in the next five years will be technology that enables reliable, fast, and versatile consumption from anywhere in the home. Entropic has exactly the right portfolio to give internet and TV providers the hardware they need to bring strong reliable media content into the home over almost any medium. On top of that, they're a very financially sound company, with plenty of assets (very little of which is backed up inventory), relatively few liabilities, and almost no long term debt. And, one of my personally favorite signs, $3.5 million in stock is owned by company insiders, providing nice incentive to keep the company going.
According to Entropic, revenues have slacked off lately as companies that use their chips have slowed down the release of new products, due to a variety of internal constraints ranging from budget issues to new inventory management. However, in the most recent earnings call transcript, Entropics management claims that most of those delays are behind them, and that products will begin to ramp in Q4 and into FY2014. Of course, there is no indication that things will be turning around all that quickly The new Comcast X1 and X2 set-top boxes, for example, will probably take a full year to ramp up, starting in early 2014. Entropic is also still integrating the assets, costs and revenues of Trident Microsystems, a significant acquisition made in 2012 to improve Entropic's ability to create true System-on-a-Chip (SoC) solutions. Though the IP and technology involved in that acquisition is highly valuable, those products won't be seeing design wins and product ramps until at least 2015, so that will keep revenues down for a while longer.
Fortunately, other seem to be seeing the same potential in Entropic that I do. When I purchased ENTR in early September, it was at $4.02 a share; I bought 498 shares, putting my position just over $2000. Since that purchase, Entropic has continually grown, now hovering at close to or just over $5 a share, an increase of about 20% in just three months. Of course, this leaves the question of when to get out of the trade. After a few months of growth, some are saying that Entropic is oversold, and ready to drop back down, and I wouldn't want to lose what I've already gained. However, the overselling arguments are largely based on predictions about investors, not the health of the company. To a value investing eye, this is a company with a price/book and price/sales ratio well below industry competitors, a diverse and influential set of customers, and a strong product portfolio that will only get better in the next few years. So for now, I think I'll ignore the dire "oversold" predictions and stick with a company that seems to be headed in the right direction.
Since it's the name of the blog, it seems only fair that I should, at some point, include a running tally in the content. So here is the trajectory of the portfolio thus far:
As you can see, I really haven't done all that well. For every pick I've made that's worked out well (VLTR and ENTR), I've made another that's dropped like a rock (SYNC and PSMI). Of course, as I've said, I have considerable faith that PSMI will recover, and possibly quite soon, but for the time being I am, rather embarrassingly, just breaking even. I may need to reconsider my habit of doubling down on stocks after they drop. Anyway, that concludes the long-winded and long-overdue update of my entirely virtual portfolio.
Entropic Communications, Inc. (ENTR)
As I mentioned, at the same time I bought PSMI, I also purchased shares of Entropic Communications (ENTR). Since I never really explained the Entropic trade at all, I'll give a brief description here.
Briefly, Entropic is a semiconductor company that manufactures chips specifically designed to process, transmit, and receive high-density media information in the connected home. Their primary source of business, at the moment, is building chips that power set-top boxes used by TV providers, including DirecTV, Dish, Verizion, Comcast, and Time Warner. The company established itself with the first implementation of the Multimedia-over-Coax (MoCA) standard; they also manufacture chips for Ethernet-over-Coax (EoC) and processing complex overlapping signal demands in satellite dishes, making chips that go into dishes proved by DirecTV, Dish, and Sky Italia. Though they seem to be well-regarded in the industry, with better products and a strong intellectual property position, they are considerably smaller than their main competition, semiconductor behemoth Broadcom, and have had difficulty exhibiting growth since their IPO in 2007. Even more difficult, in 2013, they have seen a drop in revenues, and loss over the last several quarters.
So why would I place my bet on this one? Well, for starters, they're developing products that are going to be much more marketable in the next five years than in the last. TV and move consumption has shifted dramatically in the last five years, and one of the most important consumer demands in the next five years will be technology that enables reliable, fast, and versatile consumption from anywhere in the home. Entropic has exactly the right portfolio to give internet and TV providers the hardware they need to bring strong reliable media content into the home over almost any medium. On top of that, they're a very financially sound company, with plenty of assets (very little of which is backed up inventory), relatively few liabilities, and almost no long term debt. And, one of my personally favorite signs, $3.5 million in stock is owned by company insiders, providing nice incentive to keep the company going.
