technology opportunitymedia.angelnexus.com/pdf/tao/tao-april2015-1k0.pdf · adept technology...

April 2015

TechnologyOpportunity

&

April 2015 Issue

1


&

In this month’s issue:

• Deep-Sea Rovers

• Flexible Factory Robots

• Portfolio Updates

• Position Adjustments

Oceaneering International, Inc. (NYSE: OII)

It’s been over a year since we first began covering robot/artificial-intelligence stocks and adding them to the Technology and Opportunity portfolio — summer of 2013 to be exact.

Since then, we’ve traded in and out of several robot stocks, including Intuitive Surgical (NASDAQ: ISRG) for a 25% gain, AVT, Inc. (OTC: AVTC) for a 136% gain, and Rocket Fuel Inc. (NASDAQ: FUEL) for a 32% gain.

Likewise, FANUY and IRBT are both still in the green, 44% and 2% respectively...

We’ve also had some losers, including Hansen Medical (NASDAQ: HNSN) and Perceptron Inc. (NASDAQ: PRCP), but we were able to cut those losses to no more than a single digit apiece.

This is one of the core principals we follow — cut your losing plays and let the winners run. After all, many of these tech plays are high-risk, high-reward. They’re either going to lift you up or drag you down to the depths if you buy and hold forever.

Speaking of the depths below, many of you have been asking about deep-sea rover company Oceaneering International, Inc. (NYSE: OII) recently. Specifically, everyone seems to be itching for a buy:

What’s up with OII? Still waiting on the rec...— Chris G.

Lots of volume on Oceaneering. What’s going on?— Bernard P.

Should I just forget about the ROVs then?— Trisha M.

April 2015 Issue

2


&

For those of you who have been on the file since November of 2014, you know we actually issued our first buy recommendation on OII at that time. Unfortunately, the play was poorly timed, as spot prices for oil saw their steepest decline in years almost immediately following the November issue.

As a result of crashing oil prices, all things energy-related got punished by the market — not just oil drillers, but solar and industry service providers like Oceaneering as well.

With oil plummeting as hard as it was, we were forced to cut our losses on OII almost immediately. We sold the stock in the following December issue at $60.00 and watched it fall as low as $48.65 by March.

Here was our thought process at the time of the sell:

Not much to be said here other than that we’re removing ourselves from exposure to the oil market right now. We may enter back into OII at a later date, but falling prices are too big a threat for a production-dependent business. Sell OII at current market prices

Since the beginning of 2015, though, oil prices have stabilized. There’s no doubt production will be cut, but the market has already priced this in.

The biggest takeaway from recent price action is that the drastic declines in spot prices we saw at the end of 2014 are over and done with. But don’t just take my word for it...

April 2015 Issue

3


&

Fitch Ratings (one of the three nationally recognized statistical rating organizations) is calling for $70 oil by the end of 2015 and $80 moving forward. Here’s what head of oil and gas research Alex Griffiths had to say:

Whichever way the price goes, there will certainly be multiple bounces and overshoots in both directions. We think fundamentals justify $80, because that’s the marginal cost, but markets can move away from the marginal costs for a period. We’re talking about relatively rapid recovery later this year as shale production flattens out. There’s also a traditional seasonal demand pick up of about 1.5 million barrels per day from Q2 to Q3.

The futures market holds a similar outlook and is also predicting a recovery for oil, albeit at a slower pace than what Fitch is predicting:

Now, to be frank, I’m not an expert when it comes to oil — my expertise is in tech, not crude — which is exactly why I look to experts like those over at Fitch for wisdom. If these experts say the price of crude is going up, we can only trust they have something to back it up.

April 2015 Issue

4


&

With that being said, now looks like a good time to get back into OII. Yes, the company will face some headwinds through 2015, but the bear sentiment surrounding that fact has already been reflected in the 33% sell-off we saw beginning in November.

OII is now trading at a trailing P/E of just 14.23, making it one of the cheaper stocks on the market.

The stock is coming off a double bottom and is now breaking through a W pattern, which, technically speaking, is a good sign.

