Written by: Zack Miller | May 30, 2007
By Zack Miller
Doing some work on Ormat Technologies (ORA) and reading some recent posts on SeekingAlpha, I’m just trying to get my hands around this one.
Clearly, there are some strong secular trends and catalysts that Ormat (ORA) plays right into (from the RBC upgrade):
- Regulatory favorability: Global warming has become a big political issue especially in California — ORA’s geothermal energy provides a meaningful way to increase renewable energy production.
- Asset building: ORA is continuing to add geothermal assets to its portfolio and will be positioned strongly when the geothermal industry consolidates.
- JV lookin’ good: Ormat is forming OPC, a joint venture, with an undisclosed financial partner (i.e., hedgie?). Ormat will sell PTCs (production tax credits) to the financial partner through the new entity in return for cash of approximately $100-$120MM.
But I’ve personally never found success picking individual stocks to capitalize on certain themes – irrespective of their operational metrics. That’s like buying Yahoo to capitalize on Internet advertising and consolidation in the industry (e.g., the Yahoo/Microsoft tie-up rumors that have been quickly dispelled). Yahoo’s performance has not been indicative of the strong secular trends in Internet advertising. They’ve underperfomed and haven’t proven a good proxy to play the industry. For trends, I prefer to use ETFs as a better way to capture the industry as a whole (assuming the ETF is the accurate proxy).
So, that leaves me scratching my head on Ormat. It’s experiencing margin compression and needs to execute better; but, on the other hand, it appears as if they are putting in the necessary elbow-grease to address the operational stuff and are positioning themselves financially to benefit from the move towards geothermal.
At this point, though, it looks like it could go either way.
Disclosure: Author’s fund is long ORA as of 5/30/07.
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Written by: Aaron Katsman | May 29, 2007
By Aaron Katsman
IsraelNewsletter.com
With Sunday’s call of “gentlemen start your engines,” the summer driving season began. As is usually the case, the cost of gas at the pump rises and the beneficiaries are the refiners as well the actual owners of the pumps used to fill up your tank. Alon USA (ALJ) refines and markets petroleum products, operating primarily in the South Central, Southwestern and Western regions of the United States. They own and operate four sour and heavy crude oil refineries in Texas, California and Oregon. The combined refineries throughput for the first quarter of 2007 averaged 124,615 barrels per day. When you drive up to a 7-Eleven to fill up, there is a good chance that if you are in Texas or New Mexico, that it’s operated by Alon. They are the largest supplier of asphalt in California and Arizona, and the number two supplier in Texas.
Speaking of asphalt, the company is experiencing higher than expected demand for it and we have yet to hit the main summer paving season. They are running at full production for diesel products which have higher margins than their gasoline counterparts. Jeff Morris, Alon’s President and CEO, said, “We are pleased with the increased earnings achieved in the first quarter resulting primarily from our California refineries and related asphalt assets acquired last year. Our integration of the California refineries and asphalt business is progressing according to plan and we look forward to increasing profit contributions from these operations.”
With a PE of 12.2 versus an industry wide average of 15.5, price to sales of 0.5 versus industry average of 7.7, and with net margins a full 1% higher than the industry average, the stock is trading cheaply in relation to the competition. That being said, Alon stock has risen almost 50% since the beginning of the year, so the question remains how much more upside is there? Keep in mind that in the last two summers the stock performed very well until September. More importantly, this could be used as a defensive play, if things heat up on the geopolitical front (something that is a very real possibility especially in the middle-east) and the price of crude spikes. Just like last summer, if this were to happen the overall market would sell off, but energy plays with the likes of Alon USA could prove very fruitful.
Disclosure: Author’s fund is long ALJ as of 5/28/07.
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***
Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Written by: Zack Miller | May 28, 2007
We’ll be speaking more about Veraz (VRAZ) in upcoming articles but I thought this piece was particularly good. Jefferies & Co. writes about the VoIP Industry from the ground up. This will help in understanding why VRAZ may be the best pureplay out there on the VoIP industry.
VoIP and Softswitching Networks: A Technology Primer
Media Gateway – Media gateways are the basic building blocks of a VoIP network. Media gateways process voicestreams and convert traffic between traditional TDM and VoIP networks…switching traffic from one network protocol to another. Media gateways interface with the legacy network and also connect end user devices to the VoIP network.
Softswitch – A softswitch (sometimes called a media gateway controller) handles call control (setup andtermination) and signaling. Softswitches are software based, residing on network servers. Softswitches perform routing for a call within the network based on signaling and customer database information.
Signaling Gateway – A signaling gateway is used to transport/convert signaling traffic from a SS7 network to an IPnetwork and vice-versa. Within a VoIP network, signaling gateways provide call control functionality and service processing, working in conjunction with the media gateway and softswitch.
Media Server – A media server is a specialized device (hardware/software) supporting applications such as Interactive Voice Recognition (IVR), speech recognition, conferencing, and video processing. Softswitches and/or application servers control media servers.
Feature/Application Server – A feature or application server is used to support advanced services (such asconferencing, unified messaging and call forwarding) within a VoIP network. Third-party vendors can build customized applications using feature servers.
Written by: Zack Miller | May 27, 2007
By Zack Miller
Web 2.0 is awash with advertising-driven revenue models. Answers.com (ANSW) has grown quickly on the back of numerous trends: meta-dictionaries, blogging, aggregation and what I like to refer to as the Google Effect: stand back in awe and watch the after-effect of some good Google love. For the unitiated, Answers receives much of its traffic from the ‘definition’ link where Google currently links (in an informal, non-contractual way) to Answers’ pages for definitions based on a list of trigger words.
Looking at average daily queries growth (the average of how many searches are conducted on Answers.com), we see impressive numbers. Traffic has grown 88% when comparing Q1 of 2007 over Q1 of 2006.
Web publishers tend to use the RPM metric (Revenues per thousand web pages served) as a measure of success in monetization effort and Answers is making good strides: 35% growth in RPM this quarter versues first quarter 2006. Things are looking good. While RPM growth is strong, it’s clearly lagging query growth. I’d like to see this catch up.
And that’s the rub.
The interesting thing here though is that while Answers.com’s content model is very much Web 2.0, its revenue model isn’t. Ad sales models are built on old-school principles: buy low, sell high. Admittedly, Answers needs to ramp up its sales efforts and execute. Managing a sales team is good for the business but is definitely not sexy. It costs money to hire good talent and takes even more time to manage them efficiently.
I won’t even get into the reliance on Google for traffic and monetization efforts. Google has Answers by the proverbial short-hairs and perhaps may eventually take them out. Until then, I’m nervous that Google plays such a crucial role in bringing the eyeballs and then monetizing them.
I love Answers’ service. My kids and I use it for book reports, science experiments (my daughter wanted to put an iPod in Coca Cola), and just good research. From my perch, Answers is now a show-me stock dependent on the good graces of Google and the execution of a sales team.
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