tag:blogger.com,1999:blog-40824789076645845572024-03-13T06:29:54.101-04:00RES Free Thinking[musings][opinions][analysis][investors][entrepreneurs] [Canadian Technology Sector]REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.comBlogger157125tag:blogger.com,1999:blog-4082478907664584557.post-80941249469341661982011-12-15T13:45:00.001-05:002011-12-15T14:03:22.779-05:00M Partners: 2011 Year-end Review and Outlook for 2012We have had some great reviews from clients on this year-end recap and 2012 outlook for small cap technology stocks, so I thought it would be a good idea to share it here.<br />
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REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-45072819666169050162011-11-09T23:03:00.000-05:002011-11-09T23:03:28.337-05:00Communitech is doing a great job in Kitchener-WaterlooI just returned from a meet-and-greet arranged in Kitchener by Communitech to connect early stage technology companies to potential investors. Although tonights event felt a bit like an awkward high school dance, I think that the efforts being made by Communitech in K-W are exceptional. Although there were a few wonky concepts, I was impressed by the general quality of the ideas, the execution, and the people passionately fronting them.<br />
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Communitech did a solid job screening the opportunities for potential investors, and there was a nice cross-section of potential capital for entrepreneurs. We will be back. And this is important. The more that Communitech facilitates access to capital, skills, and connections, the more vibrant the K-W technology community will be. <br />
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I think that Communitech should be held up as an example for other communities of how to establish a cultural core for a vibrant centre of entrepreneurial excellence. More of this needs to be done in order to support intellectual ecosystems and innovation. <br />
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Next step is to get these beautiful little startups to maturity.<br />REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-19035972116375048072011-11-07T22:06:00.000-05:002011-11-07T22:06:09.121-05:00Where is my representative?I find it disturbing how extreme opinions and actions have hijacked the political and economic discourse worldwide since the beginning of the 2007 recession. Since that time the world has seen the polemic rise of the Tea Party and then Occupy Wall Street. A presidential candidate has threatened physical harm to the Chairman of the US Federal Reserve and there have been violent uprisings worldwide from Cairo to Athens and all the way to Oakland. And of course, everyone hates bankers.<br />
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Through all of this I feel more isolated and strangely deceived. Reasonableness has been subsumed by anger. Optimism has been darkened by the shadow of fear. People seem to hate more now than they did prior to the recession.<br />
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Maybe its the way media has evolved. With 24-hour cable news and millions of notes published every week somewhere on the web - opinion is pervasive. Expert or not. And every opinion published by a credible expert seems to be commented on by increasingly random angry people. It must be exhausting to be so angry. But anger begets drama and drama attracts viewers, which makes money. And the anger has permeated all facets of politics, resulting in an ugly extremism that I can no longer relate to. As a fiscally conservative person with moderate views, I feel lonely.<br />
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So I thought that I may take this opportunity to list 22 things that I believe to be true. Is there anyone out there that aligns with my less-than-extreme views?<br />
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1. Capitalism, with all of its warts, is essential to the human condition and the only economic model of hope. There is no alternative approach.<br />
2. Capitalism operates with game dynamics, which means that it needs specific rules and impartial, transparent enforcement of those rules by independent third-parties in order to operate effectively. Rules and referees with whistles.<br />
3. There is no "invisible hand" of capitalism because it should all be measurable and transparent. <br />
4. Public service unions are the antithesis of service and withold value from taxpayers and citizens for their own gain.<br />
5. I am not religious, although I have friends that are religious. I respect that they are religious and they respect that I am not religious. But I don't want their views and morals imposed on me through social legislation.<br />
6. Democracy and capitalism are not mutually inclusive or dependent.<br />
7. Representation without taxation is as morally reprehensible as taxation without representation.<br />
8. Ayn Rand was a fraud.<br />
9. TARP was not about bailing out the banks but about preventing a worldwide financial meltdown.<br />
10. Dogma like anti-tax pledges will destroy the future of America.<br />
11. investing in infrastructure is a no-brainer - Barack Obama is right.<br />
12. Investing in education is a no-brainer - as long as there is accountability - Jeb Bush is right.<br />
13. The world needs collaboration and creativity to solve our endemic financial problems. There are too many purists who refuse to compromise. There are too many intractible positions like "Austrian school", "Chicago school", and "Keynesian". We need to find ways to examine the policies of all economic schools of thought.<br />
14. Until there is real campaign finance reform, the United States policy is doomed to serve the narrow interests of corporations at the expense of most people.<br />
16. Most of the wealthy that make over $1m per year are not "job creators". Typically, they are occupiers of positions in large multinational organizations that are not creating jobs. These organizations are hoarding cash and not necessarily hiring.<br />
17. Those that are hiring are small businesses with great ideas. This is the economic engine of America.<br />
18. America's economic engine is being starved of its fuel - skilled creators. Too many Americans attend university with skill deficiencies and graduate with useless degrees.<br />
19. The Federal Reserve has been essential to preventing a worse financial crisis in the United States.<br />
20. I believe in Modern Monetary Theory<br />
21. I believe in science<br />
22. Regulation does not work well because it has been compromised by special interests to be ineffective. To be effective, regulation needs to be clear, concise, and easy.<br />
23. I think the "war on drugs" is mostly a waste of money that promotes criminality.<br />
24. The US should focus defense spending on cheap things that work like drones and exit places like Germany and Japan.<br />
25. there is too much inequality in the United States, which if left unattended could ruin the greatness of the country.<br />
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So based on these items, extremists from either end of the spectrum would likely label my views viciously. I guess I'm more Jon Huntsman with some Barack Obama and a touch of Ron Paul. In Canada, ultimately I am what was once described as a Red Tory - a fiscal, practical conservative that strives for success but is compassionate about the plight of fellow citizens.<br />
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Is there anybody out there that thinks this way?<br />
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Is there some type of political entity that represents this viewpoint?REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com1tag:blogger.com,1999:blog-4082478907664584557.post-13873318487407813192011-08-10T10:38:00.000-04:002011-08-10T10:38:47.155-04:00Six Obvious Steps to Prevent the United States from Becoming a Banana Republic.To most reasonably informed Americans, there are some really basic things that its representatives in government should do, but lack the political will to execute. Without real reform, the middle class will continue to decline, forcing entrepreneurs to go to other markets, and the concentration of wealth in the hands of an increasingly smaller minority of people will accelerate the decline of the American Empire. Here are a few obvious steps that should be taken:<br />
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1. Campaign Finance Reform. It is well known to most Americans that powerful lobby groups control discourse in American politics. It's been a problem for decades. Some attempts were made recently to tweak campaign finance rules have had recent unintended consequences such as shadowy "arms-length" financiers like the Koch brothers that increasingly control the agenda. Here's the problem: currently, a Presidential Campaign costs $100M or more.When raising this much money, how do you build your war chest without big influential donors?<br />
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2. Tax Reform: Nobody wants to pay taxes. An entire industry has been built around finding loopholes in an increasingly complicated tax regime influenced by the lobby groups and shadow leaders that finance Senate and Congressional campaigns. A simple flat tax rate with no exceptions and no loopholes combined with a consumption tax should accelerate revenues, and help stem the decline of the middle class, which is the primary problem for the long-term growth prospects of the US economy. Tax reform is unlikely without campaign finance reform.<br />
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3. Cut <b>all</b> departmental spending in concert with tax reform. No sacred cows like Defense and Medicare, and no targets like the old and the poor. Eliminate entire government agencies that do useless things like the "War on Drugs".<br />
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4. Eliminate useless banking regulations, vigorously enforce obvious banking regulations, and improve transparency. In a word, simplify and enforce. This should help move the US banking industry back to where it actually contributes to the growth of the US economy. The cannot happen without campaign finance reform. Stop wasting time talking about the foolish gold standard.<br />
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5 Kill all corporate subsidies.<br />
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6. Focus budgets on growth oriented activities such as education, infrastructure, and health.<br />
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Of course, none of this will happen because the Tea Party is intent on turning the United States into a banana republic while the middle class gorges itself on religion, prescription drugs and inane reality TV. Richard Koo is right and Rand Paul is crazy.<br />
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REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-63139431320232251232010-10-05T15:00:00.002-04:002010-10-05T15:18:01.824-04:00Consensus earnings growth does not justify share price for AAPL, AMZN, NOK, VMW, or CRM<div class="separator" style="clear: both; text-align: center;"><a href="http://3.bp.blogspot.com/_QfXUVtu9gh0/TKtwF6Fe08I/AAAAAAAAADQ/o477ZnT6hVI/s1600/bellwether+chart.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="122" px="true" src="http://3.bp.blogspot.com/_QfXUVtu9gh0/TKtwF6Fe08I/AAAAAAAAADQ/o477ZnT6hVI/s400/bellwether+chart.png" width="400" /></a></div><span lang="EN-US" style="font-family: "Times New Roman", "serif"; font-size: 12pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;"><shapetype coordsize="21600,21600" filled="f" id="_x0000_t75" o:preferrelative="t" o:spt="75" path="m@4@5l@4@11@9@11@9@5xe" stroked="f"> We have been seeing a lot of price justification related to AAPL’s recent climb to near the $300 level. Arguments abound that despite trading at a P/E multiple of 25.3x, AAPL is cheap on a fundamental basis due on its growth trajectory and its cash position. Based on comparative multiples, this may be a flawed argument. A classic method to test whether the market is pricing appropriately for future growth is to calculate the PEG ratio (price-to-earnings-growth). If a stock had a PEG ratio of 1.0x, investors should consider future earnings growth to be fully priced into the stock, and that its growth trajectory is “fairly valued”. Below 1.0x, there is a gap between the stock price and future earnings, and there is a buying opportunity. A PEG ratio above 1.0x infers that the market is overpaying for earnings growth.</shapetype></span><br />
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We have ordered some technology bellwether stocks based on the results of a PEG calculation using Capital IQ data from Friday. The only outright BUY based on earnings growth is RIMM. A group of stocks including MSFT, HPQ, CSCO, ORCL, GOOG, and IBM appear fairly priced, to slightly overvalued. INTC, and QCOM should be viewed more cautiously. <br />
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A group of stocks including AAPL, AMZN, NOK1V, VMW and CRM appear to priced well ahead of their future potential earnings growth capabilities, which suggests that the market appears to be ignoring the consensus estimates for FYE+1 earnings related to these stocks. A plausible argument could be that the market is expecting significant “surprise upside” to consensus earnings estimates.<br />