We’re buying Oceaneering International (NYSE: OII) under $60.00. Our price target is $85.00 on a two-year time horizon.

Adept Technology (NASDAQ: ADEP)

As I already mentioned above, we first began adding robot and AI stocks to the Technology and Opportunity portfolio back in the late summer of 2013.

At the time, we had our eyes on an industrial robotics company called Adept Technology, but the recommendation never ended up seeing the light of day.

I’ll explain exactly why that’s the case in just a moment, but here’s a screenshot from December 2013 and an article link from October 2013 just so you realize I’m not making any of this up.

http://www.techinvestingdaily.com/articles/industrial-robot-investing/318

April 2015 Issue

5


&

Now, I’m not sharing this with you to make you guys feel left out or even to prove these conversations were actually happening. What I really want you to understand is why we didn’t buy what was literally the best-performing robot stock at the time.

Here’s a follow-up conversation from March 2014:

Now, I’m not sure whether or not my colleague actually ended up selling, but I sure hope so...

As you can clearly see from the chart below, the ADEP bubble did indeed pop in late March. In fact, the stock topped out on March 21, just three days after our conversation:

April 2015 Issue

6


&

Of course, I could sit here and pretend like I’m some kind of stock-Nostradamus based off that call, but I’m going to offer a little more modesty than that.

The truth is, I feared ADEP was forming a bubble by the end of 2014, which is why I never ended up recommending (or even mentioning) the stock to paid subscribers in the first place.

The reality is that even if you like a company, sometimes you need to be patient. The easiest way to lose money in equities is by getting caught up in all the hype, and a lot of folks ended up getting crushed by all the excitement surrounding ADEP.

The basic philosophy here is that while you can never time the markets precisely, you can often sense elation from buyers and panic from sellers.

We didn’t buy back in late 2013/early 2014 because elation was palpable at the time. We’re buying today, though, because panic has clearly set in.

Before we get to the recommendation, here is some actual information about the company and where it stands today:

Adept Technology (NASDAQ: ADEP)

Adept Technology is an unusually small industrial robot manufacturer, sporting an $80.8 million market cap. For comparison, our other industrial robot play — FANUY — is currently valued at $53 billion.

As for growth opportunity, this makes Adept one of the most (if not the most) compelling reward plays in the robotics industry. As you’ve already noticed by looking at the chart above, this baby can move fast...

As was made apparent in the conversation posted above, one thing I like about ADEP in particular is a “model of versatility.” That is, ADEP has a broad product line of robots, as well as robots capable of performing a diverse number of tasks.

Specifically, Adept provides what’s called flexible automation (in contrast to hard- or fixed-automation), meaning its robots can quickly and easily be re-tasked (re-purposed) to meet evolving product design.

Here’s a brief explanation and chart to explain the benefits of flexible automation, courtesy of private robotics company Cross:

April 2015 Issue

7


&

By being able to adapt and re-task on the fly, you can keep production cost fixed whether you are manufacturing a small batch of parts or a large run of parts. This is becoming critically necessary for many US based producers to compete in a low-volume marketplace.

The graph below demonstrates the value that a flexible solution can bring when compared to fixed automation and manual production. If you look at the Return on Investment for a Fixed solution, it only makes sense for low mix production (i.e. making the same part over and over). Once production goes to medium / high mix, manual labor prevails. This is something that has kept many facilities from automating in the past:

What this means is Adept is particularly suited for businesses with dynamic and ever-changing product lines. By building robots that can be re-purposed, Adept allows its customers to:

• Meet product changeover requirements

• Accommodate short product life cycles

• Future-proof operations

• Keep production costs flat by eliminating the need for custom tooling

As for the company’s product line, I’ve decided the most practical thing to do is first link you guys to Adept’s product video and brochure page, as well its YouTube channel. These visuals will do a much better job of explaining exactly what the company’s robots can do and how they look in action.

http://www.adept.com/component/content/article/3/165-adept-live-at-intersolar-showhttps://www.youtube.com/channel/UCz6chRnXNAtCT4R4Sa15G8g

April 2015 Issue

8


&

If you have the time, I highly recommend checking the videos out — they’re informative, entertaining, and only about two minutes apiece.

