Relm Wireless Corp. (RWC) has retraced to its 20-day moving average at $3.04.  This comes following an extended run during which an Atlanta-based hedge fund acquired over 1.1 million shares of the stock from March 11, 2013 to May 16, 2013.  The highest price paid by the hedge fund was on May 16, at an average price of just under $3.37.  I believe some short-term investors have taken profits given the stock’s large move, but I expect continued, good news from the company in the coming weeks.

Specifically, the CEO commented on the most recent Q1 earnings call that he is very excited about Q2 prospects Seeking Alpha Q1 Call ,  stating “but the message is when I look at the second quarter, last year second quarter was a great second quarter, our plan is to better that. We want to do better than that and so we are striving for and that we feel really good coming out of the first quarter.”  Last year in the second quarter, RWC reported revenue of $9.3 million and EPS of $0.09.  If the CEO’s comments do come true, RWC likely will have some very significant press releases in the next five weeks announcing new contract wins.  Given my expectation that the stock is still significantly undervalued, a history of strong June seasonality, management’s bullish outlook, the likelihood of contract announcements, a stronger shareholder base, and an approved stock repurchase plan, I like the risk/reward at these prices.  I added to my position today at $3.05 but did not get filled on my whole order.

Privet Fund LP, an Atlanta based hedge fund,  issued a filing today stating that it has acquired 855,779 shares (6.3% of the shares outstanding) of Relm Wireless Corp (RWC) at an average price of $2.25.  RWC’s trading volume totaled 1,986,500 shares during the time the firm disclosed it was buying shares (3/11/13 – 5/7/2013), so Privet accounted for over 43% of the shares traded during the time period.  Not surprisingly, Privet’s first purchase on 3/11/2013 was at an average price of $2.04, while their purchases this week were closer to $2.70.  RWC has been the biggest contributor of gains to my portfolio this year (by a factor of 3x), and now I realize that I owe the fine folks in Atlanta a big thank you!

Separately, RWC released its first quarter results tonight after the close, ahead of an unrevised sell side consensus, and exactly in line (credit given to a sharp pencil) with my previously published preview on this blog.  It doesn’t appear that the company repurchased any material amount of stock following its March 8, 2013 announcement authorizing the repurchase of up $2.5 million in stock by the end of this year.  The investment case remains intact RWC: A Top Pick for 2013 ,but the company will need to deliver additional contract wins for my $7 price target to be realized.

Finally, I performed an analysis of my own trading in RWC during the same 41 days Privet has been involved.  Largely as a testament to the great predictive ability of The PPT‘s Hybrid Scores, I was able to execute several trades around my core position, selling shares at an average price of $2.27 (with an average Hybrid Score of 3.89), and repurchasing shares at an average price of $2.12 (with an average Hybrid Score of 3.39).  In hindsight, how great is it that The PPT helped me to buy low and sell high, at a time when some guy in Atlanta had his finger stuck on the buy button!  I’m a fundamental analyst at heart, but The PPT is a great tool to help you manage positions in a portfolio, and look for new ideas!

 

 

 

Relm Wireless Corp. (RWC) is registering its highest technical reading in The PPT since the scores have been recorded for this name beginning in late 2009.  The stock is up about 40% for the year, and demand for the stock has been rising.  Average daily trading volume has more than tripled since I first profiled the name in December of last year, now approaching 50,000 shares per day.  Three contract wins and a stock repurchase plan announcement in March provide me strong comfort that first quarter results will be solid.  Year over year results will look quite strong, as I expect revenue to grow from $4.4 million in 2012Q1 to north of $7.0 million this year.  I expect earnings of at least $0.03 for the quarter.

Management is continuing to work on ways to increase its market share against Motorola Solutions (MSI) and other competitors such as Harris Corporation (HRS).  With expanded software features on its land-mobile radio equipment, RWC offers a very compelling value proposition to potential customers.  RWC’s radios are compatible with existing infrastructure and can be purchased at a discount to MSI’s competing products.  In a world where budgets are tight but when new radios are needed, RWC’s products make a lot of sense.  RWC’s business model is improving, and the outlook for higher earnings and cash flow is in sight.  I’ll be watching for more contract wins in the coming months and remain optimistic that a $7.00 price target can be achieved as investors recognize RWC’s potential.

 

Relm Wireless (RWC) continues to be an attractive investment opportunity, particularly in light of a recent share repurchase announcement, and a $2.4 million contract win with the U.S. Department of Agriculture/U.S. Forest Service.  On March 8th, RWC announced a plan to repurchase up to $2.5 million of its own stock before December 31,2013.  This is significant to the extent that the company has only 13.5 million shares outstanding, for an equity market capitalization of around $30 million.  Combined with the small daily trading volume, RWC could be a significant factor in creating demand for its own shares in the coming months if it actively tries to repurchase $2.5 million in stock.

