Author: AllenCaron

As world economies edge toward recovery while job creation remains on the sidelines in many places, one of the industry sectors that may be attracting more attention is defense and homeland security.  In a consumer-driven recovery with strong job creation, the focus may be different, but at this point the companies that stand to do business with sovereign governments are looking increasingly intriguing.  Many of those companies are multinational giants, of course, and many are controversial for one reason or another.  But there are good smallcaps too, and we’ll have a look at some of them in this article. 

As a backdrop at a time when the US is waging two hot wars, it may surprise many people to know that as a percentage of GDP, defense spending, though not at an alltime low, is far from a historic high.  Ira Machevsky provided a concise analysis and chart about 18 months ago to show graphically what that means: http://thenumbersguru.blogspot.com/2008/10/defense-spending-as-percent-of-gdp-1940.html, and the conservative think-tank, The Heritage Foundation, seems to concur: http://www.heritage.org/budgetchartbook/Defense-Spending-on-the-Decline-Despite-War-on-Terror.aspx.

Heritage Foundation Chart on Defense Spending as a Percentage of GDP

For an investor interested in the defense and homeland security sectors, the SPADE Defense Index could be helpful: http://www.spadeindex.com/components.php.  It is a capitalization-weighted index of 50 stocks in the space, but tends to be heavy on the bigger companies.  It is listed on NYSEArca as DXS. 

We never recommend stocks; we just write about interesting companies.  Please do your own diligence. 

But in terms of world hot-spots, the geographic band that runs between, say, Tripoli and Bali (not precisely, but you get the picture) is an area that is dealing with defense against insurrection and terrorism, as well as regional, ethnic and/or religious clashes that are the continuance of many decades or even centuries of conflict in some cases.  This creates a situation where defense and defense intelligence is increasingly important.  Have a look at Covington KY-based Valley Forge Composite Technologies (OTCBB: VLYF, http://www.vfct.com/).

VLYF announced on Friday that their THOR LVX imaging systems have been listed by the government of Malaysia to be used in scanning shipping containers for such contraband as explosives, narcotics and radioactive materials (http://finance.yahoo.com/news/Valley-Forge-Composite-prnews-1400008836.html?x=0&.v=1).  Considering that shipping containers worldwide are seldom checked for anything at all in spite of their super-abundance, investors may conclude that the VLYF technology has a potentially lucrative outlook.  That seemed to be the case on Friday, when the stock moved up 10% to $2.62, vs a year-low of $0.10 (there should be some corks popping somewhere) on very strong volume of more than 400,000 shares.  Market cap is about $143 million.

Also uptrending strongly is Cleveland OH-based Hawk Corp (Amex:HWK; http://www.hawkcorp.com/), which makes “friction” products (like brakes) for aircraft and various types of land vehicles, including military and heavy construction, as well as some fuel-cell components.  HWK shares closed Friday at $19.39, vs a year range of $9.31 – $20.27, for a current market cap of about $160 million on slightly puny trading of about 23,000 shares.

Or look at Edgewood NY-based CPI Aerostructures (Amex: CVU; http://www.cpiaero.com/), which makes a wide range of aircraft parts and subassemblies for the US Air Force and other part of the US military.  CVU will be presenting at the Roth Conference in Laguna Niguel next week, and enthusiasm for its shares were evident on Friday, when the stock closed up 4% at $7.16 on unusually high volume of 74,000 shares.  Their yearly range is $3.70 – $8.30, for a current market cap of about $43 million.

Also worth a peek is Eatontown NJ-based Emrise Corp* (NYSE Arca: ERI; http://www.emrise.com/), a maker and purveyor of OEM products for military, defense and other applications in electronics and communications.  Currently one has to note that there is a problem to be solved at Emrise with regard covenants on its credit line, but the company continues to receive a flow of military orders, including one announced last Thursday: http://finance.yahoo.com/news/EMRISE-Corporation-Receives-bw-3764689376.html?x=0&.v=1.  ERI shares staggered after news of the credit situation last year, and were trading at $0.61 on Friday at the close, vs a 52-week range of $0.52 – $1.70.  Volume is low, because the next big date in the credit situation is in June.  That said, revenues seem to be growing and gross profit going up.

Fairfax VA-based Argon ST (Nasdaq: STST; http://www.argonst.com/) is another interesting company that may not be on too many radar screens.  It is a jack-of-all-trades in the electronic warfare business, and we don’t have nearly enough space here to list the areas from navigation and geolocation, to threat simulation, to underwater acoustic systems.  Looks a bit like a “Company” partner, but the stock trades ok, with 50,000 shares changing hands on Friday, closing at $25.72 vs a 52-week range of $17 to $26.50, and a market cap of about $560 million.

And if you like the values offered by good cross-border companies, have a look at Brisbane, Australia-based Metal Storm (http://www.metalstorm.com), which trades on the ASX under the ticker symbol MST, and OTC in the US under the ticker MTSXY.PK.  The OTC listing is an ADR, and has been trading better than a lot of cross-border ADRs.   MTSXY has a proprietary “stacked technology” that allows projectiles to be fired from a multiple-barreled weapon (MAULtm) whose ignition has no moving parts.  The government of Canada is a recent buyer (http://finance.yahoo.com/news/Metal-Storm-to-Deliver-MAULTM-iw-618012473.html?x=0&.v=1), and Metal Storm has an office in Arlington VA within kissing range of the Pentagon.  The ADR closed Friday at $0.29 against a 52-week backdrop of $0.27 – $0.90, so there may be some room there.