Mobile Robo

Now, I’m not going to get into every model, but I will tell you which product line I find most compelling here, and that’s mobile robots.

Some of you may remember back in 2012 when Amazon acquired robotics company Kiva Systems for the insane price of $775 million (nearly 10 times the current value of ADEP). The company made mobile transportation robots used for warehouse picking. Quite simply, Kiva robots bring inventory directly to the factory worker, drastically increasing efficiency in shipping efforts. Here’s one lifting a shipping pod and routing it to its destination:

Now, for Adept’s Lynx Autonomous Intelligent Vehicle (AIV):

April 2015 Issue

9


&

Look familiar? Well, Adept has an entire line of mobile platforms and mobile transporters like this designed for manufacturing, warehouse, and laboratory environments.

The Lynx platform is capable of carrying 60kg, or just a little over 132 pounds. This is significantly less than what Kiva’s bots can handle, but keep in mind many companies don’t require the same kind of heavy lifting as Amazon.

Unless you’re moving this much product every day, you probably don’t need 900 pounds of carrying capacity:

An Amazon Warehouse

Even so, Adept does plan to penetrate this market soon. Here’s what CEO Rob Cain had to say about the company’s future plans in major warehousing:

Longer term, we plan to launch a larger scale mobile robot product platform that is capable of resolving material handling constraints and much larger applications.

This product will utilize Adept’s control architecture of true autonomous navigation and will serve existing markets with a much larger capacity. We will begin testing those products with strategic partners in Q4 (2015).

As for recent traction with this specific line of mobile robots, new customers signed last quarter include:

• A large Chinese multinational networking and telecommunications equipment

April 2015 Issue

10


&

company

• One of the world’s largest eye care companies in Europe

• A global top 10 CPG (consumer packaging) company

In total, Adept last reported 34 customers, a third of which are Fortune 500 companies. Most of these companies are still in a pilot phase, which is why if you look at the numbers alone, it would seem as though Adept is struggling to grow.

But right now, it’s not just about boosting revenue. Adept is an incredibly young company with fresh product lines — it has to develop relationships before it begins launching entire fleets.

Adept considers a fleet to be ~40 robots. Right now, only one of its customers has deployed a fleet, meaning the company is sitting on 33 potentially lucrative pilot programs.

Company Confidence

Despite the market’s recent beat-down of Adept, the company seems to be reflecting quite the opposite sentiment. You always have to take anything that comes from the horse’s mouth with a grain of salt, but certain actions can help you tell whether or not a company is full of it...

One of these actions, of course, is insider buying. Over the last six months, insider purchases of ADEP are up 33.6%. This includes purchases from Rob Cain (Adept’s CEO), AWM Investment Company (a 10% owner), and Austin W. Marxe and David M. Greenhouse (10% owners).

With Cain in particular putting his money where is mouth is, we can take statements like this pretty seriously:

We are cautiously optimistic about the second half of the fiscal year. Our Mobile business is moving forward and we are signing new customers and we expect to sell fleets to our existing installed base in the coming quarters.

I’m usually very cautious of rhetoric that comes from company officers during earnings calls, but when you listen to Cain, you’ll find he’s pretty straightforward. Here’s him responding further to a question about where the pilots are going, how big they will be, etc.:

I think on one hand, when I look at myself as a customer I probably would want 10 to 15 depending on the size of my facility. But that’s not a number you can model. We’ve got clients that are looking for much higher than that. We’ve got clients that will probably only buy one or two and be very satisfied with that. We have a

April 2015 Issue

11


&

great showcase account in the middle of the United States, that’s a manufacturing facility. They have got one that’s totally changed their manufacturing plan, and that may sound silly, but it demonstrates our technology. They plan to buy one more and they’re finished. That’s a fine win for us as long as we don’t take too much time for it. So, with this audience I’m very hesitant to throw out a number because I do not want this team to go back through and say you have 34 clients and times X amount and that’s the number. That will not work that way at all. We’ll have very large fleets. We’ll have medium size fleets. We’ll have smaller fleets and we’ll have onesie-twosies kind of organization. We’re directing our sales force at large to medium size fleets, and there is no excuses to come with that, with the targets we’re giving them.