Secondly, yesterday the company announced the $2.4 million in new orders from the U.S. Forest Service.  Importantly, RWC stated that it expects to deliver the radios during Q1, or in the next few days before the quarter ends.  I’m forecasting 2013 Q1 revenue of at least $7 million if the entire $2.4 million in U.S. Forest Service orders is recognized.  Gross margins are expected to show further improvement, and I’m forecasting EPS of at least $0.03.

The share repurchase announcement and U.S. Forest Service win provide a strong comfort for me to continue holding the shares of RWC at these levels.  I continue to wait to see if RWC will be successful in taking more market share from Motorola Solutions (MSI).  If/when we reach a point where more mobile radio buyers are more comfortable purchasing Relm’s digital radio products, I continue to think RWC could be a $7 stock.  Stay tuned.  I first bought RWC in August, 2012 and continue to hold the shares.

 

I believe RELM Wireless Corp. (RWC) offers a tremendous risk/reward as we head into 2013.  The market capitalization hardly even qualifies as a microcap at about $23 million, with average daily volume of about $25,000, or 15,000 shares.  However, if the company continues to gain traction and delivers on the opportunities it faces, I think this could be a great momentum stock in 2013, and I can envision seeing the stock with a $7 handle.  Yes, I can build a case where this company is worth close to $100 million, or $7, in the next twelve months.

RELM engages in the design, manufacture, and marketing of wireless communications products in the United States and internationally. Its products include two-way land mobile radios, repeaters, base stations, and related components and subsystems.  Importantly, the company competes against Motorola Solutions ($MSI), the industry giant in the land mobile radio industry.  MSI controls the lion’s share of the $9 billion market for radios and infrastructure equipment.  In order to be successful, RELM simply needs to find additional customers who will consider suppliers beyond Motorola Solutions and a handful of other big companies that compete in the industry.

The abbreviated investment case for RELM is as follows: RWC has a book value of $2.18.  Gross margins are turning higher as the company’s digital radio products gain more traction.  The sales cycle is very long, but the company’s list of “substantial” customers is growing, and repeat business (follow on orders) is common.  Beyond the migration to digital radios, RELM is expanding its market opportunity by providing products beyond its traditional VHF frequency focus.  Trunked radio system sales are also expanding RELM’s estimated market opportunity.  The company is expected to see revenue of around $27 million this year, with EPS of around $0.14 per share.  Looking out to 2014, RELM could achieve revenue of perhaps $40 million, with gross margins approaching 60% and operating margins of around 20%.  EPS could be between $0.35-$0.40 per share.  Assuming the business holds steady at these levels, a discounted cash flow model yields an expected stock price of around $7.

Risks to the RELM story include the fact that cash-strapped cities, municipalities, state and Federal Government agencies account for most of RELM’s customers.  The sales cycle is long, and RELM has to work even harder as a tiny company to convince potential customers that it will deliver for them.  There are many suppliers with whom RELM competes, most of whom are larger  than RELM and possess greater financial resources.

January seasonality has been big for this company.  If you can deal with a stock that only trades 15,000 shares a day, take a look at this name.  I first bought RWC in August, 2012 and continue to hold the shares.

For 2012, I profiled FSI International as my top pick.

http://ibankcoin.com/fastprophet4u/?p=6

I had a price target of $5.80, up 50% from the beginning of the year.  It was a bumpy ride, but in October of this year, the company was acquired for $6.20 in cash.

Lastly, I’ve decided to toss my name in the election hat if the Boss will allow it.  I am confident that I have a lot to offer the readers of iBankCoin and believe that I also will benefit from having a formal platform in which to share my investment thoughts.  I have been an iBankCoin member for 3 1/2 years and a 12631 member since day 1.  I try to leverage all the skills and efforts from the current IBC contributors, with an added layer of my own, in-depth fundamental analysis.  Candidly, I think the reader base could benefit from some additional fundamental research contributions.  I have experience managing small cap institutional accounts, hedge funds, and mutual funds.  I have a documented track record of generating about 1.5x the market return for any given year, with less risk.  If elected, I will continue to highlight attractive small cap investment opportunities for the readers.  I also have some ideas about a leveraged, day trading, cash account designed to showcase the very best ideas iBankCoin can generate.  If you want to learn more, take a moment during your trading day tomorrow and vote for fastprophet4u.

