Written by: Aaron Katsman | August 31, 2007
Aaron Katsman
www.IsraelNewsletter.com
Labor day weekend signals both the end of summer and back to school. In fact my oldest daughter started first grade today, and if any of you care, she had a great day. But for most of you, in a few days you will be sending your children off to school, and will start having meetings with teachers and hear how much potential your child has. With the recent passing of former NBA coach Butch Van Breda Koff, I am reminded of one of the most classic quotes regarding “potential” that I ever came across. (I am pretty sure he said this; keep in mind, though, it was twenty-eight years ago. If it was someone else, then my apologies.) When a reporter asked him about the potential of a young player who spent most of his time on the bench, Van Breda Koff answered, “potential is a french word meaning that you aren’t worth a damn yet.” I consider myself an expert of sorts on this topic, because all my parents ever heard from my teachers, was that if I would just study and apply myself, I would do great in school. That strategy never worked well for me. Case in point, the night before my class spelling bee in 4th grade. My mother, of blessed memory, and my siblings all were trying to get me to practice spelling, but Monday Night Football was on. To make a long story short, I won the contest without studying. Well, as a tribute to the former coach, and with schools about to re-open, IsraelNewsletter would like to present two stocks that so far have disappointed investors, but are full of potential.
Radvision (RVSN), which specializes in video conferencing over IP and 3G networks, has enjoyed a very cozy relationship with Cisco (CSCO) over the years, and as a result, they produced some nice growth. Unfortunately, while last quarter’s numbers were as expected, Radvision forecast third-quarter per-share earnings of 16 cents, or 23 cents excluding items, on revenue of $25 million. Analysts were looking for a per-share profit of 26 cents on revenue of $26.6 million, so the stock has gotten pummled. Once again we have a company with cutting edge technology that can’t seem to produce consistent numbers. At current levels, the stock looks attractive and, as always, the potential of Cisco buying them out is very real. Keep in mind that Cisco CEO John Chambers recalled that he closed the WebEX acquisition, for $2.9 billion, through a ten day marathon of meetings, which he conducted by conference call using Radvision technology, without leaving his office. Chambers went on to say that he is spared the need to travel so much because of this technology. John, do us a favor and buy them already!
Next comes Metalink (MTLK), who makes WiFi chips for the wireless, digital home. About a month and a half ago they announced that their chipset had received WiFi certified 802.11n draft 2.0 Certification. Since I took physics for poets in university I can’t exectly explain what this means, but I can tell you that this is a very important milestone for the company. It means that they have become the industry standard. Metalink’s Chairman and CEO, Tzvika Shukhman, said, “Over the past two years, we have succeeded in positioning our WLANPlus as the wireless home networking industry’s best-of-breed chipset. The recent certification process started by the Wi-Fi Alliance, followed rapidly by the certification of our WLANPlus chipsets, is a major milestone for the industry and for Metalink. The transition of the market to the 802.11n standard represents a major disruption in the Wi-Fi chipset market. By leveraging on the proven superiority of our technology, the strong partnerships we have established with industry leaders, and the design-in momentum we have established, we expect to become a significant player in this huge market.”
It seems that they should start signing major deals by the end of the 3rd or early 4th quarter, and I would expect the stock, which is 30% off its’ 52 week high to make a strong move to the upside.
Please see our Disclaimer HERE.
Disclosure: Author has a position in RVSN of 8/31/07. Author has no holdings in any other stock mentioned.
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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 | August 30, 2007
For those of us following BigBand Networks (BBND) undulations, we’re trying to get a handle on what’s going on these days. After IPO-ing in March and seeing a strong run-up in shares, the company has seen a fast erosion of its share price, now down 38% since floating.
Astute news junkies will have seen the LightReading articles over the past couple of weeks with some confusing and seemingly contradictory information on the de facto network architecture provider for digital simulcast.
The first article, published on August 24th and entitled BigBand Reduces CTMS Staff, mentions speculation by a ThinkEquity analyst, Anton Wahlman, that BigBand is reducing staff in their Cable Modem Termination System group or, CMTS, in the Boston area. BigBand’s CMTS business accounts for roughly 10% of their total revenues while their bread and butter business, the Digital Video business, accounts for the rest.
In his note, Wahlman said, “This should not be surprising, but perhaps still noteworthy because it does call into question the viability of the CMTS business.” BBND competes with the Arris Group (ARRS), Cisco (CSCO) and Motorola (MOT) in this business and only has about a 10% market share, which seems to be eroding.
On August 28th, another LightReading article was published, this time entitled “BigBand Not Abandoning CMTS” in which the company itself rebuffed such a suggestion that they were squirming out of the biz.
Rather, to answer the question about whether or not BigBand Networks is abandoning CMTS, the answer is, like many other classical Jewish questions, “yes” and “no.”
It sounds like what the company is saying is that while headcount has been reduced in their CMTS group, those bodies have been “[re]focusing those efforts on Docsis 3.0 and an emerging modular architecture (called, M-CMTS) that allows cable operators to scale upstream and downstream capacity independently.”
In other words, BigBand is sticking with an ailing business but repurposing it by trying to find a market it can compete in and not run head-on into Arris, Cisco and Motorola. BigBand will focus its CMTS efforts on Docsis 3.0 and the M-CMTS, which breaks out functions like downstream and upstream capacity and packet processing, instead of packing these functions together in one chassis.
This structure, in essence, pairs together BBND’s Cuda 12000 CMTS with its edge QAM — with the Cuda chassis taking care of the upstream and the edge QAM handling downstream.
What are investors supposed to make of this?
I think it’s a good sign — BigBand is focusing on developing some really interesting technology. This technology, if assimilated into its roster of clients that include 9 of the top 10 service providers (like Cox and Time Warner Cable).