*client of Allen & Caron, publisher of this blog

One of the high points of the greentech year is coming up March 4-5: CleanEquityMonaco (http://www.cleanequitymonaco.com) in the picturebook-lovely city of Monte Carlo.  Interestingly enough it is not a costly conference to attend, probably because it has very distinguished sponsors, and probably worthwhile even for Americans to fly to.  The conference has arranged very attractive hotel rates, a fraction of what one would expect on the Riviera, and quite reasonable flights can be found from the Northeast to Nice (which is the airport for Monaco as well).

Monaco Harbor from the Old City

CEM is a meetingplace for people with new and significant green technologies of all types, and from all over the globe.  There are several plenary meetings set, and some very distinguished guest speakers as well.  Awards for the best technologies and best commercializations will be made by Sir Stelios Haji-Ioannou and HSH Prince Albert II.  The conference coincides with an annual meeting of the United Nations Environmental Programme (UNEP) and green technocrats from all over the world will be in town at the same time.

But the real show are the new technologies themselves.  The publisher of this blog, Allen & Caron (http://www.allencaron.com) is working with the conference organizers on a pro bono basis, and we have admired the arrangements as they have been made over the last 6-8 months. 

Loopwing Wind Turbine from Japan — meet them at CEM March 4-5

For obvious reasons, the largest category of new technologies will be in the field of alternative energy: solar, wind, new fuels, etc.  But there will also be environmental technologies that run the gamut.  The sponsor and organizer is London-based Innovator Capital (http://www.innovator-capital.com), a boutique investment bank and financial advisor with a devotion to environmental causes, and there will be investment bankers prowling around looking for clients, as well as technocrats from big multinationals looking for acquisitions and partnerships.  Many of the companies that are showing new technologies are not listed or publicly traded, and quite a few are really post-academic, though all have demonstrated proof of what they claim to be able to accomplish.  All are scrappy, feisty, fearless and have new mind-bending ideas.

Some “hot” publicly listed companies will also be presenting, including Shanghai-based China Energy Recovery, Oak Park MI-based Azure Dynamics, Torrance CA-based Enova Systems, Oxford UK-based Oxford Catalysts, Southboro MA-based Protonex, Cuxhaven Germany-based PNE Wind, Perth Australia-based Enerji Ltd,  and Griesheim Germany-based BGI EcoTech.

Jigar Shah, CEO of The Carbon War Room

The keynote speaker will be Jigar Shah, CEO of The Carbon War Room(http://www.carbonwarroom.com) , a noted authority on renewable energy, and the founder of SunEdison, which has more megawatts of solar energy under management than any other company in the world.  Mr Shah is an alumnus of BP Solar, a DOE contractor on fuel cells and alternative energy, and a member of several boards, including Greenpeace USA and the Prometheus Institute. 

Sir Stelios Haji-Ioannou

Sir Stelios will introduce the Next Wave segment of new technologies on the second day of the conference.  He is best known for having founded EasyJet, a leading lowcost airline that has revolutionized European travel, but he is also the founder of several other companies.  His Stelios Philanthropic Foundation is devoted to environmental sustainability, education and entrepreneurship. 

We highly recommend that you consider attending.  The cost is reasonable and the technology rewards potentially earth-changing.  Some of these concepts will completely reorder the way you see the world.

Someone has to get all that money, right?

That’s one possible take on what has become a global phenomenon: the stimulus program as a response to a struggling national or regional economy. In his State of the Union address, January 27 this year, President Obama discussed a second US stimulus package, on top of the $787 billion (Recovery Act) pledged during 2009. China has presented a $587 billion stimulus plan, which represents 20 percent of its GDP. Other governments around the world are following suit.

Lord Foster's Viaduc de Millau — very high-profile infrastructure project

One working assumption is that the bulk of the stimulus money will go to construction projects, particularly the “shovel ready” projects focused on infrastructure—roads, sewers and water treatment systems, bridges, schools, hospitals and public buildings. And President Obama stressed his preference for “green” projects, including “smart” electrical grids and energy-efficient buildings.

Money Morning noted that global infrastructure spending could reach $35 trillion over the next two decades (http://moneymorning.com/2009/02/05/infrastructure-stimulus-2). According to some analysts North America will spend $180 billion on infrastructure each year, Europe will spend $205 billion, Asia will spend $400 billion and $10 billion will be invested in Africa annually. If you still need convincing, here is a worldwide inventory of infrastructure spending plans (http://www.international.gc.ca/canadexport/articles/90121h.aspx).

Back to who will benefit, particularly small caps. How about global cement and engineering-related companies such as Texas Industries (NYSE: TXI), or Michael Baker (NYSE Amex:  BKR), U.S. Concrete (Nasdaq: RMIX), Sterling Construction (Nasdaq: STRL), Orion Marine Group (NYSE: ORN) and also an international cement engineering company doing most of its business that is outside of the USA: KHD Humboldt Wedag (NYSE: KHD). 