According to Entropic, revenues have slacked off lately as companies that use their chips have slowed down the release of new products, due to a variety of internal constraints ranging from budget issues to new inventory management. However, in the most recent earnings call transcript, Entropics management claims that most of those delays are behind them, and that products will begin to ramp in Q4 and into FY2014. Of course, there is no indication that things will be turning around all that quickly The new Comcast X1 and X2 set-top boxes, for example, will probably take a full year to ramp up, starting in early 2014. Entropic is also still integrating the assets, costs and revenues of Trident Microsystems, a significant acquisition made in 2012 to improve Entropic's ability to create true System-on-a-Chip (SoC) solutions. Though the IP and technology involved in that acquisition is highly valuable, those products won't be seeing design wins and product ramps until at least 2015, so that will keep revenues down for a while longer.
Fortunately, other seem to be seeing the same potential in Entropic that I do. When I purchased ENTR in early September, it was at $4.02 a share; I bought 498 shares, putting my position just over $2000. Since that purchase, Entropic has continually grown, now hovering at close to or just over $5 a share, an increase of about 20% in just three months. Of course, this leaves the question of when to get out of the trade. After a few months of growth, some are saying that Entropic is oversold, and ready to drop back down, and I wouldn't want to lose what I've already gained. However, the overselling arguments are largely based on predictions about investors, not the health of the company. To a value investing eye, this is a company with a price/book and price/sales ratio well below industry competitors, a diverse and influential set of customers, and a strong product portfolio that will only get better in the next few years. So for now, I think I'll ignore the dire "oversold" predictions and stick with a company that seems to be headed in the right direction.
The Eponymous Running Tally
Since it's the name of the blog, it seems only fair that I should, at some point, include a running tally in the content. So here is the trajectory of the portfolio thus far:
| 6/05 | 7/05 | 8/09 | 9/06 | 10/04 | 11/08 | 12/06 | |
|---|---|---|---|---|---|---|---|
| Synacor (SYNC) | 1983.15 | 1813.65 | 2622.35 | 2434.40 | 2183.80 | 2380.70 | 2425.35 |
| Volterra (VLTR) | 1830.00 | ||||||
| Peregrine (PSMI) | 3307.80 | 3034.00 | 3278.20 | ||||
| Entropic (ENTR) | 2171.28 | 2250.96 | 2470.08 | ||||
| Capital | 8002.20 | 8002.25 | 4995.60 | 7842.90 | 1932.09 | 1932.09 | 1932.09 |
| Total | 9985.40 | 9815.90 | 9447.95 | 10277.30 | 9594.97 | 9597.75 | 10105.82 |
As you can see, I really haven't done all that well. For every pick I've made that's worked out well (VLTR and ENTR), I've made another that's dropped like a rock (SYNC and PSMI). Of course, as I've said, I have considerable faith that PSMI will recover, and possibly quite soon, but for the time being I am, rather embarrassingly, just breaking even. I may need to reconsider my habit of doubling down on stocks after they drop. Anyway, that concludes the long-winded and long-overdue update of my entirely virtual portfolio.
Update: Existing Trades (Part 1)
As per usual, the caveats.
Well it's been a few months since I've made any moves so it seems like this is a good time to provide an update on the three stocks that currently make up the portfolio.
As you may (but probably do not) remember, Synacor was the first stock I purchased for this little investing experiment, back in early June. A full description of the trade and my thoughts behind it can be found here. At the time, I bought 565 shares of the stock at $3.52 a share, creating a position of just under $2000. A month and a half later, the stock had dropped to $3.00 a share, and as a way of backing my original investment thesis about the company, I doubled down and bought 330 more shares, putting my position at just under $2700. Unfortunately, despite my obvious investing bravery, the trade continues to a be considerable loss.
Synacor is currently hovering around $2.70 a share, where it has been since October and early November, during which it dipped even further, dropping as low as $2.25 a share. I clearly still believe that Synacor is undervalued, and I'm not entirely alone in that opinion (see here), but I can't deny that any potential they may have is coming into view slowly at best. Given how they've performed in the last year, and given the bizarre roller coaster ride their stock has taken in the last 18 months, I could hardly blame an investor for taking a pass. Still, part of the premise of value investing (as far as I can tell), is working with the assumption that sooner or later, the true value of a company will be realized in the market, so I think I'll hold on to my position here for now. But I don't expect it to skyrocket anytime soon.