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With respect to a recent common argument that AAPL is undervalued if the cash balance is removed from P/E estimate, we calculated an EV/EBITDA multiple which excludes cash, debt and non-operating/non-cash expenses. In comparison to other bellwethers, AAPL could be considered over valued at 13.6x EV/EBITDA versus the median among peer bellwethers, calculated at 9.5x. The median calculation removes mean skewing caused by outlying stocks like VMW and CRM.<br />
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The bottom line is that AAPL should be considered “toppy” at these levels because a lot of “surprise upside” to earnings is baked into the price based on the PEG ratio calculation. Often AMZN is used by people as a comparison to justify AAPL’s current share price. Comparing “toppy” to “toppier” is probably a risky proposition. In comparison to the median EV/EBITDA multiples, AAPL should be considered expensive by investors, along with CRM, VMW, and AMZN. <br />
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Global technology companies that derive most of their business from the enterprise such as ORCL, IBM, MSFT, HP, RIMM and CSCO should be attractive at current multiples as they benefit from corporate investment in productivity, and natural replacement cycles. Although VMW and CRM fit into this category, there is a lot of speculation priced into these stocks.<br />
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AAPL is entering the realm of “cultural zeitgeist” where the share price trades on reputation, not on fundamentals. It could be a great time for savvy long investors to lock in some profits and sell their shares to hardcore AAPL fans. AAPL should not be compared favorably to AMZN, CRM, or VMW because these stocks are even more overbought based on typical earnings growth measurements like PEG ratio and EV/EBITDA multiples.<br />
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Companies that have a broad global client base within the enterprise sector look pretty good. RIMM is a fractured stock because of the incessant comparison of Blackberry to iPhone. To put it into car terms, its like comparing Ford trucks to Porche 911s. They are both very good products, but with different functionality for different markets. Despite some forays into consumer devices, RIMM is an enterprise solution, while iPhone is a consumer solution. And I haven't forgotten about GOOG's Android - which could ultimately become dominant as the engine and drivechain for a hundred other vehicles.<br />
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Disclosure: I do not own any of the shares discussed in this post<br />
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<stroke joinstyle="miter"></stroke><formulas><f eqn="if lineDrawn pixelLineWidth 0"></f><f eqn="sum @0 1 0"></f><f eqn="sum 0 0 @1"></f><f eqn="prod @2 1 2"></f><f eqn="prod @3 21600 pixelWidth"></f><f eqn="prod @3 21600 pixelHeight"></f><f eqn="sum @0 0 1"></f><f eqn="prod @6 1 2"></f><f eqn="prod @7 21600 pixelWidth"></f><f eqn="sum @8 21600 0"></f><f eqn="prod @7 21600 pixelHeight"></f><f eqn="sum @10 21600 0"></f></formulas><path gradientshapeok="t" o:connecttype="rect" o:extrusionok="f"></path><lock aspectratio="t" v:ext="edit"></lock>REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-90289639251241514762010-09-24T16:49:00.000-04:002010-09-24T16:49:29.403-04:00The New Normal: 10 Themes and Their Implications on the American Economy (Part 3) Media SaturationOn September 17th I introduced 10 themes that we see as having significant impact on the future of the US economy. Along with the a description of the theme, I include what "The New Normal" could look like, along with the possible risks and opportunities for investors. Here is the third theme of ten.<br />
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<strong>3. Media Saturation</strong><br />
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Technology has unleashed a broad number of information dissemination opportunities for essentially anyone who wishes to have an audience. Ad-driven models require content in order generate income, which has resulted a massive increase in data, editorial, and opinion available to anyone at anytime. In order to attract audiences and break through the melee of content, content programmers aim for “dramatic arc” in order to retain audiences, and derive advertising revenue. Parties to the “dramatic arc” with typically undisclosed vested interest tend to control messages related to the economy, policy, and individual corporate activities. Because there is so much available information, and less time to make decisions, data is “headlined” and themed, which tends to omit key nuances which would otherwise moderate outcomes.The manipulation of messages and themes reduces the accuracy, credibility and objectivity of information, which tends to increase underlying market risk. Information is becoming a blunt-force object.<br />
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<strong>New Normal:</strong> More extreme bull/bear opinions presented via large media platforms reinforce volatility and undermine economic confidence, This reinforces the flight of capital to perceived safety like money markets and gold, while helping to sideline capital and erode investment into the "real" economy.<br />
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<strong>Risks:</strong> Lacking confidence, individual investors and companies are less willing to deploy capital in the form of equity which is often the fuel used by companies for research, commercialization, or improvements in productivity. Fund Managers, whether VCs or institutions, become more concerned with risk management than with manximizing returns through growth and innovation. Without growth capital, entrepreneurs stop inventing and innovating. Without innovation, GDP stagnates.<br />
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<strong>Opportunities:</strong> Research analysts are required to disclose their position on any stock on which they publish. Similar disclosures should be enforced for any individual providing market opinion in a public forum. It would be nice for the macro-economist predicting economic disaster and targeting $2000.00 GLD to disclose that he/she owns 10,000 oz at $600.00/oz. There is probably room for "throw-back" fundamental analysis business models as a competitive counterbalance to"stream-of-conciousness" flow of information prominent now in media.<br />
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<strong>Investor Sentiment:</strong> Considering that the equity market appears to be heading sideways for the foreseeable future as baby boomers act more cautiously while they retire, extreme viewpoints within the media provide excellent opportunities for younger investors to buy on fear and sell on greed as the “dramatic arc” drives short-term volatility.REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-70111227772081315422010-09-21T21:43:00.000-04:002010-09-21T21:43:47.478-04:00Why MSFT ORCL RIMM VMW and HP will continue to post solid results.We have been building a thesis that, regardless of the recent deceleration of economic growth in the US economy, the enterprise IT sector is on a bit of a roll that should persist for the next several quarters. Investors may want to look at business/enterprise IT technology for overweighted returns. Please note that 26% of the aggregate market cap of the sector is in cash and/or equivalents. <br />
RIMM, MSFT, ORCL, VMW, and HP all reported better than expected results, and all presented fairly positive outlooks. Although CSCO met expectations, its outlook was positive. Our channel sources confirm that American business is investing in productivity at the desktop, in the pocket, and in the back office. <br />
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Current growth estimates for technology upgrades and replacement: <br />
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data center -> 20% <br />
desktop -> 10%. <br />
mobile -> 40%. <br />
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The objective is to make current employees more productive ahead of hiring new ones. <br />
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Based on previous recession recovery periods, the channels see a repeat of past patterns. US companies are currently making fairly meaningful investments in productivity tools to enhance TCO of IT, and to maximize current employee productivity. Although timing is difficult to predict, the current investment pattern suggests that companies will begin rehiring in a meaningful way within 2 quarters. By H2 2011, US employee growth should boost the prospects of MSFT, RIMM, ORCL and HP – companies which benefit directly from more bums in seats.<br />
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Alas, but here is the catch for the general US economy. The first to hire will likely be companies with global markets, manufacturers, and exporters. The last area of employment recovery is likely to be the services industry targeted at the domestic consumer market. The concern for the long-term health of the US economy is that this represents approximately 70% of employment. Whereas full employment in the United States once meant an unemployment rate of 4%, there is a higher probability that the natural unemployment rate could be closer to 7% until domestic consumer-centric jobs shake out (how many real estate agents and mortgage brokers does America need now?). <br />
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Bottom line: As companies continue to wring productivity out of its reduced workforce, and as a modest employment recovery begins to take hold during 2011, enterprise IT suppliers are likely to benefit. Stocks like MSFT, ORCL and RIMM have been trading at historically low multiples, thus could be a buying opportunity.<br />
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Disclosure: I do not own shares of any of the companies mentioned.REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-61062478663293472022010-09-20T23:20:00.001-04:002010-09-20T23:23:17.602-04:00The New Normal: 10 Themes and Their Implications on the American Economy (Part 2) Tax InequityIn my previous post I introduced ten themes that represent a "new normal" for the American economy as it continues to exit from the 2007-2009 recession. Evidence suggests that the potentially greatest impact on the economy, and the first theme of the "new normal" is simple demographics. Baby Boomers are getting older, wealthier, more cautious, and more powerful than ever as a cohort. To them its now about assets not equity; dividends not growth. If the United States recovers to maintain its economic leadership, its largest cohort will likely need to behave differently than any other previous cohort at a similar life stage and throw caution to the wind. More than ever, the American economy needs investment in new ideas, new business models, and the skills of its diminishing workforce in order harness American ingenuity to actually grow its economy. This is not likely to happen because Baby Boomers have accumulated vast wealth and they are unwilling to part with it for any reason.<br />
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The second theme is related to the first. <br />
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<strong>2. Tax Inequity</strong><br />
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The tax holiday to the wealthy, which was introduced almost a decade ago in 2002 while Baby Boomers were in the prime of their productive years are unlikely to benefit the US economy as intended entering into this new decade. As they move towards retirement age, wealthy boomers, which represent 64% of America’s net worth, are more interested in cash (and equivalents like gold) as an asset. As a result, the expected trickle-down benefits of these specific tax breaks are not re-circulating back into the general economy as intended, creating an asset bubble and reducing investment into the broader economy. As an influential voting block, wealthy baby boomers will resist changes to taxation which would not benefit them specifically.<br />
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<strong>New Normal:</strong> Opportunity costs (estimated at between $700B and $900B annually depending upon source) associated with general tax breaks to wealthy Baby Boomers are not paying back as expected, and are unlikely to pay back because the excess capital does return flow into the real economy as intended. Wealthy individuals are less likely to invest in growth, and cannot possibly spend accumulated wealth fast enough to affect incremental economic activity. By redistributing some of the tax benefit to the US Middle Class, spending power increases by as much as $7000 per household.<br />
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<strong>Risks:</strong> Declining growth capital, the deceleration of money and recurring asset bubbles.<br />