Texas Industries (NYSE: TXI, http://www.txi.com), at a market cap of about $940 million, engages in the production and sale of heavy construction materials in the United States. TXI operates in three segments, cement, aggregates, and consumer products.  It serves the public works, residential, commercial, retail, and industrial and institutional construction sectors, as well as the energy industry. TXI traded Friday at $33.97 vs a year-high of $47.33, with average volume of nearly 300,000 shares

Michael Baker (NYSE: BKR, http://www.mbakercorp.com/), at $350 million market cap, provides professional engineering and consulting services for public and private sector clients worldwide. Its markets include aviation, defense, environmental, facilities, geospatial information technologies, homeland security, municipal and civil, pipelines and utilities, transportation, and water.  The company offers various design and related consulting services, including program management, design-build, construction management, consulting, surveying, mapping, geographic information systems, architectural and interior design, among other services.  BKR was trading Friday at $39.46, vs a 52-week high of $44.67 on average volume of 47,000 shares per day.

U.S. Concrete (Nasdaq: RMIX, http://www.us-concrete.com/), is small at $39 million market cap, but customers include contractors in commercial and industrial construction, street and highway construction, and other public works and infrastructure. RMIX produces and sells ready-mixed concrete, precast concrete products, and concrete-related products in the United States. Its products include ready-mixed concrete; stone, sand, and gravel aggregates; building materials, such as rebar concrete block, wire mesh, color additives, curing compounds, grouts, and wooden forms; concrete masonry; and other products and tools used in the construction industry.  RMIX was trading at $0.91, vs a year-high of $3.15, probably reflecting a their substantial loss as of Sept 30, 2009 on a significantly lower revenue level, reflecting financial conditions that may have ameliorated somewhat since Sept 30.  RMIX trades nearly 700,000 shares a day on average.

Sterling Construction (Nasdaq: STRL, http://www.sterlingconstructionco.com/), at $300 million market cap, has a customer list including county and municipal public works departments, regional transit and water authorities, port authorities, school districts, and municipal utility districts. STRL is a heavy civil construction company and, through its subsidiaries, engages in the building, reconstruction, and repair of transportation and water infrastructure. Its transportation infrastructure projects include highways, roads, bridges, and light rail; and water infrastructure projects comprise water, wastewater, and storm drainage systems. The company also provides general contracting services.  STRL was trading at $19.50 on Friday, vs a 52-week high of  $20.99, on average volume of about 125,000 shares per day.

Orion Marine Group (NYSE: ORN, http://www.orionmarinegroup.com/), at $500 million market cap, has customers including federal, state, and municipal governments. Orion services the heavy civil marine infrastructure market. They provide a range of marine construction and specialty services on, over, and under the water along the Gulf Coast and the Atlantic Seaboard, as well as in the Caribbean Basin.  ORN traded at $19.00 on Friday, up 6.5%, on average volume of 300,000 shares and a market cap of 508 million.

KHD Humboldt Wedag* (NYSE: KHD, http://www.khdhumboldt.com/) is poised to split into two separate companies, pending regulatory and shareholder approval.  The current company at $400 million market cap., has a cash-heavy balance sheet, an operating business in engineering & construction (E&C), and a royalty stream from the mining and sale of iron ore at a mine in Newfoundland.  The company intends to spin out the E&C operation in a one-for-one distribution to shareholders, and to change the name of the NYSE-listed company to Terra Nova, which will become a royalty-centered company with intentions to broaden its royalty portfolio.  The cash split has been proposed as $113 million to Terra Nova and $295 million to the spinout of the E&C company.   The E&C company designs and develops plants and machinery for producing cement, largely in developing economies such as India, south Asia, the Middle East, and the former Soviet Union, with some customers in the governmental sector and others in the private sector.  KHD traded at $12.84 Friday, vs a year-high of $16.10, on volume of 275,000 shares per day, and a market cap of $389 million. — M Lucarelli

*client of Allen & Caron, publisher of this blog

The second week of January found San Francisco, once again, abuzz with folks engaged in the business of medicine. The 28th annual JP Morgan Conference held the spotlight, packing the Westin St. Francis tight and the OneMedPlace and OneMedTV (www.onemedplace.com, www.onemedtv.com) crowds held court in impressive fashion across the way at the Sir Francis Drake Hotel.  A repeated nod to Brett Johnson who has constructed his OneMedPlace organization out of whole cloth and in a few short years has entered the consciousness of the industry.

From high level, the theme of this year could have been, “Things are Clearly Better – Right?” Many conversations held that thought or some close derivative as banker after banker expressed optimism, but couldn’t exactly put a finger on why. An unscientific sampling of private companies found that that those with the best VC pedigrees are finding funding while those with second tier sponsorship or that may have fallen behind original development schedules seem to have been forsaken by the system. A “down round” seems to be the best possibility for this group and many have either taken very expensive strategic money from large corporate players or have simply gone dark.

While the IPO market is still expectant (but not delivering), smaller banks seem to be doing deals at a good pace. The deal machine at Rodman & Renshaw chugs along at a good pace and regional players seem to have accelerated their deal flow as well.  Craig Levine, a banker at Chardan Capital Markets (www.chardancm.com) indicates that their deal flow – both financing and strategic – is picking up in Asia and the US.  In speaking to management teams in atendance, it seems that the anticipation of a better financing climate is leading many bankers to suggest shelf registrations for their small public targets.  This could be as much a marketing move to lock up a relationship as anything, but the shelf idea seems to have fresh legs this winter.