Of the four stocks that have been virtually purchased so far, it is a curious and somewhat unintentional fact that three have been in the semiconductors industry. The first, Volterra Semiconductor Corporation (VLTR), was purchased by Maxim Integrated about a month after I bought. Since I bought the stock at $15.99 a share and the sale price of the company was $23 a share, I was more than happy to sell of my position as soon as the sale was announced. About a month later, I bought stock in two more semiconductor companies, Peregrine Semiconductors (PSMI), and Entropic Communications (ENTR). Let's see how they're doing.
Oh, Peregrine. You seem to be the poster child for the bizarre irrational nature of micro-cap tech stocks. As previously discussed, I originally purchased Peregrine in early September; 270 shares at $11.00 a share. A few weeks later, Peregrine took a dive to just over $9 a share; I felt this dive was unjustified, so I increased my position to 370 shares. Unfortunately, the market did not share my Peregrine optimism, and the stock continued to drop, down to around $8.20 a share in early November. Why? It's not immediately clear. The original dive was largely attributed to a series of downgrades of the stock, which were themselves attributed to the (somewhat erroneous) belief that Peregrine's chips had been left out of the new iPhone designs. (In case you hadn't caught up on PSMI, Peregrine manufactures RF microchips for interpreting complex, noisy or otherwise busy radio signals. Their biggest source of business is cell phone antenna switches, used primarily in 3G and particularly 4G phones.) In fact, Peregrines chips were in the iPhone (thought with a slightly lower dollar content), but though this information has made its way into the world, the stock was largely unwilling to recover. It probably didn't help that the Q3 earnings call predicted a disappointingly low revenue number for Q4 (due to high-end smartphone releases now shifting to Q2 and Q3). So what's the good news?
The good news is that very little has actually changed. Peregrine is still easily the best name in LTE antenna switching and with more phone (particularly mid-range smartphones), making the switch to LTE, there are going to be a lot more customers for their chips. They also have an expected corner on the LTE-Advanced market, which will become more and more relevant in the next few years as LTE-A networks are launched. Finally, their R&D department is clicking on all cylinders to stay ahead of the curve, currently working on a project to streamline and condense the RF front-end so that smartphone manufacturers no longer have to pack 5 or 7 different chips on the logic board to cover multiple networks. Add in the possibility of China Mobile launching a 4G network the new iPhones this month (which, as I said, does have Peregrine's chips in it), their may be a short-term revenue boost along with the numerous long-term upsides. And all of this ignores the numerous other markets that Peregrine has a position in, including military and aerospace systems, high-density sensor networks, and public/carrier-grade WiFi. So, I still feel very good about Peregrine, and it seems that others are starting to agree (possibly thanks in part to this Seeking Alpha column), as PSMI has recovered slightly to just under $9 a share in the last month.
One strange note: literally on the day that the Seeking Alpha column was released, agents from Homeland Security raided the corporate offices of Peregrine Semiconductors in San Diego. Peregrine shortly after announced that it was part of an investigation of "alleged violations of export and temporary import licensing requirements related to certain products sold in the aerospace market". Curiously, though the story was far from impossible to find, and is likely available to most who would consider investing in PSMI, the stock has not seen an effect. I can only assume that investors either already knew about it, or consider it effectively irrelevant. I'll be intrigued to see if that lack of effect continues.
Well it's been a few months since I've made any moves so it seems like this is a good time to provide an update on the three stocks that currently make up the portfolio.
Synacor Inc. (SYNC)
As you may (but probably do not) remember, Synacor was the first stock I purchased for this little investing experiment, back in early June. A full description of the trade and my thoughts behind it can be found here. At the time, I bought 565 shares of the stock at $3.52 a share, creating a position of just under $2000. A month and a half later, the stock had dropped to $3.00 a share, and as a way of backing my original investment thesis about the company, I doubled down and bought 330 more shares, putting my position at just under $2700. Unfortunately, despite my obvious investing bravery, the trade continues to a be considerable loss.