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<strong>Opportunity:</strong> Unlock the potential of excess accumulated capital by tweaking tax policy to incent wealthy baby boomers to resist their natural tendencies of their stage of life, and invest in the broader economy. Concurrently, there is an opportunity to redeploy a portion of the tax holiday to spenders, which would probably be described as the “middle class”, representing approximately 55%-70% of the total population (depending upon categorization). A reasonable strategy could be to both incent investment by wealthy baby boomers and spending by the middle class via updated tax policy. It does not look good for the implementation of new tax strategies, as wealthy baby boomers exert their influence on policy. <br />
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<strong>Investor Sentiment:</strong> The probability is low that tax inequity will be resolved soon. The American Middle Class should continue have impaired purchasing power, which should impact negatively on the earnings power of companies that rely on these consumers for growth. Earnings for capital markets could be impaired as cash remains sidelined for an extended period. Although corporate America has been leveraging its massive balance sheet recently for M&A in some sectors such as technology, uncertainty may cause M&A activity to be choppy over long periods. Emphasis on cashflow over growth should be an overhang on employment in the US. Highly efficient operations with growing international consumer and enterprise opportunities are more attractive long positions. Short the American Middle Class.REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-59468469796091882472010-09-17T17:00:00.002-04:002010-09-17T17:03:54.793-04:00The New Normal: 10 Themes and Their Implications on the American Economy (Part 1)History clarifies the present and that won’t happen until it’s too late. In the meantime, we are left trying to make economic sense of this messy human condition in real-time. At no point in history has the mess been more interconnected and complex than it is today. Those that are able to distill situations and make effective decisions in real-time are most likely to succeed, and then there is the other 99% of us.<br />
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<div></div>Investors can no longer easily “peel back the onion” to uncover fundamental risks and opportunities and act upon them. There are just too many onions and they are appearing at faster rates, compressing the available time to uncover, solve, and act upon opportunities. And even as the onions are peeled, sometimes they turn into completely different vegetables.<br />
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<div></div>No wonder investors are hiding under their desks right now. They are being pummeled by data, commentary, opinion, and opinion disguised as data from everywhere and continuously. Not all of the data is valuable, valid, or unbiased, which makes it difficult to make objective decisions. Hence, we see low volume and high volatility in equity markets.<br />
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<div></div>In an effort to decipher secular and objective trends and events which could impact the performance of companies that I cover for my clients, I have been scouring for objective research and data that can provide some backdrop to the recommendations that I make.<br />
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<div></div>For the most part, I cover small cap technology stocks. At no time in recent history have technology companies had as much money on their balance sheets, and at no time have these companies traded at a discount to the main index, despite showing 15% growth in earnings year-over-year. Among technology bellwethers, nine out of ten reported earnings growth last quarter, six out of ten beat estimates and 7 guided higher. Prior to 2008, this would have represented a fairly significant move up for the NASDAQ and a perceived buying opportunity. For Q2 2010, it represented a meaningful move down for most of those same stocks. Behavior that I have taken for granted over the past two decades did not occur, which leads me to believe that there are new fundamental drivers and conditions affecting the market. In other words, there appears to be a “new normal” emerging from this recession that is impacting not only the narrow band of technology stocks that I follow, but also the broader economy. The trends are sobering. However, as a generally optimistic individual, I am hopeful that Americans will find a way to alter their path. The world economy will depend upon it.<br />
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<div></div>I have organized the New Normal into ten themes. Within each theme, I attempt to identify the risks, opportunities, and investment sentiment. Without changes to policy that could alter the present course, the overall indicators are that the United States appears to be entering a period of persistent low economic growth with high volatility and increasing polarity between rich and poor. As with all things, Americans have the ability to alter course. The interesting question is whether they have the will to do so. <br />
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<div></div>Here are the 10 themes:<br />
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<div></div>1. Demographic Shift<br />
2. Tax Inequity<br />
3. Media Saturation<br />
4. War(s)<br />
5. Education Deficit<br />
6. Health Deficit<br />
7. Innovation Deficit<br />
8. Debt<br />
9. Accountability & Ethics<br />
10. Political Intractability<br />
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<div></div>I expect to publish one or two themes over the next several days. Here is the first and most in-depth theme.<br />
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<div></div>1. <strong><span style="font-size: large;">Demographic shift</span></strong><br />
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<em>Affluent Baby Boomers, who make up 14% of the cohort and represent 62% of US net worth</em>, are entering a wealth preservation phase of life as they prepare for retirement. Of the 2% of Americans that control 37.2% of the net worth of the US, 80% of them are Baby Boomers. In essence, after accumulating massive wealth while helping to power growth in the American economy over the past three decades, these people are less interested in growth.<br />
<ul><li><strong>New Normal:</strong> American ingenuity is about to become “underfunded”. Wealth preservation means less risk capital available for American entrepreneurs to commercialize ideas and grow companies as affluent baby boomers shift investment strategies away from perceived higher risk equity to perceived lower risk hard assets (like gold), bonds, cash and treasuries as they attempt to preserve wealth. The effect is to sideline immense amounts of capital that would otherwise be available to fund investment in the real economy. </li>
<li><strong>Risk:</strong> To thrive, modern economies need to invest in innovation. Without available capital, US innovation and entrepreneurship may face a funding shortage, resulting in fewer high paying “creative” jobs. Typically, these jobs create more jobs. Worse for Americans, emerging economies are beginning to evolve into engineering and design-based economies – which creates competition for skilled labor, and capital – both of which tend to flow towards innovation.</li>
<li><strong>Opportunity:</strong> Incent affluent baby boomers to put their capital to work. Government can help via direct stimulus like the Energy Recovery Act, or via potential tax incentives which compel baby boomers to invest in economic growth and domestic employment. The Small Business and Credit Act 2010 is an attempt that was recently passed by Congress. Notwithstanding government intervention, entrepreneurs may be required to re-set cost-of-capital expectations versus recent historical pricing. Growth capital will be more costly. Export markets should become a priority…please see my next point.</li>
<li><strong>Investor Sentiment:</strong> De-emphasis of growth should reinforce declines in forward valuation multiples for technology and services sectors. I believe that these declines should persist for the next three to five years. High growth companies with strong balance sheets should begin to offer investors dividend yield in order to better align to emerging Affluent Baby Boomer risk profiles. Investors have seen recent moves by both Cisco (CSCO) and Microsoft (MSFT) to introduce dividends.</li>
</ul> <em>Core Baby Boomers are repairing balance sheets</em> as they face an uncertain retirement after their primary asset value cratered (home equity).<br />
<ul><li><strong>New Normal:</strong> The US consumer is old and tired and redefining consumption as they “hunker-down” entering retirement. Leading up to the 2007 recession, these baby boomers leveraged their modest assets to become the most powerful consumer group in the world. Spurred on by the federal government to spend post-9/11, they imperiled their future to buy new homes, appliances, and cars. After the resulting credit crisis, household balance sheets are being repaired, removing consumer spending horsepower from the economy, which has represented 70% of the economy since the end of WWII and is counted on by economists for sustained GDP growth.</li>
<li><strong>Risks:</strong> The American economy needs another horse to ride besides the consumer. Currently, the economy, measurement and policy are aligned to the consumer. What if housing starts are no longer meaningfully correlated to measuring GDP? There will be less domestic consumption which implies that there is a high probability of an extended period of disinflation and an ongoing risk of deflation in an American economy that relies on domestic consumption. Central bankers have become adept at managing inflation over the past two decades, but have had little experience managing deflationary risk, which infers systemic uncertainty.</li>
<li><strong>Opportunities:</strong> While baby boomers embarked on their two decade-long spending spree, the United States became a net importer of goods. GenXers and Echo Boomers need to more than ever look outside of domestic borders to return the US to its net exporter status prior to 1990. The US Administration appears to recognize the opportunity by recently announcing the National Export Initiative with an objective to double exports within five years. A devalued USD could also spur on export activity. However, China would need to agree to stop pegging the Yuan to USD in order to give the dollar room to move. There is a reason why the United States is filing a grievance to the WTO in this regard right now.</li>
<li><strong>Investor Sentiment:</strong> U.S. stocks that derive more than 50% of business outside of the United States should show revenue growth and margin expansion, especially if the USD declines in value. Focus on US domestic spending yardsticks such as home starts may become a less valid measurement of economic health. Accelerate investment into companies that sell innovative products and services to emerging BRIC middle class.</li>
</ul> <em>There are not enough Gen-Xers and Echo-Boomers to replace retiring Baby Boomers</em> at a pace that actually increases the labor force, even as more Baby Boomers remain in the workforce than past cohorts. In 1995 when Baby Boomers were in their prime productivity years they represented 29.8% of the total population, while the cohort retiring ahead of them represented 15% of the population. In 2010, retirement age Baby Boomers represent 22.6% of the total population while the prime productivity population has shrunk to 27.3% and should shrink more over the coming decade.<br />
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<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: left; margin-right: 1em; text-align: left;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/_QfXUVtu9gh0/TJPPeB6gZtI/AAAAAAAAAC8/1OvAUj0iSuE/s1600/us-1995poppyramid.png" imageanchor="1" style="clear: left; cssfloat: left; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" height="100" qx="true" src="http://2.bp.blogspot.com/_QfXUVtu9gh0/TJPPeB6gZtI/AAAAAAAAAC8/1OvAUj0iSuE/s200/us-1995poppyramid.png" width="200" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Wealth Creation 1995</td></tr>
</tbody></table><br />
<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: right; margin-left: 1em; text-align: right;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/_QfXUVtu9gh0/TJPP7Dz-FaI/AAAAAAAAADE/q2DFD-BBd0A/s1600/us-2010poppyramid.png" imageanchor="1" style="clear: right; cssfloat: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" height="100" qx="true" src="http://4.bp.blogspot.com/_QfXUVtu9gh0/TJPP7Dz-FaI/AAAAAAAAADE/q2DFD-BBd0A/s200/us-2010poppyramid.png" width="200" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Wealth Preservation 2010</td></tr>
</tbody></table><br />
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</div><ul><li><strong>New Normal:</strong> It is assumed that a growing economy needs increasing productivity, investment, and labor force. For the first time, the available labor force is about to shrink as Baby Boomers retire. In addition, the spending power of the post-Baby Boomer cohorts is likely to decline as more of their earnings are diverted to pay for the unfunded liabilities of their baby-boomer parents such as healthcare.</li>