Despite the absense of hard evidence, the pall that hung over the 2009 version of the events has lifted and the players are smiling – we will have to see if the dollars follow the mood.

In these months of winter, after the gourmandising of the holiday season, the mind occasionally turns to fitness and recreation.  The smallcap market offers a variety of opportunities in the area, and the sporting-goods industry has been on an upswing recently as well.  According to Yahoo! Finance, this group of companies was among the biggest gainers as the market swooned late last week: http://biz.yahoo.com/ic/316.html.

NLS Elliptical Trainer — full-body aerobic workouts

One of the strongest gainers was Vancouver WA-based Nautilus Group (NYSE: NLS: http://www.nautilus.com/), which has just completed the sale of certain of its assets related to health-club equipment to a Chinese buyer.  NLS will concentrate its efforts on retail and direct-to-consumer channels of its well-known Nautilus, StairMaster, Bowflex and Schwinn brands.  The fitness industry has been through well-publicized ups and downs, but the goodwill of brands such as those that NLS holds continue to be attractive to investors.  NLS enters 2010 with a  balance sheet clean of longterm debt, and an announced expectation of a $12 million income-tax refund this month.  Sales are down, as one might expect, from 2008 (the latest numbers are for the September quarter and nine months), but NLS remains profitable, and it has those golden names, some of which are almost as generic as Kleenex and Xerox.  The stock closed Friday at $2.54, a bit off its 52-week high of $2.96, but up more than 20% on the day, with volume of well over 400,000 shares.  NLS market cap is about $80 million; with revenues at about $135 million for the 9 months, the ratio of sales to market cap may be attractive, especially considering the stronger balance sheet and continuing profitability.

Please keep in mind that we do not recommend stocks or investments; we only write about companies that we find interesting or neglected.  Do your own diligence.

PingPong is the brand; table tennis is the Olympic sport name

NLS is not the only one with big names that have become standard vocabulary for most of us.  Consider Evansville IN-based Escalade Inc (Nasdaq: ESCA; http://www.escaladeinc.com/), which owns the brand that opened China to the west: PingPong (I grew up thinking that was the name of the game, which is more properly called table tennis).  But PingPong is not the only asset of this diversified smallcap, which also makes products for basketball and archery, among other Olympic sports.  And to counter any cyclicality, ESCA also has an office products division making hole-punches, paper-folders & shredders and other everyday desktop appliances, sold under established brand names like Mead Hatcher and Martin Yale.  ESCA shares also closed at $2.54 on Friday, but they were off a bit (3%) on the day, and down from a 52-week high of $3.44.  ESCA results for the 9 months showed a bounceback to profitability, an acceptable current ratio, and negligible debt.  With revenues that look to end the year at well over $100 million, ESCA’s market cap is about $32 million, and its daily volume is paltry (under 10,000 average).  But neglected companies like ESCA may provide some buoyancy in suitable portfolios.

Big Bertha: One of the best-known names in golf

From relatively unknown ESCA, we turn to one of the best-known sporting-goods companies: Carlsbad CA-based Callaway Golf (NYSE: ELY: http://www.callawaygolf.com/), which burst upon the golf scene with one of the biggest names to hit the sport: Big Bertha.  Today’s Callaway tends to group its clubs under names like Diablo and Odyssey, but Big Bertha is still an anchor product.  ELY closed Friday up a tad at $8.39 vs a year-high of $9.40, and on volume of well over 1 million shares.  Analyst Scott Swanson from Crowell Weedon expects ELY to perform well in 2010, in spite of a downer 2009: http://finance.yahoo.com/news/Senior-Analyst-Picks-Callaway-twst-242778719.html?x=0&.v=1.  The market cap is about $540 million, and not missing a trick, Callaway is expanding into India: http://online.wsj.com/article/SB10001424052748704586504574653832561623744.html?ru=yahoo&mod=yahoo_hs.

Poway CA-based Aldila Inc (Nasdaq: ALDA; http://www.aldila.com/) is also a golf play, although primarily known for club shafts made from space-age carbon fibers, resins and such.  Its latest new brand is Voodoo, definitely something that some golfers would engage in if that’s what it took to shave a few points off the old score.  Although it is an old and well-established name (founded in 1972), ALDA shares closed Friday slightly up at $3.98, vs a year-high of $5.95.  That reflects a yet-to-turn-around P&L that looks from the 9-month results to show revenue in the $45 million range or so for the year, with a fairly modest loss, although its latest balance sheet shows a strong current ratio, which may mean staying power.  Expense-cutting seems to be taking effect.  Market cap is about $21 million (a little less than half annual revenues), and daily trading volume is low.

Humminbird fishfinder from Johnson Outdoors

Finally, we might look at Racine WI-based Johnson Outdoors (Nasdaq: JOUT; http://www.johnsonoutdoors.com/), which is primarily a camping/fishing/snorkeling type of company, but with some fairly high-tech approaches (GPS for fish-finding — yeay).  JOUT is on a non-calendar year, and announced sales of  $356 million for 2009 in November, with a loss that is about 1/7th of what it was the year before.   Current ratio is better than 2:1, and JOUT says it has restructured its borrowings to significantly decrease interest costs in 2010.  The shares closed Friday at $10.69, nearly flat on the day, vs a year-high of $11.47, and a market cap of a little over $100 million, less than a third of sales.  Volume is very low, under 4,000 shares per day.