Synacor is currently hovering around $2.70 a share, where it has been since October and early November, during which it dipped even further, dropping as low as $2.25 a share. I clearly still believe that Synacor is undervalued, and I'm not entirely alone in that opinion (see here), but I can't deny that any potential they may have is coming into view slowly at best. Given how they've performed in the last year, and given the bizarre roller coaster ride their stock has taken in the last 18 months, I could hardly blame an investor for taking a pass. Still, part of the premise of value investing (as far as I can tell), is working with the assumption that sooner or later, the true value of a company will be realized in the market, so I think I'll hold on to my position here for now. But I don't expect it to skyrocket anytime soon.
Peregrine Semiconductors Corp (PSMI)
Of the four stocks that have been virtually purchased so far, it is a curious and somewhat unintentional fact that three have been in the semiconductors industry. The first, Volterra Semiconductor Corporation (VLTR), was purchased by Maxim Integrated about a month after I bought. Since I bought the stock at $15.99 a share and the sale price of the company was $23 a share, I was more than happy to sell of my position as soon as the sale was announced. About a month later, I bought stock in two more semiconductor companies, Peregrine Semiconductors (PSMI), and Entropic Communications (ENTR). Let's see how they're doing.
Oh, Peregrine. You seem to be the poster child for the bizarre irrational nature of micro-cap tech stocks. As previously discussed, I originally purchased Peregrine in early September; 270 shares at $11.00 a share. A few weeks later, Peregrine took a dive to just over $9 a share; I felt this dive was unjustified, so I increased my position to 370 shares. Unfortunately, the market did not share my Peregrine optimism, and the stock continued to drop, down to around $8.20 a share in early November. Why? It's not immediately clear. The original dive was largely attributed to a series of downgrades of the stock, which were themselves attributed to the (somewhat erroneous) belief that Peregrine's chips had been left out of the new iPhone designs. (In case you hadn't caught up on PSMI, Peregrine manufactures RF microchips for interpreting complex, noisy or otherwise busy radio signals. Their biggest source of business is cell phone antenna switches, used primarily in 3G and particularly 4G phones.) In fact, Peregrines chips were in the iPhone (thought with a slightly lower dollar content), but though this information has made its way into the world, the stock was largely unwilling to recover. It probably didn't help that the Q3 earnings call predicted a disappointingly low revenue number for Q4 (due to high-end smartphone releases now shifting to Q2 and Q3). So what's the good news?
The good news is that very little has actually changed. Peregrine is still easily the best name in LTE antenna switching and with more phone (particularly mid-range smartphones), making the switch to LTE, there are going to be a lot more customers for their chips. They also have an expected corner on the LTE-Advanced market, which will become more and more relevant in the next few years as LTE-A networks are launched. Finally, their R&D department is clicking on all cylinders to stay ahead of the curve, currently working on a project to streamline and condense the RF front-end so that smartphone manufacturers no longer have to pack 5 or 7 different chips on the logic board to cover multiple networks. Add in the possibility of China Mobile launching a 4G network the new iPhones this month (which, as I said, does have Peregrine's chips in it), their may be a short-term revenue boost along with the numerous long-term upsides. And all of this ignores the numerous other markets that Peregrine has a position in, including military and aerospace systems, high-density sensor networks, and public/carrier-grade WiFi. So, I still feel very good about Peregrine, and it seems that others are starting to agree (possibly thanks in part to this Seeking Alpha column), as PSMI has recovered slightly to just under $9 a share in the last month.
One strange note: literally on the day that the Seeking Alpha column was released, agents from Homeland Security raided the corporate offices of Peregrine Semiconductors in San Diego. Peregrine shortly after announced that it was part of an investigation of "alleged violations of export and temporary import licensing requirements related to certain products sold in the aerospace market". Curiously, though the story was far from impossible to find, and is likely available to most who would consider investing in PSMI, the stock has not seen an effect. I can only assume that investors either already knew about it, or consider it effectively irrelevant. I'll be intrigued to see if that lack of effect continues.
The Caveats ver. 2.0
Well, after six months, I have elected to alter the parameters of the blog, and update the caveats. Here are the new warnings:
As before, this is not an investment blog. I know, it's got discussions of earnings, and projections, and financials, and all of those doo-dads, but it isn't an investment blog. In my mind, an investment blog is a source of advice; a place for wisdom, guidance, and counseling for the wary investor who wants a second, third, or twentieth opinion. I, however, have no advice to offer. I am not an investment professional. I've barely invested anything in my life. This blog, investment-ish though it may seem, is in fact the haphazard chronicle of my personal quest to gain some semblance of an idea about what goes on in the stock market. So, please, please, please do not take anything said, graphed, semaphored or otherwise communicated here as anything resembling sound investing advice. It isn't.
