In my third quarter newsletter I stated the following: We are now in the midst of one of a large valuation gap (difference between a company’s market capitalization and its revenue/profit potential); We are very optimistic, and patience will be rewarded.
Working successfully with Goldberg Capital Management (GCM) requires the following: trust in our judgment, extreme patience (3-10 years) and absolutely NO thinking about trading in and out of stocks due to fiscal cliffs, short-term tax considerations, random acts of violence, daily news/noise, etc. I cannot control the macro environment but DO attempt to influence the micro (individual stocks). The greatest traits that GCM brings to the client table are patience, rational behavior, and skepticism. I am definitely a skeptic, but not a cynic. A skeptic is one who demands evidence before accepting facts, unlike a cynic- who dismisses them beforehand. My investment goal in 2013 is to remain a skeptic but never become a cynic.
When I purchased approximately 6% of the Uni-Pixel (UNXL) Corporation in 2010 at $5.00 per share, I was confident, yet skeptical, and was geared to be patient, yet impatient. Let’s be honest – Who doesn’t want their investment to triple the day they buy it? This is human nature, and I’m not exempt. But that’s wishful thinking (I can daydream with the best of you) and not rational behavior. This kind of stuff happened in the late nineties when all a company had to do was put a .com after its name. With UNXL, I knew that we were very early and that it would take time (2-7 years) to reach its full potential. I knew that we had to sit back, be patient and continue our research with skepticism. Just because we made the large financial commitment in NO WAY means we’re right or that the job is done. The hardest thing to do is make a large commitment then seek out negative information. It is also human nature to deliberately surround oneself with positive information after making a large financial purchase (The theory of Cognitive Dissonance). Bottom line?– Keep the blinders off! Fear the unknown!
The recent UNXL news and stock movements have been mostly positive. On December 10th (2 years to-the-day since our initial investment), they announced that a large PC manufacturer (name not disclosed) will be sourcing next generation touch screens from Uni-Pixel. This was historic! Months prior, they announced collaborations with Texas Instruments and N-Trig – two very important companies in the touch-screen industry. UNXL is now moving from an R&D company (research & development) into a production company. Trust me, this is no easy feat. But nothing happens without some controversy. Two weeks ago, an English company, named Carclo, announced a lawsuit for contract infringement. Although we believe the lawsuit is without merit and a feeble attempt to slow UNXL down, it is a reality that must be faced. Expect revenue to ramp quickly beginning in the second quarter of this year. We will continue our intelligence gathering with skepticism. Also, expect price volatility now that the day traders have gotten hold of it.
Several of our companies did not fare as well as UNXL did in 2012, yet their future prospects look very promising.
WHITE MOUNTAIN (WMTM)– (refer to our 1st quarter 2012 newsletter in our website for the full write-up) The bad news is that it has taken a year longer to complete the Final Bank Feasibility Study (complete engineering and business analysis of the mine and processing capabilities) and WMTM will require additional financing prior to completing the study. These are the major reasons for the 2012 price decline. On the positive side, the demand for titanium and the price per ton continues to increase, and WMTM may be the only known TiO2 mine coming on-line over the next few years. Management also expanded the scope of the study to include previously unexplored acreage on the property. This might result in a 50% increase in annual production vs. what was originally planned for.
With a multi-billion resource in the ground ($4 billion+?), the current market-cap is less than $100 million. Even if the company borrows another $10 million, it should not affect the long-term prospects for a company that might produce 200,000 tons per year (in a few years) and sell a ton between $1,000 to $1,500 for a 20+ year mine life – (200,000 tons X $1,000 price/ton) = $200 million per year of (potential) revenue. Hopefully, the feasibility study will be completed by the third quarter of 2013. A long-term mindset is still of the essence!
ZBB Energy (ZBB)– focuses on the design, development, and manufacture of advanced energy storage solutions and power electronic systems. If you want to watch a fun video, put this in your browser – http://www.youtube.com/watch?v=Z94dIntsutA and look for the ZBB product on the island. ZBB is on the cutting edge of storage solutions that could eliminate such things as heavy polluting diesel generators in the third-world. I believe it’s a smart investment in the earths’ future, particularly as it relates to the smart-grid. The stock got hammered in 2012 mostly due to their poor financing deals and revenue taking longer to ramp, but this company has a very bright future. They have a rich patent portfolio and just might be a company that is in the right place at the right time. At .33c, and a market-cap of approximately $20 million, it’s a give-away. They have an international partner to further develop zinc bromide battery storage, and Cummins Corp. recently selected ZBB’s technology for its hybrid motor system for their bus market. ZBB will be addressing very large markets over the ensuing years.
Intermap (ITMSF)– Five + years ago, investor relation firms were trying to convince me that Intermap was a good investment at $7/share. I balked because of the management team, the market they were pursuing (automotive) and the too-high stock price/market capitalization. Several years later, I bit at a much lower price, albeit, too soon. Today, there is a new management team (turnaround specialists), the workforce has been significantly reduced, and they are now selling their information and making money. Intermap gave up on the big markets (auto) and is successfully approaching and selling to smaller market niches. The turnaround is in progress and I’m liking the results thus far. Years ago, the company spent over $125 million to capture elevation /topographical data (using radar on jets) in the U.S., Western Europe, and selected countries in Asia. No other company in the world has this type of data, so they are in a very unique position. Of course this assumes that someone actually needs the information that they have collected and formatted. I believe there is a lot to be bullish about. Recently signed client contracts validate the usefulness of their data. At .35c, the company’s market cap is approximately $30 million or 1X revenue, sales have been increasing, and the balance sheet has greatly improved.
What do these three companies have in common? They are in the State of Missouri – SHOW ME!
Other small companies that GCM owns and expects to do well in 2013 are: Telecommunication Systems (TSYS), Dot Hill (HILL), Hudson Technologies (HDSN), InContact (SAAS), and Acadia Healthcare (ACHC).
Health Corner ….. Go Fish – Canadian researchers found that Omega-3s reduce toxin levels that cause vision loss in old age. Eat fish such as tuna or salmon twice a week or take a EPA/DHA supplement. For the past 15+ years I have taken a daily dose of Ultimate Omega from Nordic Natural. Take a Break – Staring at a screen can suppress your blink reflex, which can result in eye dryness. Plus, reading at a close distance raises your risk of nearsightedness over time. Every 10 minutes, look away from the screen for 5 seconds and gaze at something far off. This relaxes your ciliary muscles, which help your eyes focus. Keep the Caf – In some people, caffeine increases tear production, which can ease tired eyes according to a recent study in the journal of Ophthalmology. Some people noticed a difference after just 1 cup.
Lastly, remember the 50-50-90 rule: Anytime you have a 50-50 chance of getting something right, there’s a 90% probability you’ll get it wrong. Happy new year and please stay healthy this winter.
Goldberg Capital Management is an investment adviser registered with the State of CT Department of Banking. This Newsletter and its contents are for informational and educational purposes only. You alone will need to evaluate the merits and risks associated with the use of the information provided herein. Although this Newsletter may provide information relating to approaches to investing or types of securities and other investments you might wish to buy or sell, no information provided in this Newsletter is intended or should be construed as an investment recommendation or endorsement from Goldberg Capital Management. Please remember that past performance is no guarantee of future results.