Over the years we have worked with numerous marine transport companies, and have found the industry in general to be both interesting and, from time to time, significantly over- or undervalued.  One thing cannot be denied: the largest method of intercontinental transport is on the oceans and seas.  According to Yahoo! Finance, marine transportation is one of the “industries on the move” these days: http://biz.yahoo.com/ic/775.html.  Not surprising, and some of the gains are impressive.

Putting aside passenger lines, which are largely recreational, there are basically three large international categories of marine transport companies: (1) tanker companies, which carry “wet” cargoes that are often energy-related, as in crude oil or refined petroleum products, but could also be cooking oil or a variety of other liquid cargoes; (2) dry-bulk companies, which, as the name implies, carry dry cargoes of a wide variety, such as grains, scrap metals, coal, or ores; and (3) container companies, which carry anything that can be put into a standard freight container.   There are also some smaller categories, such as companies that carry compressed gases like LNG; or companies that operate vessels with a limited geographic range, such as barges, tugboats and riverboats of various kinds.

Most of the publicly listed marine transport companies are in one (or sometimes more) of the 3 main categories: tankers, dry-bulk, or containers.  The industry is further divided into companies that lease their vessels for lengthy periods (long-term time charterers) and those that lease their vessels for shorter times or even for short terms or for individual trips, pricing their services on the spot market, which fluctuates depending on demand.

Like the real estate market, the marine transport industry tends to follow boom-and-bust patterns.  In good times they over-build new vessels, which tends to create an over-supply of carrying capacity that sends rates down.  Put simply, when there are lots of carriers with empty ships,  rates go down.  We seem to be just coming off the bottom of one of those cycles, when “new-buildings” flooded the markets based on the boom shipping rates that prevailed at the beginning to the middle of the last decade.

Also like the real estate industry, when there is an over-supply that causes a rate plunge, some of the weaker companies can be forced out of business, which may create an even larger surplus of vessels as fleets are liquidated.  At the same time, there tends to be an increase in retiring older vessels, which are typically stripped and moored off countries like Bangladesh, where they are eventually cut up for scrap if all goes according to plan.

It was not until fairly recently that many marine transport companies were publicly traded.  Most were  privately held, many of them by Greek or Italian or Scandinavian owners, frequently multi-generational families.  But the large US investment banks “discovered” shipping companies as major users of capital, and flooded the industry with cash.  Then traditional commercial banks doubled up the cash available with debt leverage, since the equity spigots were flowing to make the balance-sheet ratios work.  One of the main results has been that there are now a wide variety of small-cap shipping companies whose shares may well be of interest to buyers familiar with the vectors that affect the business.

We do not recommend stocks; we just write about companies we find interesting.  Do your own diligence.  None of these companies is a client of the publisher of this blog.

One company that pops up on lists pretty regularly is Athens-based Diana Shipping (NYSE: DSX; http://www.dianashippinginc.com/). With its relatively conservative balance sheet, Diana’s stock has more than doubled since December 2008, when it hit a low of $7.24 — as of Friday, shares closed at $16.09, vs a 52-week high of $19.00, and trading volume exceeds 2 million shares per day.  Diana is a dry-bulk company, and anyone interested in dry-bulk shipping should become familiar with the “Baltic Dry Index” or BDI, which publishes rates for cargoes of various sizes daily.  A recent article in thestreet.com labels Diana a “winner,” quoting Cantor Fitzgerald analyst Natasha Boyden on the effects of heavy iron-ore buying in India as one of the influences: http://www.thestreet.com/_yahoo/story/10655224/1/dry-bulk-shipping-winners-genco-diana.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA.

The other winner mentioned in that Yahoo! Finance article is New York-based Genco Shipping & Trading (NYSE: GNK; http://www.gencoshipping.com/), a newish company (2004) that operates 30+ ships (the largest of them are all named after Roman emperors) in the dry-bulk trade.  As of September 30, 2009, their earnings stood at $3.62 per share, although Genco used more cash in “investing activities” than it generated from operations, which is a good indicator that they see good deals afloat.  Their fleet is a combination of new and used vessels, with a predilection for sister ships (which are generally thought to simplify maintenance issues).  GNK shares closed Friday at $25.68 on average volume of nearly 2 million shares, and a market cap of about $815 million.

Bermuda-based Knightsbridge Tankers (Nasdaq: VLCCF; http://www.knightsbridgetankers.com/) is on the “wet” side of the business, as the name indicates.  It is much smaller than Diana or Genco, and owns 6 vessels; it had earned $0.74 per share as of 9-30-09, and the balance sheet showed a precipitous drop in cash, especially considering its short-term liabilities (look for yourself).  At any rate, the shares closed Friday at $14.96, down from a year-high of $17.16, but up $0.93 on the day, on volume of 111,000 shares and a market cap of about $256 million.