In point of fact, for the time being, there isn't even any real money riding on the considerations and decisions discussed here. I will only be tracking a virtual investment, in which I have literally no real financial stake. The only thing I lose if the investment goes south is my pride.
I am, however, opening the blog to comments. This may be a choice I come to regret, and as I'm sure you've guessed, I reserve the right to reverse this decision at any time. However, one can only learn so much by trial and error, and in the world of investing (even in the world of small-bore micro-cap tech stock investing) there are clearly smart people with good ideas that it would be good to hear. Dialogue is a valuable learning tool, so I'm going try my hand at opening dialogue. (It is, of course, entirely possible that not a single soul actually looks at what I post, in which case comments are going to be fairly limited.) If you ask a reasonable and on-topic question, I will make an effort to answer it. But remember, please remember, that I know almost nothing of the investment world, so don't actually ask me what to do with your or anyone else's money.
As before, this is not an investment blog. I know, it's got discussions of earnings, and projections, and financials, and all of those doo-dads, but it isn't an investment blog. In my mind, an investment blog is a source of advice; a place for wisdom, guidance, and counseling for the wary investor who wants a second, third, or twentieth opinion. I, however, have no advice to offer. I am not an investment professional. I've barely invested anything in my life. This blog, investment-ish though it may seem, is in fact the haphazard chronicle of my personal quest to gain some semblance of an idea about what goes on in the stock market. So, please, please, please do not take anything said, graphed, semaphored or otherwise communicated here as anything resembling sound investing advice. It isn't.
In point of fact, for the time being, there isn't even any real money riding on the considerations and decisions discussed here. I will only be tracking a virtual investment, in which I have literally no real financial stake. The only thing I lose if the investment goes south is my pride.
I am, however, opening the blog to comments. This may be a choice I come to regret, and as I'm sure you've guessed, I reserve the right to reverse this decision at any time. However, one can only learn so much by trial and error, and in the world of investing (even in the world of small-bore micro-cap tech stock investing) there are clearly smart people with good ideas that it would be good to hear. Dialogue is a valuable learning tool, so I'm going try my hand at opening dialogue. (It is, of course, entirely possible that not a single soul actually looks at what I post, in which case comments are going to be fairly limited.) If you ask a reasonable and on-topic question, I will make an effort to answer it. But remember, please remember, that I know almost nothing of the investment world, so don't actually ask me what to do with your or anyone else's money.
Sunday, September 22, 2013
Another Quick Trade - Doubling Down on PSMI
Well, as Paul Simon said, it's late in the evening, but in an effort to keep myself honest (since, as pointed out in the caveats, there's no real money on the line) I decided to put in this brief post before the market opens tomorrow morning.
On Friday, Peregrine Semiconductors (PSMI) saw its stock dive down faster than its avian namesake, dropping over ll% from $10.88 a share from $9.68 a share. Though tracing the genesis of a stock move is always a bit fuzzy, this particular collapse appeared to be motivated by a downgrade released by RBC Capital, in which an analyst changed his rating of the stock from "outperform" to "market perform". According to Reuters, the analyst, he downgraded the stock because Peregrine chips (in Murata modules) were not found in the new iPhone 5S and iPhone 5C, even though they were used in the iPhone 5, indicating that "growth in the market is moving towards cheaper technology".
Now, there are several things wrong with this picture. First, though the analyst did downgrade the stock, his price target dropped from $22.00 a share to $16.00 a share, still well above its current price. Second, though it is by far the most visible player in the smartphone industry, Apple is far from Peregrine's only end customer, with Peregrine chips going into phones from most smartphone manufacturers, including the other giant in the industry, Samsung. Finally, though the analyst said that the new iPhones lacked the Murata/Peregrine module, there doesn't appear to be any evidence to support this. The several teardowns of the iPhone 5S show an RF switch next to the new Qualcomm transceiver that has yet to be identified. But it sure looks a lot like a Murata module.