This is what I call a no-bullshit CEO. I personally like this kind of officer because over time, these are the kinds of guys who build confidence in the investor pool. It also obviously helps us make projections more accurately, as we can take guidance seriously.

Official Recommendation:

Over the last 14 months, we’ve watched share prices of ADEP fall from nearly $22 to just over $6 a share. The sell-off has cooled down over the last two months, and it’s starting to look like this is about as good a discount as we’re going to get.

Of course, there’s no way to call an exact bottom, but we sure can get close. Here’s to hoping this reversal call on ADEP was as good as the last:

We’re buying Adept Technology (NASDAQ: ADEP) under $7.00. Our one-year price target is $15.50.

April 2015 Issue

12


&

Portfolio Snapshot and UpdatesNot too much news this month, as most of our positions are between earnings right now. There will be a few calls and releases coming up, though, so make sure to keep an eye out for those.

If you’re new to the file, I’d recommend checking out the portfolio section of our March issue, as we reviewed a fair amount of earnings last month

Alliance Fiber Optics (NASDAQ: AFOP)

Snapshot:

Alliance Fiber Optics provides a broad range of fiber-optic components and modules essential to the communications industry.

Fiber optics are hair-thin wires made of glass or plastic that send digital information by transmitting light signals. These fibers are bundled together to form miles of optical cables. The majority of AFOP’s revenue comes from fiber-optic connectors used to link these strands of fiber together.

Updates:

No news this issue, besides an update on AFOP’s first quarter conference call, which will take place at 4:30 p.m. EST on April 22. As always, it’s your right and privilege as an investor to take place in this call. You can dial in at 877-675-3572 using reservation #20387216. You can also access a webcast of the call right here: http://investor.afop.com/events.cfm

For those who don’t have the time to participate, keep an eye out in next month’s issue for commentary on the call.

Ambarella (NASDAQ: AMBA)

Snapshot:

Ambarella manufactures system-on-a-chip (SOC) solutions that enable a variety of technologies including wearable cameras, video security solutions, sports cameras, and video broadcasting. Its chips are what enable GoPro’s cameras to record 4K ultra HD video up to 30 frames per second (or 1080p at 120 fps) at a fraction of the power and storage of its rivals.

Updates:

Last month we talked about Xiaomi’s new GoPro “knock-off,” pointing out that the company, like Go-Pro, is turning to Ambarella for its SOCs. This month, we have yet another likely addition from Garmin International’s (NASDAQ: GRMN) first-generation “action-cam.”

Garmin’s new camera, known as the Virb, is believed to also make use of an Ambarella SOC,

http://investor.afop.com/events.cfm

April 2015 Issue

13


&

albeit a less powerful one than those used by GoPro and Xiaomi.

In any case, the message has become increasingly clear: Ambarella is the go-to shop for video SOCs. I wouldn’t be surprised to see a bidding war for this company in the near future, but let’s try not to speculate too much...

Anika Therapeutics (NASDAQ: ANIK)

Snapshot:

Anika develops products for tissue protection, healing, and repair. The company’s products are based on a naturally occurring polymer called hyaluronic acid (HA). Our bodies use HA to enhance joint function, protect soft tissues, and support skin elasticity.

Anika’s viscosupplementation products are used to treat osteoarthritis, correct facial wrinkles, aid in ocular surgery, and prevent post-operative internal adhesions. Anika receives marketing support from major drug manufacturer Johnson & Johnson (NYSE: JNJ).

Updates:

No company news or updates this issue.

Corning Inc. (NYSE: GLW)

Snapshot:

Corning Inc. manufactures high-quality ceramic and glass material for consumer and industrial applications. The company is best known for its incredibly durable Gorilla Glass, commonly found in consumer devices such as smartphones and tablets.