<li><strong>Risks:</strong> A smaller productive labor force with less spending power implies that GDP growth will be impaired in comparison to recent recoveries as the US economy exits from the 2007 -2009 recession. </li>
<li><strong>Opportunities:</strong> The single largest opportunity is for the US to follow the lead of other industrialized economies and increase the age of mandatory retirement in order to maintain the size of the labor force, and to delay the impact of a declining workforce. Notwithstanding, unless the US introduces policy to attract a large number of skilled immigrants, the long-term trend for the US labor force is downward, implying that GDP growth is likely to be subdued for at least a generation.</li>
<li><strong>Investor Sentiment:</strong> If the current trend continues over the next few years, investors should look to information technology companies that help US producers offset reduced labor access with more automation and efficiency. Off-shore investment should accelerate as capital flows towards growing skilled labor pools elsewhere.</li>
</ul> <em>Baby Boomers will continue to be a major political force in the U.S.</em><br />
<ul><li><strong>New Normal:</strong> The GOF Syndrome (Grumpy Old Fart Syndrome) should shift US policy increasingly towards the preservation of individual wealth with priority investments in healthcare and security at the expense of investment in education, and economic development. </li>
<li><strong>Risks:</strong> Funding will be less available to arm people with skills to compete with innovators and entrepreneurs of emerging economies. In an environment where China graduates 30M engineers per year, reduced investment priorities in education imperils future US competitiveness, productivity, and wealth creation.</li>
<li><strong>Investor Sentiment:</strong> Investors considering US domestic stocks should look at health related stocks with particular emphasis on pharmaceuticals, genetics, long-term care, and disease management.</li>
</ul><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"> Conclusion: Baby Boomers are:</div><ul><li><br />
<div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;">Becoming net savers; not spenders</div></li>
<li><br />
<div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;">Hoarding assets and less interested in creating wealth</div></li>
<li><br />
<div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;">Delaying retirement in order to repair balance sheets</div></li>
<li><br />
<div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;">Not being replaced in the workforce by latter cohorts</div></li>
<li><br />
<div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;">Dictating policy priorities, which promote individual wealth preservation (such as tax benefits) over economic growth</div></li>
<li><br />
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<li><br />
<div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"><strong>New Normal:</strong> As Baby Boomers retire, they are sucking growth and innovation investment out of the economy, while at the same time becoming less of an economic engine as they reduce spending. They are likely to affect a shift in policy focus towards healthcare, and away from education. These trends could cause the economic rebound to be muted in comparison to previous recessions, and have a long-term impact on sustained GDP growth. Unless there are policy alterations focused on propping the labor force, and unlocking the power of accumulated Baby Boomer wealth, the US economy may be on a path towards economic decline relative to the rest of the world. The good news is that U.S. policy makers appear to be moving in a direction to at least partially address the affect conditions including the Small Business & Credit Act, and the National Export Initiative.</div></li>
<li><br />
<div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"><strong>Investor Sentiment:</strong> Invest in multi-nationals with solid brand equity among BRIC middle class. US economic growth and innovation will be constrained by lack of capital and a shrinking workforce. Pockets of domestic investment opportunity reside in health care, technology, business services, net exporters, and banking. Entrepreneurs will need to re-set expectations for growth capital, and will probably need to incent Baby Boomers to invest with yield. This is already beginning to shake out as expected with traditional growth companies like MSFT and CSCO recently implementing dividends. Expect ongoing bubble risk in assets and treasuries as Baby Boomers run-up the value of gold and silver among others. Equity markets are likely to attract less investment than in the previous 15 years.</div></li>
</ul><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"></div><div></div><span style="font-size: xx-small;">Sources:</span><br />
<span style="font-size: xx-small;">McKinsey Global: Talking ‘Bout My Generation: The Economic Impact of Aging US Baby Boomers 2008</span><br />
<div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"><span style="font-size: xx-small;">Capital IQ</span></div><span style="font-size: xx-small;">Wikipedia</span><br />
<span style="font-size: xx-small;">Population Bulletin</span><br />
<div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"><span style="font-size: xx-small;">Export.gov</span></div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"><span style="font-size: xx-small;">US Census</span></div><div class="separator" style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; clear: both; text-align: center;"></div>REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-9826702026990888942010-06-21T09:58:00.000-04:002010-06-21T09:58:59.146-04:00iLOOKABOUT (ILA.V): Deploys a transformative contract - investors should take noteiLOOKABOUT is about to benefit from a significant software service being rolled out to the insurance industry in Ontario. The solution is called iClarify and will be available to about 700 broker offices in the province by the end of June. The deployment comes on the heals of a successful 30-day pilot where 37 broker offices generated approximately 40,000 queries over that timeframe. We believe that iLOOKABOUT should generate somewhere between $1.00 and $4.00 per query as the solution goes live. Ontario alone should have as step function impact on both revenue and earnings starting this quarter (which is fiscal Q3). Its solution partner SCM announced that both Quebec and British Columbia launched pilots for June. Investors could infer that, if the BC and PQ pilots show similar metrics to Ontario, then there is a good possibility that these provinces will be soon rolled out.<br />
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Notwithstanding, the revenue and earnings impact of the iClarify project to iLOOKABOUT is not currently priced into the stock. Please see my initiating report on behalf of MPartners published earlier this month.<br />
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<div style="width:477px" id="__ss_4564390"><strong style="display:block;margin:12px 0 4px"><a href="http://www.slideshare.net/resthink/20100607-ila-initiation" title="20100607 ila - initiation">20100607 ila - initiation</a></strong><object id="__sse4564390" width="477" height="510"><param name="movie" value="http://static.slidesharecdn.com/swf/doc_player.swf?doc=20100607-ila-initiation-100621084807-phpapp01&stripped_title=20100607-ila-initiation" /><param name="allowFullScreen" value="true"/><param name="allowScriptAccess" value="always"/><embed name="__sse4564390" src="http://static.slidesharecdn.com/swf/doc_player.swf?doc=20100607-ila-initiation-100621084807-phpapp01&stripped_title=20100607-ila-initiation" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="477" height="510"></embed></object><div style="padding:5px 0 12px">View more <a href="http://www.slideshare.net/">documents</a> from <a href="http://www.slideshare.net/resthink">resthink</a>.</div></div><br />
I do not own shares of ILA.REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-91015601526236503862010-06-21T09:23:00.000-04:002010-06-21T09:23:08.292-04:00MPartners RES Small Cap Tech Sector - June 15See the slide show of Small Cap Tech Sector performance as of June 15th. <br />
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<div id="__ss_4564208" style="width: 477px;"><strong style="display: block; margin: 12px 0px 4px;"><a href="http://www.slideshare.net/resthink/tech-sector-june-15" title="Tech sector june 15">Tech sector june 15</a></strong><object height="510" id="__sse4564208" width="477"><param name="movie" value="http://static.slidesharecdn.com/swf/doc_player.swf?doc=techsectorjune15-100621081654-phpapp01&stripped_title=tech-sector-june-15" /><param name="allowFullScreen" value="true"/><param name="allowScriptAccess" value="always"/><embed name="__sse4564208" src="http://static.slidesharecdn.com/swf/doc_player.swf?doc=techsectorjune15-100621081654-phpapp01&stripped_title=tech-sector-june-15" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="477" height="510"></embed></object><br />
<div style="padding-bottom: 12px; padding-left: 0px; padding-right: 0px; padding-top: 5px;">View more <a href="http://www.slideshare.net/">documents</a> from <a href="http://www.slideshare.net/resthink">resthink</a>.</div></div>REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-43953456209345116392010-05-04T20:15:00.000-04:002010-05-04T20:15:05.812-04:00Mpartners RES Canadian Small Cap Tech Index - AprilPublished for institutional investors earlier today. The bottom line is that small cap technology stocks have demonstrated 12.5% better YTD returns than the main index. Even with solid returns so far this year, the Small Cap Tech Index is still trading at an earnings discount to the main index, inferring that there remains future upside. During April, approximately $92M in capital was raised, with OTC making two acquisitions. OTC bought Nstein for approximately $32 M, and then followed up later in the month with an acquisition of Burntsand for approximately $12M.<br />
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Various sources continue to call for a secular bull market for the technology sector due to a current IT replacement cycle, and the emergence of the mobile web which could be up to five times the size of the fixed line internet measured in terms of users.<br />
<br />
<div id="__ss_3970095" style="width: 477px;"><strong style="display: block; margin: 12px 0px 4px;"><a href="http://www.slideshare.net/resthink/tech-sector-20100504-tech-sector-m-partners-res-small-cap-tech-index-update" title="M partners res small cap tech index update">M partners res small cap tech index April update</a></strong><object height="510" id="__sse3970095" width="477"><param name="movie" value="http://static.slidesharecdn.com/swf/doc_player.swf?doc=techsector-20100504-techsector-mpartnersressmallcaptechindexupdate-100504185640-phpapp01&stripped_title=tech-sector-20100504-tech-sector-m-partners-res-small-cap-tech-index-update" /><param name="allowFullScreen" value="true"/><param name="allowScriptAccess" value="always"/><embed name="__sse3970095" src="http://static.slidesharecdn.com/swf/doc_player.swf?doc=techsector-20100504-techsector-mpartnersressmallcaptechindexupdate-100504185640-phpapp01&stripped_title=tech-sector-20100504-tech-sector-m-partners-res-small-cap-tech-index-update" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="477" height="510"></embed></object><br />
<div style="padding-bottom: 12px; padding-left: 0px; padding-right: 0px; padding-top: 5px;">View more <a href="http://www.slideshare.net/">documents</a> from <a href="http://www.slideshare.net/resthink">resthink</a>.</div></div>REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-50788555652867452612010-05-04T19:38:00.001-04:002010-05-04T19:44:02.417-04:00Commentary on BNN regarding RKN, BWC and SVCOn Friday April 30th, at 3:15, I was guest on BNN discussing three mobile ecosystem companies that I initiated official coverage on with Mpartners.<br />
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The investment concept is this: mobile operators worldwide are experiencing a data capacity and congestion crisis that is expected to get exponentially worse over the coming five years as web enabled smartphones proliferate the market. Even with significant network capacity upgrades, operators will continue to run up against capacity challenges and quality of service issues. Network optimization solutions will be required to help more efficiently manage how data is used in order to offset the expenses associated with network upgrades. With smartphones using 40 times more data than a typical feature phone, 10 million web enabled smartphones use as much data capacity as 390 million feature phones. According to Cisco, mobile data capacity requirements are forecasted to grow at a parabolic CAGR of 108% over the next four years. At the same time, subscriber ARPU is forecasted to grow at a CAGR of only 10%. As a result, mobile operators will struggle to grow profitably as they support popular smart phone devices like iPhone and Android platforms.<br />