This, then, would seem to be one of those situations in which the rather cursory attention that institutional investors pay to small-cap companies gives an advantage to those willing to do a little research. The analyst seems to have been thrown by the fact that the possible Murata module is now on the backside of the logic board, rather than the front side with the other RF chips as it was in the iPhone 5. So PSMI (which the analyst values at $16.00 a share even without a design win in the new iPhones) is clearly worth a heck of a lot more than $9.68 a share. Of course, I can only say that if I'm willing to back it up with a wager, so when markets open, I'll buy 100 more shares of PSMI at the opening price, provided it is still below $10 a share.
Update 1: Turns out I was the victim of my own cursory examination of the facts. I stated that the RBC analyst lowered his price target to $16 a share, based on the report in Reuters. In reality, the analyst lowered his price target from $16 a share, down to $10, considerably closer to the still quavering stock. I probably should have been suspicious of the idea that an analyst had a price target of $22 a share on stock trading at $11 a share, but that's what you get for researching stocks after midnight.
Update 2: Peregrine's stock tumbled even further this morning, opening at $9.12 a share. Investors seem quite confident in RBC's downgrade, which has been reiterated by a second downgrade (also to a price target of $10) by an analyst at Cannacord, which naturally makes me feel slightly less confident in my appraisal of the facts. Nevertheless, Peregrine seems to me to be significantly undervalued, even at $11 a share, so I'll stick with my picks for now.
Update 1: Turns out I was the victim of my own cursory examination of the facts. I stated that the RBC analyst lowered his price target to $16 a share, based on the report in Reuters. In reality, the analyst lowered his price target from $16 a share, down to $10, considerably closer to the still quavering stock. I probably should have been suspicious of the idea that an analyst had a price target of $22 a share on stock trading at $11 a share, but that's what you get for researching stocks after midnight.
Update 2: Peregrine's stock tumbled even further this morning, opening at $9.12 a share. Investors seem quite confident in RBC's downgrade, which has been reiterated by a second downgrade (also to a price target of $10) by an analyst at Cannacord, which naturally makes me feel slightly less confident in my appraisal of the facts. Nevertheless, Peregrine seems to me to be significantly undervalued, even at $11 a share, so I'll stick with my picks for now.
Thursday, September 12, 2013
A Quick Update - PSMI and ENTR
Just a quick update, with more discussion and explanation to follow. Yesterday I located two stocks that I felt might add something to the portfolio, so I set up the virtual trade yesterday evening to buy both stocks at the opening price this morning. The first stock, PSMI, I bought 270 shares of at the opening price of $11.00 a share; and the second stock, ENTR, I bought 498 shares of at the opening price of $4.02 a share. This brings the total value of the portfolio to $10,328.15, with $2,452.30 in SYNC, $2970,00 in PSMI, $2001.96 in ENTR, and $2903.89 in capital. Though I neglected to post about it, when it was announced that Volterra was being bought out by Maxim Integrated and VLTR jumped to about $23 a share, I sold my 125 shares of Volterra stock. Specifically, the stock was sold on August 19, at the opening price of $22.85 a share. Interestingly, several firms are now bringing suits against Volterra for failing to adequately shop the company; it would seem that some people who bought VLTR at $25 or $30 a share feel like they've been left hanging. Personally, I'm thrilled to have gotten in just before the sale went through, though I can claim absolutely no knowledge or sense of what was going to happen. I'm just glad there was somebody who agreed that VLTR was worth more than $16.00 a share. Anyway, more on PSMI and ENTR to come soon.
Monday, July 22, 2013
The Volterra Trade (continued)
Naturally, the caveats.
A couple days ago, I dashed off a quick post chronicling two (virtual) trades that I made on the morning of Friday, July 19. The first was an additional investment in Synacor Inc. (SYNC), based on the premise that if I felt the stock was undervalued at $3.52 a share, I should really consider it even more undervalued at $3.00 a share. The second was a new investment in Volterra Semiconductor Corp, which, now that I have a little spare time I feel I should explain in more depth.
A couple days ago, I dashed off a quick post chronicling two (virtual) trades that I made on the morning of Friday, July 19. The first was an additional investment in Synacor Inc. (SYNC), based on the premise that if I felt the stock was undervalued at $3.52 a share, I should really consider it even more undervalued at $3.00 a share. The second was a new investment in Volterra Semiconductor Corp, which, now that I have a little spare time I feel I should explain in more depth.