Updates:

No major news this issue besides the acquisition of iBwave Solutions, a player in the “in-building wireless network design market” (I know, it’s quite the mouthful). Essentially what that means is a company providing products, services, and networks deployed for seamless indoor Internet coverage.

Now, I’ll be honest and say I have no input yet as to why Corning made this purchase. Not only was there no reason mentioned in the press release, but I’m having a difficult time figuring out how the iBwave could compliment Corning’s current product line.

All we know right now is that iBwave will operate as a wholly owned subsidiary and report to Corning’s Optical Communications business segment. I’ll keep an eye out for more information and let you know what I find.

April 2015 Issue

14


&

Drone Aviation Holding Corp. (OTC: DRNE)

Snapshot:

Drone Aviation is a developer and supplier of unique and specialized aerial solutions to the U.S. government, state municipalities, and commercial entities. The company makes tethered drones that provide a direct connection from a host vehicle on the ground to the drone in the air. This design offers sustained battery life and real-time input/feedback. The result is a longer-flying, more responsive drone.

Updates:


Fanuc Corporation (OTC: FANUY)

Snapshot:

Fanuc Corporation is a leader in industrial robotics, with a product lineup that includes factory automation systems, laser cutting, motion control, and compact motors. Fanuc serves a wide range of industries including aerospace, agriculture, construction, metal forming, and automotive manufacturing.

Updates:


Intel Corporation (NASDAQ: INTC)

Snapshot:

Intel Corporation designs, manufactures, and sells integrated digital technology platforms worldwide. It is the single-largest provider of semiconductors by revenue. It operates through PC Client Group, Data Center Group, Other Intel Architecture, Software and Services, and “All Other” segments.

Updates:


InTEST Corp. (NYSE: INTT)

Snapshot:

INTT is a semiconductor capital equipment company, which means it manufactures machines used in the production of electronic components.

April 2015 Issue

15


&

The semiconductor capital equipment industry can be divided into two classes: front-end and back-end. The front-end involves silicon wafer and computer chip fabrication. The back-end involves assembly, packaging, and testing.

inTEST works on the back-end of this cycle, providing automatic test equipment (ATE) used by semiconductor manufacturers to test their integrated circuits and wafer products.

Updates:


Iridium Communications Inc. (NASDAQ: IRDM)

Snapshot:

Iridium is a global communications provider. The company offers the world’s most extensive voice and data service through a fleet of next-generation low-orbit satellites.

Updates:

No news this issue besides an update on the release date for IRDM’s first quarter results. The company plans to release results on April 30 and hold a conference call shortly after at 8:30 a.m.

As always, it’s your right and privilege as an investor to take place in this call. You can dial in at 877-334-1964 using the call ID 6425004. You can also access a webcast of the call right here: http://investor.iridium.com/events.cfm

For those who don’t have the time to participate, keep an eye out in next month’s issue for commentary on the call.

iRobot Corporation (NASDAQ: IRBT)

Snapshot:

iRobot is an American robotics company that serves the consumer, medical, enterprise, and military industries. iRobot’s product functions range from home cleaning to telecommunication to various military operations. iRobot currently generates the vast majority of its revenue from its Home Robotics division.

Updates:

iRobot will hold its first quarter conference call to review first quarter 2015 financial results and provide outlook for 2015 on Wednesday, April 22 at 8:30 a.m. You can dial in with the number 630-652-3042 using passcode 38036249.

As always, we’ll recap the results come next issue.

April 2015 Issue

16


&

NXP Semiconductors N.V. (NASDAQ: NXPI)

Snapshot:

NXP specializes in near-field communication (NFC) technology. NFC allows for wireless communication between devices at very short distances with increased security. The technology is being used in public transport, event ticketing, home health care, patient identification, interactive museum exhibits, contactless credit cards, and as hotel keys, just to name a few markets.