Hong Kong-based Seaspan Corporation (NYSE: SSW; http://www.seaspancorp.com/) is a container-ship operator which announced the delivery of its 43rd vessel on January 8 (it has 25 more on order), which are typically chartered for long periods at fixed rates to big shipping companies like Maersk, Hapag-Lloyd and Mitsui.  Seaspan reported revenue for 9-30-09 of $207 million, actually a significant increase over 2008 (unusual in this industry), and says it has arranged for all the capital needed to complete the build-out of its intended fleet.  SSW shares closed Friday at $10.28, with a 52-week high of $13.07, but up $0.48 or nearly 5% on the day on heavier-than-normal volume of 477,000 shares.  Its market cap is just shy of $700 million, but one should endeavor to understand its issuance of preferred shares prior to making an investment decision.

There are many publicly listed shipping companies, but we will close this article with a glance at Athens-based Euroseas (Nasdaq: ESEA; http://www.euroseas.gr/), with a fleet of 15 vessels, 6 of which are dry-bulk carriers, with the remainder being container vessels, with a clear preference for long-term charter deals.  ESEA is much smaller than the other companies in this article, with a market cap as of Jan 8 of $133 million.  Its 9-month revenues of $47 million were just higher than its previous-year net earnings for the same period ($43 million), with profits for the 2009 9 months of $700,000 — but net income for the third quarter by itself was $2.2 million, which means things were trending up fairly strongly at least last fall.  ESEA shares closed Friday at $4.32 vs a year-high of $6.31 on average daily volume of 110,000 shares — but the shares were up $0.26 on the day, a gain of more than 6%, which reflects a gain in enthusiasm for the company and possibly the industry, at least on January 8, 2010.

Jon Pareles has written a perceptive history of the MP3 player and its impact on the music business on the front page of the Arts & Leisure section of Sunday’s New York Times: http://www.nytimes.com/2010/01/03/arts/music/03tech.html?ref=music.  Although the technology and device are just over 10 years old, practically speaking, the levelling effect on the industry has been significant.  I have read that of all music sales, digital downloads only account for 15%, but that doesn’t take into account all the illegal downloads and file-swaps.  I have friends who buy CDs, translate the music to gigantic MP3 directories, and then give the CDs away (they take up a lot of space, after all); if that practice is as widespread as I suspect it is, then the “MP3 effect” is broader than just digital downloads too.

Meanwhile, Aaron Cohen’s article on “Reinventing the Music Business” takes a slightly different look at MP3 and how artists ought to view the opportunity: http://www.allbusiness.com/entertainment-arts/music-industry/13632876-1.html.  One angle discussed is that MP3 downloads ought to be viewed by artists as an opportunity for self-promotion, allied with social media outreach directly to the audience they want. 

This article about U2’s Bono is one of many artist statements of worry about downloads and file-sharing: http://www.thedailystar.net/newDesign/news-details.php?nid=120335

Clearly the 800-pound gorillas in this field are iTunes, Amazon and now WalMart, none of which is the sort of company we look at in this blog.  And there are file-sharing companies like Napster and its peers, where the rights of artists or labels have in the past not been as important as volume, to put it mildly.  But there are some smaller companies, public and private, that may be of interest.  First up might be NYC-based The Orchard Enterprises (Nasdaq: ORCD; http://www.theorchard.com/), which has adopted the strategy of buying licenses and copyrights to largely older music libraries, and redistributing them, with the largest outlet being iTunes.  They acquired the former Digital Music and a significant library of oldies-but-goodies, and also has deals with some current artists, some films, and some indies.  The market is not showing great enthusiasm for ORCD, which is chugging along at about $62 million in revenue, with gross margins in the range of 24% to 26%.  The shares closed out 2009 at $1.64 vs a 52-week high of $3.49 on very low trading volume, for a total market cap of about $10 million, and that is in spite of a fairly sizeable “catalog” of music (and quite significant losses).  It may be that the market likes to see higher visibility than The Orchard has achieved, or that their exposure to the whims of distributors like iTunes and Amazon are a inspiring caution.

Seattle-based Real Networks (Nasdaq: RNWK; http://www.realnetworks.com/) is not a pure play in music downloads, but it has a significant subsidiary, Rhapsody (http://www.rhapsody.com) , that is an up-and-comer, selling its tunes on a subscription basis, not unlike the business plan that NetFlix follows with movies.  RNWK shares closed 2009 at $3.71, with a 52-week high of $4.48 and a market cap of an even half-billion dollars, on average volume over 660,000 shares per day, but the bulk of the business is not Rhapsody.

Please keep in mind that we do not recommend stocks; we only write about companies we find interesting.  Please do your own diligence.

Privately held Denver-based Beatport.com concentrates on indie artists, remixes and club music, and has been building its business since January 2004.  Financials are not available.  http://www.beatport.com.

New York and Los Angeles-based Masterbeat Corporation* (OTCBB: GRNN; http://www.masterbeat.com) is one of the new kids on the block.  It announced last week that it has reversed into a public shell and its shares are now eligible to trade.  No financials have been published yet, but clearly there will be disclosure coming for year-end prior to March 15, 2010.  The Masterbeat website lays claim to 4 million song titles licensed from major labels, including a dizzying variety of club-music dance remixes of major artists like Rihanna and Mariah Carey.  Masterbeat CEO Brett Henrichsen is a noted DJ (as well as an IBM veteran), and the site seems to be downloading at the rate of about 40,000 songs per month, on virtually no direct promotion.