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Investors can benefit from this problem by participating in the upside potential of the three software-oriented mobile infrastructure stocks that I mention in the clip. Often complimentary, sometimes competitive, each company plays at a different level within the stack from billing (RKN) to policy (BWC) to network awareness (SVC). Here is the link.<br />
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<a href="http://watch.bnn.ca/trading-day/april-2010/trading-day-april-30-2010/#clip296311">http://watch.bnn.ca/trading-day/april-2010/trading-day-april-30-2010/#clip296311</a><br />
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To return to RES Free Thinking, please click on the back button of the browser window in which the clip plays.REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-26218207530835298782010-04-16T13:12:00.001-04:002010-04-16T13:12:10.645-04:00Why Investors Should Look at TSX/V Small Cap TechHere is a slideshare presentation of a research piece that I wrote for MPartners earlier this week. <div style="width:477px" id="__ss_3750130"><strong style="display:block;margin:12px 0 4px"><a href="http://www.slideshare.net/resthink/20100414-small-cap-tech-update" title="20100414 small cap tech update">20100414 small cap tech update</a></strong><object width="477" height="510"><param name="movie" value="http://static.slidesharecdn.com/swf/ssplayerd.swf?doc=20100414-smallcaptechupdate-100416120407-phpapp01&stripped_title=20100414-small-cap-tech-update" /><param name="allowFullScreen" value="true"/><param name="allowScriptAccess" value="always"/><embed src="http://static.slidesharecdn.com/swf/ssplayerd.swf?doc=20100414-smallcaptechupdate-100416120407-phpapp01&stripped_title=20100414-small-cap-tech-update" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="477" height="510"></embed></object><div style="padding:5px 0 12px">View more <a href="http://www.slideshare.net/">documents</a> from <a href="http://www.slideshare.net/resthink">resthink</a>.</div></div>REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-29437243201817668502010-03-10T16:43:00.000-05:002010-03-10T16:43:34.655-05:00Cisco's Cr-3 Router - Streaming Media Players DroolCisco's CR-3 322 Terabyte carrier-grade router is three times faster that its predecessor CR-1 router. Not certain if this is a "change the Internet forever" product. However, it may be a tipping point for rich media providers if it is well adopted by carriers. Considering that carriers are constantly scrambling to keep up with capacity demand, its probably a very good possibility that sales of this $90,000 router will be brisk. <br />
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John Chambers hyberbolic messaging around the capabilities of the router focused on the benefits to rich media (in particular video), which has been clogging pipe for years. The scenario painted is massively available rich media streamed from the cloud. Basically, consumers and business everywhere will be able to access rich, high quality media streamed to any device at any time from the cloud with DRM protection on content. <br />
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The most obvious immediate beneficiary of this evolving content model is Netflix (NFLX), which would immediately benefit from a streamlined distirbution model for rented movies. Clearly, large media conglomerates that create and manage content would also benefit, as would content originators like sports leagues, musicians, and entertainers. So too would the surrounding ecoystems.<br />
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There are several Canadian technology companies that could immediately benefit from the network capacity gains offered by the CR-3 router. These three come to mind:<br />
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Intertainment (INT:TSXV) is a micro-cap media company that appears to have caught lightning in bottle with its Itibiti desktop streaming media widget. With NBC as an anchor customer, and with Microsoft choosing it as a reference Silverlight 4.0 deployment, Intertainment is building an influential client fan base for its always on widget. Using the widget, NBC streams content continuously to users while disintermediating the browser. By disintermediating the browser, fans can get entertained in fewer steps, and there is less chance that NBC has to pay Google for the privilege. A big win for NBC, and a big win for Microsoft's media business. <br />
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Neulion (NLN:TSX) is a small -cap media company and successor to JumpTV that operates online rich media sports programming for hundreds of NCAA schools, NHL, NFL, and MLS sports leagues. improved capacity for streaming media creates substantial opportunities for live data mashups, playlists, highlights, and rich easy-to-access inventoy of game footage and data. Increased capacity delivers more accessibility and more packaging, which delivers more revenue.<br />
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Fluid Music (FMN:TSX) is a small-cap media company that has amassed a low-cost royalty song portfolio. It utilizes multiple distribution and packaging methodologies to generate profits from the millions of songs in the catalog including: background music, packaged lifestyle music and consumer digital downloads via Puretracks. Actually, most of Fluid Music's $90 m in annualized revenue is generated from a small percentage of the total catalog. Although the music industry is on the forefront of streaming media, increased network capacity enables DRM compliant distribution, swapping, and packaging opportunities that were previously not possible. The bottom line for this company is that, by utilizing the cloud, it can generate more profit from the song catalog by providing better, more interesting access to more songs in the catalog.<br />
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There are probably dozens more Canadian companies that will directly benefit from increased network capacity, these are three publicly traded companies that come to mind immediately.<br />
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With respect to "changing the Internet forever" - there is no "forever" when it comes to the Internet. Grey hairs can remember 1999 when Napster bogged down the Internet as millions of people swapped millions of MP3s. At one point in time, carriers complained that Napster P2P file sharing represented 80% of traffic. Fast forward to 2007 when Bit Torrent P2P media file sharing caused similar capacity issues. The bottom line is that people will find ways to use up data capacity and carriers will always be scrambling for capacity. Wait until consumers begin swapping 3D movie files!<br />
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Disclosure: I do not own shares of any stocks mentioned above.REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-35016074903629435572010-02-16T22:41:00.020-05:002010-02-17T12:29:34.709-05:00Two-Month Performance: RES Free Thinking Top 10 Tech Picks for '10After two months, here is the current price performance of the first seven stocks picked for the RES Free Thinking Top 10 for 10. The baseline date is December 16, 2009. The basket of stocks is up 14.5% YTD, and up 3.8% sequentially over the past month. The high flyers continue to be GXI and MMC with PN, and especially CX, under performing to date.<br />
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<div align="center" id="performance Feb top 10_17794" x:publishsource="Excel"><table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; table-layout: fixed; width: 398px;"><colgroup><col span="4" style="width: 48pt;" width="64"><col style="mso-width-alt: 2523; mso-width-source: userset; width: 52pt;" width="69"><col style="mso-width-alt: 2669; mso-width-source: userset; width: 55pt;" width="73"></colgroup><tbody>
<tr height="21" style="height: 15.75pt;"><td class="xl1517794" height="21" style="height: 15.75pt; width: 48pt;" width="64"></td><td class="xl7617794" colspan="3" style="border-right: black 1pt solid; width: 144pt;" width="192">Price Performance</td><td class="xl1517794" style="width: 52pt;" width="69"></td><td class="xl1517794" style="width: 55pt;" width="73"></td></tr>
<tr height="21" style="height: 15.75pt;"><td class="xl7917794" height="21" style="height: 15.75pt;">Symbol</td><td class="xl7217794" style="border-top: medium none;">Dec-16</td><td class="xl7217794" style="border-top: medium none;">Jan-13</td><td class="xl7217794" style="border-top: medium none;">Feb-16</td><td class="xl7317794">Since Dec</td><td class="xl7417794">Sequential</td></tr>
<tr height="20" style="height: 15pt;"><td class="xl7017794" height="20" style="height: 15pt;">BWC</td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>8.10 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>8.70 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>9.19 </td><td align="right" class="xl6717794">13.5%</td><td align="right" class="xl6417794">5.6%</td></tr>
<tr height="20" style="height: 15pt;"><td class="xl7017794" height="20" style="height: 15pt;">DSG</td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>6.14 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>6.70 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>6.42 </td><td align="right" class="xl6717794">4.6%</td><td align="right" class="xl6417794">-4.2%</td></tr>
<tr height="20" style="height: 15pt;"><td class="xl7017794" height="20" style="height: 15pt;">CX</td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>1.17 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>1.15 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>0.92 </td><td align="right" class="xl6817794">-21%</td><td align="right" class="xl6417794">-20.0%</td></tr>
<tr height="20" style="height: 15pt;"><td class="xl7017794" height="20" style="height: 15pt;">GXI</td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>0.94 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>1.15 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>1.35 </td><td align="right" class="xl6817794">44%</td><td align="right" class="xl6417794">17.4%</td></tr>
<tr height="20" style="height: 15pt;"><td class="xl7017794" height="20" style="height: 15pt;">IEE</td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>0.18 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>0.20 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>0.20 </td><td align="right" class="xl6817794">8%</td><td align="right" class="xl6417794">-2.5%</td></tr>
<tr height="20" style="height: 15pt;"><td class="xl7017794" height="20" style="height: 15pt;">MMC</td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>0.17 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>0.21 </td><td class="xl6317794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>0.27 </td><td align="right" class="xl6817794">59%</td><td align="right" class="xl6417794">28.6%</td></tr>
<tr height="21" style="height: 15.75pt;"><td class="xl7117794" height="21" style="height: 15.75pt;">PN</td><td class="xl6517794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>1.76 </td><td class="xl6517794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>1.63 </td><td class="xl6517794"><span style="mso-spacerun: yes;"></span>$<span style="mso-spacerun: yes;"> </span>1.66 </td><td align="right" class="xl6917794">-6%</td><td align="right" class="xl6617794">1.8%</td></tr>
<tr height="21" style="height: 15.75pt;"><td class="xl1517794" height="21" style="height: 15.75pt;"></td><td class="xl1517794"></td><td class="xl1517794"></td><td class="xl1517794"></td><td align="right" class="xl7517794" style="border-top: medium none;">14.5%</td><td align="right" class="xl7517794" style="border-left: medium none; border-top: medium none;">3.8%</td></tr>
</tbody></table><br />
</div>It will be obvious to investors that there are only seven stocks in the Top 10. Three should be added by the end of February.<br />
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<strong>Disclosure:</strong> I owns shares of DSG, BWC, CX, MMC<br />
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<a href="http://resfreethinking.blogspot.com/p/test.html">M Partners Disclosures:</a>REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-10367135198303886902010-02-11T09:08:00.000-05:002010-02-11T09:08:47.505-05:00RKN:TSX Q1 2010 Results Down Again - Turning a corner or more turbulence to come?This morning, Redknee reported Q1 2010 results. Revenue was reported at $11.4m, down 17% from Q1 2009 revenue of $14.2m and up by 13.5% sequentially from $10.4 m reported in Q4 2009. Gross margins were reported at 77%, slightly higher than previous year quarter reported at 76%. Actual gross profit was reported at $9.1m, down from $10.8 m reported for Q1 2009.<br />
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There was an improvement in EBITDA to $1.7m for Q1 2010 versus $0.9m reported for the previous year Q1. However, when removing the impact of foreign exchange from the equation, there was an EBITDA loss of $1.2m for this quarter compared to $1.4m in EBITDA reported for Q1 2009.<br />
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After some really good quarters, the company surprised the market with a weak Q4. It signaled at that time that there were some rough waters ahead as its market suffered through some ARPU compression and constrained CAPEX budgets, which RKN depends on to drive sales of its integrated subscriber billing, charging and personalization solutions to carriers worldwide. The good news is that, unlike Q4, the company was able to close two new contracts during Q1 2009. With these new EMEA regional sales, is the company turning the corner? It is too early to tell right now, and management continues to re-organize to streamline sales and operations, suggesting that it is preparing for more challenges during 2010.<br />
