Newsletter Watch: Three views on technology
This week, we turn to a trio of newsletter advisors who have found opportunities among fast-growing small-cap, high-tech companies – in digital media, wireless services, and computer-aided design.
Jim Collins in OTC Insight sees upside in DG FastChannel (Nasdaq: DGIT), the leading provider of digital services for ad agencies and media outlets.
The company, he notes, with a market cap of $330 million, enables the electronic delivery of advertisements from advertising agencies to traditional broadcasters and other media outlets.
“They operate a nationwide network which links more than 5,000 advertisers and agencies with more than 21,000 radio, TV, cable, network and print publishing destinations throughout the U.S. and Canada,” Collins says.
Its services, he notes, include online creative research, media production and duplication, distribution, and broadcast verification. Indeed, Collins points out, the company owns an online database of content and credits for the U.S. television commercial production industry.
Collins, who uses a quantitative approach to selecting his holdings, adds that the stock has a relative strength rating of 99 (out of 100) and receives a rating of ‘A’ for accumulation and distribution.
Small cap growth specialist Thomas Bishop sees opportunity in Ceragon Networks (Nasdaq: CRNT), which operates in the wireless phone market by making products that help move data via microwave radio from tower to tower in a wireless network.
The editor of BI Research notes, “There is every reason to believe that wireless carriers are going to continue to need more and more and bigger and bigger ‘pipes’ (capacity) to carry (backhaul) the dramatic increase in data traffic that results from video, pictures, gaming and music over wireless networks.”
Within his market, he says, “Ceragon, which makes these pipes, is in the sweet spot.” The company, Bishop notes, is also insulated from the risk of competing technologies.
“As the world debates access technologies like 3G, EVDO, WiMax and 4G, Ceragon is above the fray,” Bishop says. “Whatever the decision, it doesn’t matter, Ceragon will be in a good position to supply the additional wireless capacity for backhauling.”
In addition, the advisor sees another strong growth driver, pointing to the emerging market countries, especially in the Asia Pacific. Currently, Bishop states, only 20% of its sales come from North America; the company has 180 customers in 70 countries.
The shares, he suggests, are undervalued at 19 times this year’s expected EPS given revenue growth running at a compound rate of 47% over the past three years. Part of this discount, he notes, is due to the fact that the company is based in Israel, which, he cautions, is a risk to factor in.
Bishop observes, “I believe there are good prospects for Ceragon to beat its revenue growth targets.” Noting that Value Line ranks the shares 1 for “timeliness,” he considers the stock a buy up to $10 per share. On Thursday Ceragon closed at $9.72.
Beth Gaston Moon, an analyst with Schaeffer’s Investment Research, considers Stratsys (Nasdaq: SSYS) to be an “undiscovered gem."
The company, she explains, makes systems that engineers use to get products to market faster. It uses 3-D imaging and computer-aided design technology. The advisor notes that the company's clients include Intel, NASA, Ford, and the maker of LEGO toys.
She explains, “An ‘undiscovered gem,’ as we define it, has a small market cap ($472 million in this case), few covering analysts, and a lack of interest from the speculative community. We look for equities that have stellar price action - long-term uptrends, trendline support, notable breaks above resistance, etc.”
Over the past nine months, she notes, the shares have more than doubled in value. “They remain atop reliable support from their 10-week and 20-week moving averages,” Moon says.
Technically, Moon observes, the stock’s last upmove drove it above the 35 level, which was former resistance. “This area thwarted previous rally attempts in the shares in mid-2003, late 2004, mid-2004, and early 2006,” she says. “This time, the shares were able to glide through the threshold and keep moving into new all-time high territory.”
In addition, Moon points out, nearly 24% of the equity's available float is devoted to the short side. She says, “This is a pretty telling figure, especially with the stock near all-time highs.”
According to Gaston, based on average daily trading volume, it would take 20 consecutive days of trading to cover these short positions. She says, “This lays quite a solid foundation for a short squeeze, which can help spur the equity even higher.”