Imagine a cable architecture that allows a user to receive infinite programming, including web content and H-D, on virtually infinite spectrum. Imagine a cable system with the ability to send individual programs and advertisements to users, giving operators the ability to tailor content and advertising packages for individual subscribers.
In sum, BBND is working on the system to co-opt IPTV, Cable Operators’ worst nightmare and most threatening competitor. The stock is cheap based on 2X 2008 revenues and 21x EPS for 2008.
BigBand is currently going through a technology and marketing maturation process and it may take a couple of quarters to start making a Big Bang again. I’m keeping my eye on it.
Disclosure: Author’s fund does not have a position in any of the stocks mentioned here as of 8/30/07.
Please see our Disclaimer HERE.
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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email zack@profile-financial.com
Written by: Aaron Katsman | August 29, 2007
Aaron Katsman
www.IsraelNewsletter.com
With newspapers, TV and radio full of all kinds of Labor Day sales, I thought that it would be a good idea for IsraelNewsletter shoppers to get a heads-up on 3 Israeli stocks selling at discounts that even my wife, Yael, would appreciate.
Can you say 30% off?!
While we are on the topic of my wife and shopping, I would like to say publicly that she did a great job buying new school clothes for my oldest daughter — clothes that my daughter likes (no easy feat) and she did it at a cost that I like (an equally difficult task).
Our first special is an IsraelNewsletter favorite, Comverse Technology (CMVT.PK). In fact, earlier in the day, I was speaking with a well-known analyst who follows the Israeli market and he agreed that his top pick now is Comverse. The stock has continued to get smashed and is 32% off it’s 52 week high. It makes sense that the continued drop is a result of the current market climate regarding how M&A deals are going to get done and many investors who figured Comverse to be “in play” are now worried that a deal won’t get done. Regardless of the M&A angle, the stock is now trading with a market cap of $3.3 billion, and let’s not forget that they still have $1.8 billion in cash, plus the value of their holdings in Verint Systems (VRNT.PK), and Ulticom (ULCM.PK). The stock looks really cheap at these levels and my hunch is that buyers today will be able to fund next years labor day BBQ with their gains.
In Aisle 2 we have Mellanox Technologies(MLNX), a leading supplier of semiconductor-based, high-performance, InfiniBand and Ethernet connectivity products that facilitate data transmission between servers, communications infrastructure equipment and storage systems, who recently had their shares listed on the Tel-Aviv Stock Exchange as well. I mentioned in early July that this would be an interesting trading opportunity. In fact leading up to and shortly after the dual listing, the stock moved up, and then over the last 2 weeks it has come way down as insiders have been selling their shares after the initial IPO lock-up expired. The shares are down over 30% in the last month, but the fundamentals of the company haven’t changed. They have produced 4 consecutive quarters of revenue growth and that trend should continue. I suspect that most of the insiders are done selling and we will see the stock start moving back up.
The last pick is Orckit Communications (ORCT), a leading provider of advanced telecom equipment targeting high capacity broadband services. Why you ask? I know they are losing money, only have 1 real client and keep pushing back announcing when they will add another big client. The reason is that I do believe that at some point they will announce a big deal or two and also I wont be surprised if their big Japanese customer KDDI decides to expand their relationship. They have about $5 a share in cash, and the stock is down 50% from it’s 52 week high. For all you traders out there, the stock has done very well during the 4th quarter over the last 3 years, and with it trading so low, this may be the 4th year of success.
Enjoy your long weekend!
Please see our Disclaimer HERE.
Disclosure: Author has a position in CMVT.pk, VRNT.pk, ULCM.pk as of 8/29/07. Author has no holdings in any other stock mentioned.
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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: Aaron Katsman | August 28, 2007
Aaron Katsman
www.IsraelNewsletter.com
Last week I was speaking with colleague Zack “Facebook” Miller about what to do with someone who I didn’t know who asked me to join his network on Facebook. I came across a great post by Nadira A. Hira about this dilemma that we all face: What to do when someone you don’t really want to be associated with, requests you join them on Facebook or Linkedin. As I was reading her post, my friend Steve called me with an equally troubling issue. “We are all familiar with the NBA officiating scandal, but do you think that there is an objectivity problem with the ref’s in professional wrestling?”
Disturbing question don’t you think?
With all these philosophical questions, I was happy to see that MIND CTI (MNDO), today announced the signing of two large deals in the US. I figured that it’s gotta be a good sign to answer the aforementioned questions, when an e-learning company makes the news!
Well after a little digging it turns out that MIND CTI is a small Israeli company that provides convergent end-to-end billing and customer care product based solutions for tier 2 and tier 3 carriers worldwide. They have nothing to do with e-learning, too bad I guess. As I have mentioned before, when these small Israeli companies start announcing a series of deals, they start to appear on analyst radar screens, and it often portends a nice move to the upside. Many times they are companies either already, or close to being profitable; with small floats and some good PR, off they go.
In the case of MIND CTI they are profitable and made $0.09 for the first half of ‘07. While revenue growth slowed over ‘06, they managed to cut expenses, and actually think that the second half of this year will bring more deals like the ones signed today.
What makes this most intriguing as an investment is that with a market cap of about $49 million, the company has over $35 million in cash, and that is growing. Cash flow from operating activities in first six months of 2007 was $2.2 million.
Monica Eisinger, Chairperson and CEO, said, “We expect to see new wins in the following quarters and we expect to increase our profitability as well.” For investors looking for a small-cap, undiscovered play, this may be an interesting idea.
Please see our Disclaimer HERE.
Disclosure: Author has no position in any of the stocks mentioned as of 8/28/07.
Like what you see? Sign up to receive daily updates from IsraelNewsletter here
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.
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