Updates:


Oceaneering International, Inc. (NYSE: OII)

Snapshot:

Oceaneering International provides engineering services and hardware primarily to customers operating in marine environments. The company’s services are marketed to oil and gas companies as well as the aerospace and construction industries. The company receives the bulk of its revenue from ROVs and Subsea Products.

Updates:

See above for our take on Oceaneering this month.

OPKO Health, Inc. (NYSE: OPK)

Snapshot:

OPKO Health is a mid-stage biotechnology development and medical diagnostics company. OPK has a deep drug candidate pipeline spanning from kidney disease to cancer treatments. It also provides a revolutionary diagnostic test known as the 4Kscore, used in prostate cancer screening. The company’s proprietary diagnostic technologies allow doctors to keep blood-based tests in house rather than outsourcing to outside laboratories.

Updates:

CEO Dr. Frost looks to have an eye on cancer immunotherapy company MabVax Therapeutics (OTC: MBVX). The companies just closed a $12 million private placement round, allowing MabVax to fund its pipeline and providing OPK with a significant stake.

As for the biotech, I’ll let Frost explain:

The target for MabVax’s first novel human antibody addresses important medical problems in need of better therapeutic solutions. The early data for its HuMab 5B1

April 2015 Issue

17


&

antibody are encouraging and MabVax has a pipeline of dozens of novel antibody leads on its discovery platform from which it may select promising candidates to develop through clinical trials.

I’ve yet to give MabVax a thorough look, but for right now I’m going to place confidence in Frost’s long history of successful strategic holdings in this space.

Rubicon Technology, Inc. (NASDAQ: RBCN)

Snapshot:

Rubicon is an electronic materials provider that develops, manufactures, and sells monocrystalline sapphire and other crystalline products for light-emitting diodes (LEDs), radio frequency-integrated circuits (RFICs), optoelectronics, and other optical applications. The company’s products include two- to six-inch sapphire cores for use in LED applications and into components, such as lens covers for mobile devices.

Updates:

No new updates this issue aside from the appointment of Christine Richardson, PhD, as Rubicon’s new Chief Technology Officer (CTO). Rubicon seems to have poached Christine from GT Advanced Technologies, the other sapphire producer, which recently got screwed by that deal with Apple. We’re betting Rubicon will be making use of Christine’s experience over at GT to further penetrate the consumer device market.

Science Applications International Corporation (NYSE: SAIC)

Snapshot:

SAIC helps governments integrate technologies by providing full life-cycle services. This includes but is not limited to hardware engineering, program management, training and simulation, cloud computing services, software design, and logistics/supply chain support.

At its core, SAIC is a company that leases talent. The company has ~13,000 employees, 68% of who are deployed to customer sites. Its value rests primarily in this talent base and the relationships it’s built with clients over the years.

Updates:


Universal Display Corp. (NASDAQ: OLED)

Universal Display provides materials and licensing for a new form of electronic display known as organic light-emitting diode (OLED), which is thinner, lighter, and more responsive than

April 2015 Issue

18


&

traditional displays. OLED displays also offer better visual properties such as higher contrast ratios and increased viewing angles.

Updates:


Vivint Solar, Inc. (NYSE: VSLR)

Snapshot:

Vivint installs residential solar systems for customers through long-term (20-year) contracts at relatively lower rates than their average utility bills. Unlike SolarCity, which expands to business and government customers, Vivint is solely focused on the residential market. The company uses old-fashioned door-to-door tactics for sales.

Updates:

Mark Trout will officially be coming on as Vivint’s Chief Information Officer (CIO). Coming from eBay and Accenture with over 20 years of experience as a business IT exec, you can trust Trout will be a good fit for the company.

Technology and Opportunity Copyright © 2015, 111 Market Place, Suite 720, Baltimore, MD 21202. All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Technology and Opportunity does not provide individual investment

counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized

legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question. Unauthorized reproduction of this newsletter or its contents by Xerography, facsimile, or any other means is illegal and punishable by law.

18

technology opportunitymedia.angelnexus.com/pdf/tao/tao-april2015-1k0.pdf · adept technology...

Documents