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Investors should see analysts begin to cut forecasts for the company with contract uncertainty ahead. On a multiple basis, the company is trading at 5.2x forward EV/EBITDA versus the TSX tech sector adjusted mean of 8.9x. Once analysts get done adjusting their forecasts downward, investors could see the current price range of between $1.10 and $1.20 as fair value relative to the rest of the sector. In reality, investors may become impatient, and the stock could re-test the lows of December after the company announced Q4 as some of them head for the exit. Notwithstanding, RKN is in the mobile infrastructure space, and despite short-term turbulence, is still well positioned to benefit as overall market conditions expand. Patient investors may see upside in the stock during H2 2010. The company has about $23.5m in the bank, so RKN may look to be active in M&A.<br />
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Redknee was one of the RES Free Thinking Top 5 Tech Picks last year, and had a really good run until it reported Q4. Even then, the stock was up by almost 200% from its lows at the beginning of 2009. RKN did not make the RES Free Thinking Top 10 Tech Pick for 10.<br />
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Disclosure: I do not own shares of RKN.REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-10589128693283293642010-02-08T21:46:00.000-05:002010-02-08T21:46:14.321-05:00Mutliplied Media (MMC.V) Announces Definitive Agreement to Acquire Unomobi.On Friday, February 5, 2009, Multiplied Media announced that it had signed a definitive agreement to acquire Unomobi for a total value of $6.125 million. As stated in earlier communication, MMC will issue 95,000,000 shares out of treasury at $0.065 per share. The transaction is expected to close on February 11th, 2010, a little ahead of the schedule communicated in late 2009.<br />
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Today, investors responded by pushing the shareprice up by 15% to $0.23. The UnoMobi platform is a key component of Multiplied Media's monetization engine as the Poynt user base heads towards 3 million worldwide. UnoMobi provides Multiplied Media with an opportunity to generate higher advertising rates by better targeting local offers to users based on their GPS-based location and their profile-based preferences. Once deployed fully, revenue-per-query could nearly double from current rates.<br />
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As well, the UnoMobi platform allows Multiplied Media to expand its product portfolio (while increasing its international reach) via the SMS-to-email product targeted at non-smartphones (which dominate emerging economy subscriber bases). <br />
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Investors are still awaiting an expected iPhone App Store announcement, which has been signalled to happen shortly. The iPhone app was previewed at the 2010 CES earlier in January.<br />
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Disclosure: I own shares of MMCREShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-13068604661982515542010-02-03T10:16:00.002-05:002010-02-03T15:18:21.032-05:00Top 10 Posts on RES Free Thinking LTMThere have been 140 articles posted on RES Free Thinking since it was launched. Most posts have an immediate audience and a "best before" date of about five days, after which there is little interest from readers. Considering the time-sensitive nature of most of the content, this should be a typical pattern. However, from time-to-time, a post will capture and hold interest among users for a while, creating a "long tail" of readership. Here is the list:<br />
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<strong>Top 10 RES Free Thinking Articles LTM</strong> <br />
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1 <a href="http://resfreethinking.blogspot.com/2009/12/res-free-thinking-ten-top-tech-picks.html">RES Free Thinking Ten Top Tech Picks for 2010 (Dec 2009)</a><br />
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2 <a href="http://resfreethinking.blogspot.com/2009/05/cyberplex-q1-results-maintains.html">Cyberplex Q1 Results: Maintains Remarkable Momentum (May 2009)</a><br />
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3 <a href="http://resfreethinking.blogspot.com/2009/08/zoompass-is-destined-to-succeed-so-what.html">Zoompass is destined to succeed: So what is the potential fallout in the Canadian market? (Aug 2009)</a><br />
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4 <a href="http://resfreethinking.blogspot.com/2009/04/active-control-technologies-actv-rubber.html">Active Control Technologies (ACT.V): Rubber Hits Road (April 2009)</a><br />
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5 <a href="http://resfreethinking.blogspot.com/2009/06/enstream-mobile-moneris-or-dexit.html">Enstream: A Mobile Moneris or Dexit Revisited? (June 2009)</a><br />
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6 <a href="http://resfreethinking.blogspot.com/2009/11/ceo-series-interview-with-andrew-osis.html">CEO Series: Interview with Andrew Osis, CEO Multiplied Media - developers of the Poynt Mobile App (Nov 2009)</a><br />
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7 <a href="http://resfreethinking.blogspot.com/2009/11/bridgewater-systems-q3-2009-beats.html">Bridgewater Systems Q3 2009 - Beats Consensus Forecasts and Increases FY Guidance (Nov 2009)</a><br />
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8 <a href="http://resfreethinking.blogspot.com/2009/11/cyberplex-exceeds-analyst-expectations.html">Cyberplex exceeds analyst expectations again while fundamentals solidify (Nov 2009)</a><br />
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9 <a href="http://resfreethinking.blogspot.com/2009/02/stimulus-packages-and-healthcarea.html">Stimulus Packages and Healthcare...A Checkup on the Eve of the $787 Billion Federal Stimulus Package (Feb 2009)</a><br />
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10 <a href="http://resfreethinking.blogspot.com/2009/10/rubber-hit-roadwhere-was-act.html">The Rubber Hit The Road...Where Was ACT? (Oct 2009)</a><br />
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<strong>Trending Towards Top 10</strong> <br />
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<a href="http://resfreethinking.blogspot.com/2009/11/ceo-series-interview-with-tom.html">CEO Series: Interview with Tom Douramakos, CEO Guestlogix, Onboard Retailing Pioneers. (Nov 2009)</a><br />
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<a href="http://resfreethinking.blogspot.com/2009/11/could-multiplied-media-be-next-big.html">Could Multiplied Media Be "The Next Big Thing"? (Nov 2009)</a>REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-31469654555873559792010-02-02T14:25:00.001-05:002010-02-02T14:26:23.585-05:00Mosaid (MSD:TSX): It's Been A Good MonthIn the spirit of Chris Bosh being named Eastern Conference Basketball Player of The Week, it seems appropriate to highlight the month enjoyed by Ottawa's technology patent licensing king, Mosaid Technologies.<br />
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On January 19th, the company was able to announce that its biggest licensee, Samsung Electronics has agreed to a five-year patent licensing agreement on non-memory integrated circuit products. Immediately subsequent to that announcement, MSD raised full-year 2010 guidance, and just about every analyst on the street raised 12-month target prices. As part of the agreement, MSD also acquires several more patents from Samsung and enters into a R&D partnership on new NAND flash storage technology. Interestingly, a day later, Samsung announced that it had settled a patent suit with Rambus, and entered into a multi-year $900 million licensing agreement related to DRAM patents. As part of the transaction, Samsung agreed to invest $200 million and to enter into a R&D partnership on new NAND flash storage technology. At the time of the transaction, a $200 million investment in Rambus was equivalent to approximately 18% of the company. Through the nearly simultaneous agreements signed by Samsung, it looks like there may be some joint IP development in the future for IP specialists Mosaid and Rambus. This should benefit MSD shareholders.<br />
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Why is NAND development interesting? As mobile devices developed by Samsung, Sony, MOT, RIMM, AAPL, NOK, and GOOG continue to get more powerful, they will need more onboard storage and solid state RAND technology is probably the most space efficient and cost-efficient way to increase storage. Apple's new iPad (unfortunate branding aside) depends on it. So to will affordable netbooks, notebooks, and any other portable computing devices that run local applications and that consumers will actually want in the future.<br />
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As R&D continues in earnest worldwide, within two years we could see read/write storage on smartphones eclipse the hard drive of the computer now sitting in front of you. Moore's Law perpetuated.<br />
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It's been a very good month for Mosaid and there are probably more good months to come because its patent portfolio aligns well to the exploding mobile infrastructure industry worldwide. Samsung and now Sony help to set the table for other multi-faceted multi-year licensing deals with major players in the mobile ecosystem worldwide. As well, the semi-conductor space seems to be recovering well after a tough 2009. So MSD's semi-conductor customer base is becoming financially de-risked.<br />
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Financially, Mosaid still has some customer concentration risk, and IP litigation itself is a risky activity because the government regulations that IP rights depend upon are inherently risky. However, with last quarter gross margins of 90%, EBITDA margins approaching 70% with net income margins of 46%, there is a lot of leverage for investors, along with a newly minted dividend announced last quarter. Past "lumpy earnings" risk is being mitigated by the acquisition of an increasingly broader array of communications and semi-conductor patents, which can be packaged into long-term multi-faceted bundled agreements like those signed with Samsung and Sony. A good real-life analogy may be the minutes bundling or the cable bundling by your local mobile and cable providers. Excluding the new Samsung patents, the company reports that it now retains over 1,800 major and minor patents, so it has a lot of bundling options.<br />
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The consensus analyst target is $25.95 right now. As the company monetizes its IP over the next twelve months, watch for more guidance adjustments and analyst target upgrades throughout the year. The stock opened today at $22.80 subsequent to yesterday's Sony announcement, which implies 8.87x forward PE on the low-end net income guidance with consensus forecast at 10x low-end net income guidance. To put this into perspective, the current mean PE Ratio of the QQQQ powershares (proxy to the NASDAQ 100) is 21.15x. So, as an IP portfolio manager in the middle of a mobile infrastructure boom, the stock appears relatively reasonably priced on a PE multiple basis.<br />
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Last year, the company began an IP licensing process with IBM, so there are likely to be some future blockbuster announcements. Long shareholders are likely already in the stock. If not yet there, any time is a good time.<br />
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Disclosure: I do not own shares of any of the stock mentioned above.REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-13845003388495908852010-01-28T13:45:00.003-05:002010-01-28T14:01:12.882-05:00CEO Series: Interview with Geoff Rotstein, CEO of Cyberplex, Performance Advertising Pioneers.<em>This is the third in a series of interviews conducted with CEOs of interesting Canadian technology companies. The intent of this project is to provide investors with a unique understanding of what various companies are doing - directly from the top dog. Hopefully, the interviews conducted over the next few weeks will help investors to gain insight into the fundamentals of the companies to which they may not otherwise have access.</em><br />
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After a bit of a hiatus, this interview is conducted with Geoff Rotstein, Chief Executive Officer, Cyberplex (CX.V). The company is headquartered in Toronto, Ontario and is a pioneer in the Cost per Action (CPA) online advertising category.<br />
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<strong>RES: Geoff, let's start off with a basic question. Can you give investors insight into how Cyberplex makes money?</strong><br />