Finally, Milan-based Buongiorno SpA (http://www.buongiorno.com) is a download company specifically targeted on mobile-phone users.  It has trailing 12-month revenues in the range of € 270 million (about $385 million).  A large piece of that is ringtones, games, video and even wallpaper, but the first category listed by them is music, which would make them a noteworthy supplier, with a presence globally.  Buongiorno trades on the Borsa Italiana STAR segment under the ticker BNG (BNG.MI on Yahoo! Finance).  Its shares closed 2009 at €1.16 on hefty volume of over 500,000 shares per day. 

*client of Allen & Caron, publisher of this blog

The Nasdaq Composite closed yesterday at 2252 the highest it has been since just after Labor Day 2008.  The Dow Jones Industrial Average closed at 10,465, within 100 points of its 52-week high.  Whether these have been fueled by a Santa Claus rally, or by the perception of a genuine recovery will be a subject for the history books one day, but for now, we know that there are some particularly bright areas in the market — and one of them is business software. 

Please note that we do not recommend stocks; we just write about companies that interest us, and perhaps bring ideas to the attention of our readers.  Do your own diligence. 

Leaving aside the Nasdaq giants, there are more than a handful of small-cap software companies that have been strong performers in the most recent legs of this move upward.   One might start by looking at Chelmsford MA-based Datawatch Corp (Nasdaq: DWCH; http://www.datawatch.com/), which serves more than 35,000 customers globally with products including its Monarch data mining and report-generating software — which helps businesses make sense of piles of data that is meaningless without the organization that software can bring to it.  DWCH closed at $2.49 on Tuesday, with a 52-week range of $0.77 to $2.79.  DWCH is a super-light trader, so it might take some intrepid trading skills to put together a position.

On the other side of the US, there’s Novato CA-based Sonic Solutions (Nasdaq: SNIC; http://www.sonic.com/), which helps businesses create and manage digital media (think video and other non-character-based files) across a variety of platforms.  Well-known brands include Roxio, CinePlayer, PhotoSuite and Popcorn, among many others.  SNIC also sells entertainment content to users.  SNIC closed at $12.23, vs a year-high of $12.82 (and a year-low of $0.57 for a not-quite-Matterhorn-shaped chart, but close enough for most investors), on hefty average volume of more than 400,000 shares.

Dublin-based Trintech Group* (Nasdaq: TTPA; http://www.trintech.com/) develops and markets enterprise software products that help companies stay in compliance with regulations such as Sarbanes-Oxley, and that make it possible for businesses with complex collections to reconcile invoicing and receipts even when discounts intervene to change totals.  Brands include ReconNET and AssureNET, as well as its Unity suite of products.  Primarily providing SaaS and licensing, TTPA is headquartered in Ireland, sells globally, and has almost all its operations in the USA.  TTPA closed yesterday at $3.48 with a 52-week spread of $0.90 to $3.61.  Looks like a 4-bagger to me. 

Sykesville MD-based GSE Systems (NYSE Amex: GVP; http://www.gses.com/) designs and provides simulation software and monitoring systems for electric utilities, both nuclear and oil- or coal-burning.  The products help utilities monitor water temperature in reactors, and a variety of safety factors to help utilities operate smoothly and without creating hazards for the public.  A little esoteric-sounding, but if you are reading this on a computer, you are using electricity, and if you are using electricity, ummmm, well — you get the picture.  GVP closed Tuesday at $4.98, nearer its year-low of $3.58 than its year-high of $8.35 on average volume of over 100,000 shares per day.

Or if you care to cast your eyes to the east, have a look at Herzlia, Israel-based BluePhoenix Solutions Inc (Nasdaq: BPHX; http://www.bphx.com/), which offers IT solutions that help  companies modernize their computer networks.  Their systems will mine for business rules in your legacy software and help you migrate to Linux, Unix, Windows, or .Net.  BPHX closed yesterday at $2.54 vs a year high of $3.97 on volume of about 165,000 shares on average.  BPHX reported flat to slightly down sales for their last quarter, but the bottom line was improved, at least on a non-GAAP basis. 

And if a larger market cap doesn’t scare you away, have a look at Sunnyvale CA-based Blue Coat Systems (Nasdaq:BCSI; http://www.bluecoat.com/).  BCSI provides WAN (wide area network) products that help IT administrators sweep for viruses, worms, spyware, and Trojans, as well as secure connections and sign-ons.  BCSI closed yesterday at $29.07, vs a year-high of $29.39, and average volume of nearly 700,000 shares. 

None of these companies is a household name; all of them have strong cadres of business clients who use their products and trust them.  Doubtless some will grow, some will get stale, and others will get acquired.  For all, there is a distinct market niche and a proven product.  Happy 2010!

*client of Allen & Caron Inc, publisher of this blog.

Well, it’s that time of year: feverish shopping and fevered worrying about retail sales (will they?  won’t they?).  So we thought we’d look at some stocking stuffers — that is, companies that might be in your cross-hairs anyway as you ponder how to be Santa’s helper.  Clearly it’s been a challenging retail season, but we found several that may be low on the radar, and doing pretty well.