 

 

I continue to own FSI International $FSII ($3.00), stuck with seeing daily selling pressure offset by the fear of selling out at the bottom.  This stock, like many others I follow from a fundamental perspective, is unfortunately telling me that a global recession is on its way.  Never mind the growth opportunities presented by the global penetration of smartphones, tablets, automotive, and the continued move towards smaller geometry devices (28 nm, etc.), the economy trumps all when it comes to the consumption of semiconductors and planned expenditures on semiconductor equipment.

Operating leverage that cuts both ways and the lack of visibility in orders beyond a quarter or so wreak havoc on semiconductor equipment investors when the outlook turns questionable.  At $3.00 $FSII sports a market capitalization of $120 million, with working capital of around $80 million.  I further expect the company will see its cash balance go from $22 million at the end of the February quarter to nearly $50 million as the next two quarters of significant growth are reported and inventory comes down.  Consensus estimates still suggest the company will grow nicely for the next several quarters, with EPS expectations of $0.68 for the August 2013 fiscal year.  It’s tough to sell a stock with those financial characteristics, but until we see some improvement for Europe’s economic prospects and get a better handle on the slowdown in Asia, I will remain a short-term bagholder.

While earnings season always brings surprises, and I often get hit with negative surprises, I also think it can be a great time to generate alpha in one’s portfolio.  I place a heavy emphasis on business trends, supported by balance sheet strength, as well as earnings and cash flow generation.  I have many holdings that I view as being significantly undervalued with an expectation that an upcoming earnings release will be the catalyst to unlock the company’s potential value.  I’ve decided to outline 10 earnings trades over the next two weeks that I intend to play.  To keep it interesting, I am going to invest an equal dollar amount in each trade (1/2 positions on the days there are two earnings reports).

Here are my scheduled trades for the next two weeks.

2/6/12 Buy VSH

2/7/12 Sell VSH

2/8/12 Buy 1/2 RDA

2/8/12 Buy 1/2 IM

2/9/12 Sell RDA

2/9/12 Sell IM

2/9/12 Buy BRKS

2/10/12 Sell BRKS

2/10/12 Buy ORBK

2/13/12 Sell ORBK

2/13/12 Buy UCTT

2/14/12 Sell UCTT

2/14/12 Buy 1/2 IOSP

2/14/12 Buy 1/2 NVMI

2/15/12 Sell IOSP

2/15/12 Sell NVMI

2/15/12 Buy HDNG

2/16/12 Sell HDNG

2/16/12 Buy DTLK

2/17/12 Sell DTLK

 

I’ll report my trades in the comments section and will provide a summary of this exercise after the two weeks is over.

 

FSI International, Inc. (FSII $3.87) designs, manufacturers, markets, and supports equipment used in the fabrication of microelectronics, such as advanced semiconductor devices.  It provides surface conditioning technology solutions and microlithography systems, and support services to the manufacturers of integrated circuits.  While the near term outlook for semiconductor equipment spending is negative, FSII has two specialty products that are well positioned to gain significant traction in the market and drive revenue and profit growth over the next few years.  Both the ORION and ANTARES systems have been in production for the past four years or so, but each is poised to finally see a meaningful ramp in revenue and profit contribution as the large foundries, and logic and memory integrated circuit manufacturers make additional purchases.  In the most recent fiscal year (August, 2011), sales of these two systems accounted for roughly $56 million of the company’s $97 million in total sales.  Samsung Electronics accounted for 27% of the total sales in the most recent fiscal year, which clearly represents a risk given this customer concentration.  It also illustrates the opportunity the company has to sell to the other major customers in the industry, several of whom have purchased a small number of systems to date.

While FSII’s management only provides a financial forecast for the next quarter given the lengthy sales cycle of these products, the optimistic goal is that system sales of these two products could be as high as $120 million, perhaps in the current fiscal year.  Spare parts, service revenue, and sales of other systems could contribute another $50 million in revenue, bringing total revenue to $170 million with estimated earnings per share approaching $1.00.  This compares to current consensus estimates of $118 million in revenue and EPS of $0.24 for the year ending August, 2012.  FSII has strengthened its balance sheet considerably and reduced its fixed operating costs.  With a current tangible book value of $2.33 and no debt, I continue to find the shares to be attractive given the expected order and sales momentum in the coming quarters.  The stock has moved considerably in the past three months, and FSII is a very small company with an equity value of only $150 million.

Given the volatile nature of the semiconductor equipment industry and unattractive long term returns on invested capital, I view FSII as a trading opportunity in 2012 and not a long term hold.  However, with the stock’s inexpensive valuation and my expectation of a strong flow of orders and sales, I think the stock could appreciate an additional 50% this year to around $5.80.  FSII’s small size is clearly a significant risk, both with regards to competing against other semiconductor equipment suppliers and with regards to quarterly results.  I first bought FSII in June, 2011 and continue to hold the shares.