GR: That's a really good first question because how we make money is fundamental to our success. I would say that our business model allows advertisers to engage with end users online. We have relationships with advertisers, and online publishers like media, social networks, communities, and blogs. We present advertiser campaigns to end-users who interact with the publishers (these are also referred to as affiliates), and we get paid every time an end-user transacts with an advertiser. We share the revenue with the publisher, and keep about 30% give or take a couple of points depending upon the campaign.<br />
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<strong>RES: So, what is a "transaction"?</strong><br />
GR: Well, its anything from a lead to a sale. A lead is relatively easy, and a sale is relatively complex. For lead generation, we may send out a huge e-mail blast asking end-users to simply provide their email address to the advertiser. For a sale, we have to do a lot more specific targeting, with a lot more feedback, measurement and interactions.So it is amazingly complex.<br />
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<strong>RES: Your stock has been sagging over the past couple of months after a nice run earlier in the year. What do you think investors are concerned about?</strong><br />
GR: Our current share price is disappointing because I feel like we've built a strong business for now and the future. The opportunities that we are looking at every day are better than they ever have been in the past. That being said, we've asked around and we think we can identify three reasons why our stock has been sagging. First, we had some big moves in 2009, and we had a lot of momentum investors get in and out of the stock. Second, I think that people are worried about our client base because we don't have enough teir 1 advertisers. We are an emerging industry, and early adopters and innovators usually don't come from the top tier. Its kinda like the Home Shopping Network in the 1980s. How many cubit zarconians were sold before the tier 1 and 2 brands started selling on HSN? CPA is in the same spot but we are at an inflection. Third, we have been fairly quiet, but we will be better with IR in 2010, providing announcements of meaningful stuff. You know, we bring on dozens of new clients, affiliates and programs a month, but we don't talk about it enough. We have to have a balance though. We don't want to innundate people with fluffy messages. We are working on this and we will get better at it.<br />
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<strong>RES: You had a huge bump in revenue and earnings during 2009, how do you maintain the momentum during 2010?</strong><br />
GR: Well, the industry is young and still growing, so we should see organic revenue grow as a result. Some people include Google in CPA even though its a CPC (Cost per Click) company. Including Google, our industry is growing at about twice the rate of CPM. Excluding Google, its growing at 4 or 5 times the rate. So there is a lot of organic growth. There are bunch of other things that we are doing. We are working hard to sign up tier 1 advertisers obviously, and we will make announcements as they occur. We have about 10,000 affiliates in our network, and we add about 25 to 50 new publishers a week. We do some heavy quality screening because about 3 to 4 times that many apply to the network every week. So we are focused on high quality growth. Also, we are looking at expanding our offer to become more full service, so we are adding SEM (Search Engine Management) and SEO (Search Engine Optimization) capabilites, and even some CPM. This will help strengthen our offer with tier 1 advertisers as we sign them up. Also, we could take a leap forward on M&A. We are looking for the right deal that fits strategically, financially, and culturally. We have a number in the pipeline, both small and large. We don't want to put this in a timebox that forces us to make an acquisition that doesn't fit, though.<br />
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<strong>RES: Other than quarterly financial reports, what are easy ways for investors to track your progress operationally?</strong><br />
GR: We don't want to be one of those companies that only announces financials once a quarter, and our program economics are all over the map. So I think we need to announce major programs so that investors can see the transitions to tier1 and full service. We should begin getting measured on that.<br />
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<strong>RES: So how much traffic do you handle on a monthly basis?</strong><br />
GR: Actually, we don't measure traffic although we would probably rank up there with some of the ad networks that report traffic. Unlike a CPM (Cost per Thousand) network, that gets paid based on how many eyeballs look at an ad, we get paid when someone does something. So I care about conversion rates. We could sent out millions of offers to generate a lead where someone gives an email, which is an easy thing to ask and we get conversion rates of 10% or 15%. The conversion rate on a sale is low - often in the 1% range, but we may have the same number of interactions as a lead generation. As a result, lead generation, which we do all the time is valued in the 25 cent range per transaction, and a sales transaction could be worth $25 or as high as $50, depending on the campaign. We spend a lot of time getting the right mix of campaigns flowing at the same time.<br />
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<strong>RES: What is your most proud accomplishment related to the business over the past year?</strong> <br />
GR: Defnitely the team that we have built. We have added experienced industry leaders to our team that is really helping us to succeed. We have much more expertise now than we did a year ago. And we are strengthening our management with senior management emerging from within the company. <br />
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<strong>RES: What is unique about CPA versus CPM and how do you think the future will unfold in the market?</strong><br />
GR: Great question! CPA is different by risk allocation. With CPM, advertisers bear 100% of the risk of whether a campaign works - which they can't really measure anyway. With CPA, the network (us) and the publishers share in 100% of the risk. The advertiser only pays if something works. This is why CPA is growing so much faster than CPM. Avertisers can tie online advertising directly to the bottom line of their P&L. They've never had that before. CPA is also getting better. When we started, advertisers could measure ROI on a monthly basis. We can do it hourly now and soon, advertisers will be able to measure ROI in real-time and make adjustments on the fly. We have to be really good at campaign development, management, and measurement. Because of measurement, CPA will probably become the main way that advertisers run programs, although there will always be room for CPM related to brand management.<br />
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<strong>RES: Who are your biggest competitors?</strong><br />
GR: We see Epic Advertising and InterMark Media a lot. Also, we compete in some ways with Commission Junction, but the fee structures are so different that we don't see them too often.<br />
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<strong>RES: What about online direct marketers like Gilt?</strong><br />
GR: These are very specific niches, and they are subscription-based. We are more general and ten to hit huge numbers in comparison. So they don't really compete.<br />
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<strong>RES: How is your Facebook project coming along?</strong><br />
GR: We think that social media will play a big part in CPA, and we are learning a lot with Facebook, although its not a big money maker for us yet.<br />
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<strong>RES: Some investors don't see many barriers to the market - what do you think they are, and how are you erecting them?</strong><br />
GR: CPA is hard to do because we handle and interpret so much data. We are very data driven, and its hard to both set up the infrastructure and to manage the reams of data. We actually have more data than we can handle. I think that this is the barrier. CPM providers would need to totally revamp their skillsets and their technology to compete against someone like us. We track huge amounts of data on an hourly basis. We will continue to invest in technology to become better and better at collecting, tracking, and reacting to data feedback as close to real-time as possible, which strengthens our barrier.<br />
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<strong>RES: What are some of the best performing campaigns to date?</strong><br />
GR: As categories, nutriceuticals and entertainment are still our top performing areas. Dating is also big. We also have big events. This quarter it's the Superbowl and Valentine's Day.<br />
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<strong>RES: One of the challenges facing the industry is getting tier one advertisers and publishers bought into the industry. You have previously discussed American Express - how is that going, and what other categories seem interested in CPA?</strong><br />
GR: American Express is not big but we are learning a lot from it and making good progress with them. There are a lot of tier one advertisers in the pipeline and we are making the right investments in people and technology to maximize both reporting and our client's brand management. This will be a big year for tier one.<br />
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<strong>RES: What are some of the businesses that can benefit from CPA?</strong><br />
GR: All sectors. Anyone who sells to consumers. Branding will always be there, so advertisers will need a winning combination of CPA, CPC, and CPM.<br />
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<strong>RES: You raised aproximately $17 million in a bought deal equity issue last year - how are you planning to deploy the capital?</strong><br />
GR: We are investing in technology, people and geographies. Also, like I said earlier, we have an active M&A pipeline and we are focussing on technology and distribution.<br />
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<strong>RES: What can we expect to see in 3 years from Cyperplex?</strong><br />
GR: Well we will be much bigger and we will be able to offer everything. CPA will be much more prominent, but we are aiming to be a full service digital agency. Nobody is there yet. We will aim to provide the highest quality online full service advertising solutions to our clients. It should be a totally unique offer combining CPA, CPC, and CPM into a blended campaign.<br />
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<strong>RES: Final question, what keeps you up at night?</strong><br />
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GR: Well, I'm naturally fairly paranoid. I want to make sure that we provide good quality results for our clients. So I worry about procedures, people, tools that drive success and protect the brands of our clients. I am always worried about heading strategically in the right direction without blinders. Basically not getting caught up in a single idea. How do I continuously improve and keep my clients happy? These are the things I think about all the time.<br />
I would like to thank Geoff Rotstein for taking the time to provide his insight into the workings of Cyberplex for the benefit of investors. Cyberplex is one of the RES Free Thinking Top 10 Tech Picks for 10.<br />
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Disclosure: I own shares of CXREShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-2573802311299459212010-01-27T09:48:00.000-05:002010-01-27T09:48:27.923-05:00Guestlogix Pre-announces Record Q4 and FY2009: Margins Hint At Niche DominanceClearly Management is proud of its accomplishments for 09Q4. Total revenue for the quarter was reported at $5.2 million, up 86% over $2.8 million reported for 08Q4. For FY09, revenue came in at $18.6 million, a 128% improvement over $8.5 million reported for FY08. For the first time, the company reported Net Income for Q4 2009 at $0.2 million. EBITDA was reported at $1.7 million, a $2.7 million total turnaround from a loss of $1.0 million reported a year earlier.<br />
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More interestingly, 09Q4 revenue was a healthy 8.3% sequential improvement over 09Q3, inferring a steady build in revenue as the onboard solutions continue to be rolled-out and gain traction among airline passengers. With its strengthened balance sheet, via a $7.2 million bought deal earlier in 2009, the Company can begin to accelerate some of its deployments, hinting at further scaling during FY2010. <br />
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EBITDA margins came in at a record 32%, an impressive sequential improvement of 18.5% over 09Q3 margins reported at 27% (which should be considered strong, too). Without the benefit of final audited numbers, it is difficult to understand how much of the kitchen sink was thrown at the "ITDA" of EBITDA, and how much of the margins were impacted by currency fluctuations. However, recurring revenue EBITDA margins above 30% tend to re-inforce the notion that a provider is dominant in a niche, with minimal competitive pricing pressure. On the surface, it appears that GXI is beginning to head in that direction for onboard retailing systems.<br />