It turns out that the worries that this might be what Elvis called a “Blue Christmas” might already be slacking off: retail sales were up 1.3% in November, compared to economists’ expectations of 0.6%.  Look at this report filed on Friday by CNNMoney’s Aaron Smith: http://money.cnn.com/2009/12/11/news/economy/retail_sales/index.htm  Interestingly, according to Smith’s report, the gain owes little to auto sales, which had led the numbers earlier in the fall based on government incentive programs.  It seems that the Great American Shopper is putting his/her toe back in the water.  We suspect that may offer some opportunities for the Great American Stockbuyer as well.

Please note that we do not recommend stocks; we only write on companies that we find interesting.  Do your own diligence.

We all know that a part of Christmas is handmade.  For me that is usually just a matter of baking, but there are many folks handier than I who make all kinds of clever things.  One company that might interest the Martha wannabes is Berlin NJ-based AC Moore Arts & Crafts (Nasdaq: ACMR; http://www.acmoore.com/).  They sell all the things you need for those things you wish you could make: scrapbooks, quilts, sweaters, cookies, wreaths, potpourri, sculptures, macrame and lots more.  They sell in their own branded stores and online.  ACMR sales are not up year-over-year, and they are making losses this year, but their current ratio is about 2:1 and they seem to have a cash warchest.  In addition they have been aggressively marketing this fall, which may stand them in good stead.  ACMR shares closed Friday at $2.60,  less than half their 52-week high of $5.63, on average daily volume of about 90,000 shares.  Market cap is about $65 million, which is a small fraction of yearly sales.

G-III's chic leather outergarments with Calvin Klein labels

But if you’re not the loving-hands-at-home type, you are probably looking for gifts to buy that can just be wrapped and given, and you may already be looking at merchandise that’s made by companies most of us have never heard of.  One is NYC-based G-III Apparel Group Inc (Nasdaq: GIII; http://www.g-iii.com/), which busily stitches leather outerwear garments under a dizzying number of labels, some their own (Andrew Marc, Jessica Howard, et al), but more held under license from Calvin Klein, Sean John, Kenneth Cole, Cole-Haan, Guess, Tommy Hilfiger, Levi Strauss or Ellen Tracy.  Analysts seem unanimous in recommending this stock, and GIII closed Friday at $21.11, near its year-high of $22.25 with average volume of 185,000 shares.  Last week GIII raised its profit guidance for 2010 a hefty amount, and announced that its Q3 sales were up 3.4% when the government was cheering an overall rise of a lot less than that.  Market cap is about $355 million, which looks to be about 25% of 2009 sales — and the company is growing at a pretty good clip.

You may not know Iconix, but you probably have seen this little smiley guy

Likewise NYC-based Iconix Brand Group (Nasdaq: ICON; http://www.iconixbrand.com/), whose merchandise is available in a store near you under brands like Joe Boxer, Mossimo, OP, London Fog, Bongo and Artful Dodger.  Overall a fairly hip image, but a very solid record of performance, with sales up 8% in the difficult third quarter, very healthy EBITDA, and strong  earnings.  ICON closed Friday at $11.78, down a good bit from its year-high of $18.30 on average volume of over 1.3 million shares, and a market cap of about $840 million.

Birks & Mayors watches in 67 stores in Canada & US

But good things come in little boxes, or so I hear.  If you subscribe to that theory, have a look at Montreal-based Birks & Mayors (NYSE Amex: BMJ; http://www.birks.com/), which operates jewelry stores in Canada and the southeastern US under the two monikers of Birks (Canada) and Mayors (US).  Sales are down year-to-year, and losses are up, but BMJ shares closed Friday at $1.26, vs a year-high of $1.80, and a market cap of about $14 million (sales for the 6 months ended September were over $100 million with Xmas season ahead).  Average volume on the stock is low.

Or have a look at Bermuda-based Signet Jewelers (NYSE: SIG: http://www.signetjewelers.com/), which says it is the “world’s largest specialty retail jeweler.”  In the US Signet brands are the highly promoted Kay Jewelers and a relative newcomer: Jared (the man on TV whose GPS threatens to hold him hostage if he doesn’t show her the necklace he bought).  Marketing is where it’s at, and Signet seems to have that down to a tee.  They are also working on the basics, lowering debt, increasing store efficiency, in order to reduce losses and return to growth.  Worth a look.  SIG closed Friday at $25.41, about 20% off its year high of $29.07, with a market cap of $217 million and good volume over 280,000 shares.  Like other jewelers, a huge discount to sales.

Zale Corp is partnered with DeBeers on projects like Shared Heart

But I’d be kidding you if I didn’t say that in some weird way, Zale Corp is also interesting, in spite of widespread doubts about survivability, like this comment on Motley Fool: http://www.fool.com/investing/general/2009/12/11/5-deathbed-stocks.aspx.   Irving TX-based Zale (NYSE: ZLC; http://www.zalecorp.com/ operates nearly 2,000 stores and shows nearly $1.8 billion in sales with gynormous losses.  Their current market cap of $104 million reflects the sentiment, and the shares closed Friday at $3.25, vs a year-high of $8.51 — good volume though.  They sold Bailey Banks & Biddle, and have linked arms with DeBeers on some new “Big Ideas,” including the “Shared Heart” collection.

And if none of these works for you — there’s always eggnogg and fruitcake.