Volterra Semiconductor Corp (VLTR)
Current Price (as of close, Thursday, July 18, 2013): $15.99
First, the basics: Volterra is a manufacturing company in the opaque but remarkably pivotal industry known by the technojargon terminology of "semiconductors". Bascially, this is the industry that designs, makes, and sells all the various kinds of computer chips that allow ... well, basically everything we use on a daily basis to run. Volterra, like so many semiconductor companies, exists in a much narrower band of the industry, specifically that of voltage regulators.
In a computer or other sensitive electronic instrument, it is generally very important that the voltages that are used by the chips and components maintains a controlled and consistent level. Unfortunately, every system has noise and imperfection; add in the fact that almost all computer systems get their power from an alternating current power line (50 points to Nikola Tesla), a computer or electronic system needs to have components that ensure that the noisy, messy and potentially alternating voltage coming into the system gets turned into a constant, consistent, controlled voltage before it gets used. That's where voltage regulators and analog/digital power management devices, like those made by Volterra, come into play.
The good news for Volterra is considerable. Voltage regulators aren't going anywhere anytime soon, and with a still increasing stockpile of cash and effectively no debt, neither is Volterra. Nevertheless, over the last year, Volterra has dropped noticeably: as high as $24 a share a year ago, VLTR dropped as low as $13 a share in late April. This precipitous drop is tied to the declining laptop/notebook market: notebooks have made up as much of a third of Volterra's revenue, and with notebooks being replaced by smartphones and tablets, those sales have dropped quickly in the last few years. This seemingly convinced investors that VLTR's price/book ratio was far too high, and VLTR has stayed a low level.
In spite of this drop, Volterra is still a very strong company. Along with its hefty cash store, Volterra is still doing a very solid business providing regulators and chips for high-performance server systems, and is building a promising new business in the solar energy industry. Though their low price and price/book ratio is still tied to the declining notebook market, Volterra has been aware of the notebook decline for sometime, and has been deemphasizing notebooks as a component of their R&D for almost a year. In an industry where products get turned over and replaced very quickly (as often as once every year or two), that foresight will pay off quite soon. Also, the power management semiconductors market is highly fractured, creating the potential for large, established players like Volterra to absorb the business of smaller companies that don't weather the laptop retraction as well.
Overall, with a low forward P/E ratio of 16, a solid cash pile, no debt, solid business management and almost $3 million in insider ownership, VLTR appears to have a considerable amount of long-term upside potential and very little long-term downside potential. And, with an earnings announcement on Monday the 22nd and low expectations already folded in from the declining notebook market, if forward earnings beat estimates by a noticeable amount, there's even the potential for a large short-term upside (over the next three months). To me, VLTR seems like a very solid (if not necessarily very fast cash-in) investment.
The good news for Volterra is considerable. Voltage regulators aren't going anywhere anytime soon, and with a still increasing stockpile of cash and effectively no debt, neither is Volterra. Nevertheless, over the last year, Volterra has dropped noticeably: as high as $24 a share a year ago, VLTR dropped as low as $13 a share in late April. This precipitous drop is tied to the declining laptop/notebook market: notebooks have made up as much of a third of Volterra's revenue, and with notebooks being replaced by smartphones and tablets, those sales have dropped quickly in the last few years. This seemingly convinced investors that VLTR's price/book ratio was far too high, and VLTR has stayed a low level.
In spite of this drop, Volterra is still a very strong company. Along with its hefty cash store, Volterra is still doing a very solid business providing regulators and chips for high-performance server systems, and is building a promising new business in the solar energy industry. Though their low price and price/book ratio is still tied to the declining notebook market, Volterra has been aware of the notebook decline for sometime, and has been deemphasizing notebooks as a component of their R&D for almost a year. In an industry where products get turned over and replaced very quickly (as often as once every year or two), that foresight will pay off quite soon. Also, the power management semiconductors market is highly fractured, creating the potential for large, established players like Volterra to absorb the business of smaller companies that don't weather the laptop retraction as well.
Overall, with a low forward P/E ratio of 16, a solid cash pile, no debt, solid business management and almost $3 million in insider ownership, VLTR appears to have a considerable amount of long-term upside potential and very little long-term downside potential. And, with an earnings announcement on Monday the 22nd and low expectations already folded in from the declining notebook market, if forward earnings beat estimates by a noticeable amount, there's even the potential for a large short-term upside (over the next three months). To me, VLTR seems like a very solid (if not necessarily very fast cash-in) investment.
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