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It will be interesting to see if GXI's ongoing deployments can continue to offset seasonality in passenger traffic. They should. If the company can continue to demonstrate earnings leverage as it scales, them shareholders should be pleased because the company is likely to have the ability to throw off excessive cash once at maturity. <br />
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If Guestlogix continues to report high growth, high margin quarters, then investors may see some industry heavyweights begin to take notice of its dominance in the onboard retail infrastructure niche. As GXI becomes more of the "go-to" player for retail infrastructure among carriers, there is less threat of substitution as passengers become more "connected" on aircraft. As predicted by Management in the past, it is more likely that the GXI platform will become a gateway for commerce onboard. In the meantime, investors should look at getting in on the ride. <br />
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GXI is a RES Free Thinking Top 10 Tech Pick for 10<br />
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<strong>Disclosure:</strong> I do not own shares of GXI...yet :-)REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-55624694451499522952010-01-25T19:15:00.003-05:002010-01-26T11:44:18.688-05:00Can Bay Street Get Behind the Moral Abiguity of Avid Life Media?Andre Compte-Sponville, the French philosopher, argues that capitalism is neither moral nor immoral, but amoral. As an economic system, capitalism is outside any moral concern. Economic objectivists tend to also support capitalism as an objective existential system. Basically, if the numbers are good, the investment should be good.<br />
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Over the next few weeks, this theory will be put to the test on Bay Street.<br />
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According to a report today by the Globe and Mail, Avid Life Media plans to go public via an RTO and raise approximately $60 million concurrently in an effort to acquire Guelph Ontario-based Moxy Media. It just so happens that Avid Life owns Ashley Madison, the adultery-friendly website that famously offered free subway rides in return for billboard ads on the TTC. A public uproar ensued, and the TTC very publicly rejected the offer. (IMHO, this free PR campaign by Ashley Madison should win awards for ingenuity). Avid Life also owns CougerLife.com, EstablishedMen.com, and HotNotHot.com, three other online lifestyle properties that cater to ...uhh...specific dating needs.<br />
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Notwithstanding, GMP, arguably one of the top shops on Bay Street, is leading the syndicate for this not insignificant equity issue.<br />
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The brand association with Ashley Madison is imposing a moral quandary on both bankers and portfolio managers up and down the street. By participating in this issue, do I enrage, or at least create suspicious feelings with my spouse (that I already barely see)? Do I somehow endorse adultery? Does it matter?<br />
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If capital is truly amoral, as argued by Compte-Sponville, then Avid Life would be considered great investment opportunity into a solid organization that generates a boatload of high margin EBITDA. Its plan to acquire Moxy Media vastly diversifies its online media portfolio and includes reputable verticals as diverse as home improvement and law. The acquisition would set the stage for a future Canadian media juggernaut when there are not many left for public market investors after the disappearance last year (through acquisition by Disney and Barclays) of Kaboose.<br />
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Speaking of Kaboose, here is a bit of irony. Some of the same people who were behind family-friendly Kaboose, are now behind couger-friendly Avid Life. This pedegree is probably what attracted GMP, despite the Ashley Madison brand-association risk. It also helps to make Avid Life an even better investment bet...experienced management is difficult to find.<br />
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If the capital markets were truly behaving amoral, and with GMP acting as the syndicate lead, then the Avid Life issue would be a slam-dunk. In reality, the Street appears to be signalling that, in fact, there is some inherent morality in the Toronto capital markets. Bankers and portfolio managers are turning away from this issue at every turn due to the presense of Ashley Madison. If such morality was consistently present then this would be considered admirable. In reality, the markets are consistently amoral, and this showy disdain for Avid Life by some may, at best, be slightly hypocritical, and at worse, prevent investors from benefiting from a potentially good story.<br />
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The question that must be asked is how many of these same bankers and investor were neck deep into online gaming stocks when they were hot? What about packaged goods stocks like Atria, that still manage to push tons of tobacco? Are these the same portfolio managers that invest in tar sands companies that contribute to the degradation of the environment? Or that buy mining exploration stocks, whose management teams rub elbows with various tinpot dictators all over the world? In all of these cases, it can be argued that capital is behaving rationally, objectively, and amorally. Why is it any different for Avid Life Media?<br />
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Fundamentally, Avid Life Media is no less immoral than any of the examples cited above, and it could be argued that Avid Life is less immoral than some. It depends on perspective. <br />
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In the media subsector itself, Avid Life is no less immoral that other much larger players with diversified online portfolios. CollegeHumor.com has been a bastion of ribald humor, scandalous photos, and general poor taste, which has skirted the edges of pornography for nearly a decade. It's owner? None other than IAC/Interactive Corp (IACI:Q) trading at a $2.6 billion market cap. It just happens to be one of over 50 online properties owned by IACI (6 of which are dating sites).<br />
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And that is the rub...Avid Life Media is positioning itself to create a diversified online lifestyle portfolio that can compete on the world stage with the likes of IAC/Interactive Corp and Liberty Media among others - who appear not to be penalized by racy properties (only by bad earnings). Avid Life has a strong, experienced management team that already operates a high margin, high growth business, from which it can consolidate. It is a solid media play.<br />
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In the end, the amoral nature of capital should prevail, and GMP should be successful in raising capital. There are enough single bankers, and portfolio managers on their third marriages to be non-plussed by the moral quandary now coursing through Bay Street. And, based on the fundamentals, they should make their investors a lot of money on this stock.<br />
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Disclosure: I do not own shares of any of the Companies discussed in this post.REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com3tag:blogger.com,1999:blog-4082478907664584557.post-17821236194153695272010-01-18T11:51:00.001-05:002010-01-18T12:02:33.746-05:00One Month Performance: RES Free Thinking Top 10 for 2010First of all, the RES Free Thinking Top 10 for 2010 is actually Top Seven for now. Three places have been reserved. Here is how the picks are tracking after 1 month.<br />
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<a name='more'></a>The largest monthly gain within the basket of stocks is attributed to <b>Multiplied Media</b>. Since December 16th, the Company has made significant announcements related to distribution in France, Spain, and Italy and it has announced an upgrade to the application to include local weather along with local gas prices. During the 2010 Consumer Electronic Show, it demonstrated its beta iPhone deployment, which is expected to be live by the end of January. These announcements have contributed to the exceptional stock price performance over the past month.<br />
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<b>Bridgewater Systems</b> and <b>Descartes Systems</b> have shown both progress and share price volatility, each alternating between 6% and up to 15% gains from December 16th, depending upon the day. Notwithstanding, both companies have announced significant corporate developments, which should support continued share price gains throughout the year. Descartes Systems is making major strategic moves this year, and Bridgewater Systems will continue to benefit from the ongoing need by carriers worldwide to handle the explosion of data on wireless networks.<br />
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<b>Guestlogix</b> is at an interesting point in its history where large implementations during 2009 begin to generate revenue and earnings during 2010. To the extent that large contracts, and service extensions begin to perform will determine how well the stock performs. Although many investors expect good things, there is still a bit of a "wait and see" perspective on the stock. RES Free Thinking anticipates that performance is likely to exceed expectations as the world economy recovers. In addition, it is possible that the stock could graduate from the Venture Exchange to the Toronto Exchange. Graduation should increase liquidity, and participation from larger institutional funds could also provide a shot of price adrenaline before H1 concludes.<br />
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<b>IseeMedia</b> has, until recently, shown significant gains in share price, and probably has more announcements to make related to the Indian mobile market, which should help to propel the share price higher as it exits Q1 2010.<br />
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<b>PNI</b> has demonstrated significant improvements in profitability over the past three quarters as it continues to monetize its major contracts with photo retailers worldwide. However, this is not a stock that will provide news related catalysts. It could trade in a range until its announces Q4 2009 results, while providing a hint of its earnings growth potential during its subsequent conference call.<br />
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<b>Cyberplex</b> is trading at a 6x EBITDA TTM earnings multiple. Relative to its recent earnings performance, and its earnings growth trajectory, the stock may be considered undervalued relative to its peers. However, investors may be concerned that Q4 2009 may not show much growth over Q4 2008, and there is continued concern among investors regarding the quality of its advertising client base. Until Management demonstrates more progress towards upper tier advertisers, and demonstrates that it can generate earnings growth progress over 2008 and 2009, the share price may be stuck in neutral. The stock should begin to show steady progress forward beginning in H2 2010 as growth trajectories are confirmed. If the Company were to announce a meaningful accretive acquisition in the meantime, the share price could be kick started upward ahead of H2 2010.<br />
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The bottom line is that this basket of stocks appears to be performing well on an aggregate basis after one month. Over the same timeframe, the TSX composite index has increased by just over 2%. The stocks within the RES Free Thinking Top 10 should be considered higher risk stocks because they are small cap and micro cap stocks. However, all appear to have relatively solid balance sheets heading into 2010, and most are generating free cash flow.<br />
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Disclosure: I own shares of CX, MMC, DSG, and BWCREShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0tag:blogger.com,1999:blog-4082478907664584557.post-79982926883249907462010-01-11T15:25:00.000-05:002010-01-11T15:25:45.281-05:00For those of you not at CES 2010 - Poynt for iPhoneExpect Poynt for iPhone to be available for download by the end of the Month. Notice the "no touch" calling feature.<br />
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Multiplied Media is the developer of the Poynt application and is one the RES Free Thinking Top 10 in 10 Tech Picks.<br />
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Also last week Multiplied Media announced:<br />
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- new local gas station and weather search.<br />
- France, Spain, and Italy deployments.<br />
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Disclosure: I own shares of MMC.V, I do not own shares of AAPL.REShttp://www.blogger.com/profile/10647257103788630954noreply@blogger.com0