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Archive for September, 2009

iPass (IPAS): Another Attractive Technology Turnaround Investment

September 30th, 2009 by Yehuda Fruchter   |   3 Comments

iPass (IPAS) is another low-risk technology stock, that is trading at a depressed valuation, but I believe is on the cusp of renewed growth. Even more importantly, investors are currently being rewarded for their patience in IPAS with management promising continued cash returns via the payout of excess capital to shareholders.

IPAS is basically a provider of mobile enterprise Internet access. Essentially, companies sign up with IPAS to deliver mobile Internet services for their employees. There are various benefits of signing up with IPAS over a company going at this alone, and interested readers can find out more about the value that IPAS provides at the IPAS website.

On the downside, shareholders of IPAS are protected by a debt-free balance sheet, a recurring revenue business model, an implied dividend yield of 20% plus, and a low EV/Sales valuation, even considering additional cash payouts to shareholders. On the upside, renewed growth and improved profitability, as well as the recognition by more investors that they can receive an over 20% return on their money in this equity by the end of this year, may lead to significantly higher prices for IPAS.

In terms of the implied dividend, it is important to note that IPAS management has committed to a plan to return up to $40 million to stockholders, and is already executing on this promise. Following a special stockholder meeting in August, the company has already paid out the first  $20 million of this cash dividend. iPass intends to return up to an additional $20 million to stockholders through a tender offer, an additional cash dividend, or another type of transaction by the end of 2009.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in IPAS. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

MethylGene (MYG.TO): Another Biotech to Consider

September 23rd, 2009 by Yehuda Fruchter   |   No Comments

With the success of my last biotech pick, MYRX, up 40% since the write up in late August, I’ve been scouring the markets looking for other biotechs trading for less than their cash value, but with the potential for significant upside.

Recently, a subscriber pointed me to MethylGene (MYG.TO – Note: For US  Investors the pink sheet symbol is: MYLGF.PK ), a tiny Canadian biotech, recently quoted at C$0.38, down from nearly $2 last year.

As in my write-up of MYRX, I will refrain from a specific scientific analysis of MYG.TO’s product pipeline, since I am not qualified to offer such an evaluation. Interested readers should review the materials on MYG.TO’s website, as well as other scientific publications and form their own opinion as to the potential of MYG.TO’s various research projects.

However, from a non-scientific perspective, I found three things of note about MYG.TO, which lead me to believe that the stock has low downside risk at current prices, and significant upside.

Firstly, from a financial perspective MYG, with approximately 37 million shares outstanding, sports a market cap of about C$14 million, while the company has nearly C$27 million in cash, implying a negative enterprise value. As discussed in the MYRX post, given the high cash burn of biotechs (MYG is burning $7 million a quarter), a balance sheet analysis is not entirely appropriate. Nevertheless, for various reasons, assuming other investment criteria are met, a biotech trading at a negative enterprise value may represent a good value.

Additionally, earlier this month MYG announced that it and Otsuka, a Japanese pharmaceutical giant, would continue development of proprietary kinase inhibitors for ocular diseases. In addition, Otsuka will make a US$1.5 million equity investment in MethylGene, by the end of October 2009. This agreement provides MYG with significant credibility.

Finally, just a few days ago MYG announced announced that the U.S. Food and Drug Administration (FDA) has lifted the partial clinical hold placed on MGCD0103, the Company’s proprietary selective histone deacetylase (HDAC) inhibitor for cancer. What is interesting is that the original FDA clinical hold on MGCD0103, and the subsequent dissolution of a partnership with Celgene for MGCD0103, is what caused the initial fall of MYG.TO’s stock starting last year. Combined with the financial crisis, this pushed MYG’s stock to penny status. It stands to reason, though, that with the FDA reversal of the clinical hold, the value of MYG should be similar to what it was before the FDA hold, as the entire reason for the stock price drop has now been eliminated. More importantly, the lifting of the clinical hold, now allows MYG to find a new partner for MGCD0103. The signing of a new partner could act as a significant catalyst for stock price appreciation.

In conclusion, despite considerable funding and operational risks, MYG.TO, at the current negative enterprise value, represents an interesting biotech value at current prices. Continued support from Otsuka, as well as potential partnership from new pharma companies for MGCD0103, and other products in the pipeline, could lead to a significant reevaluation of the shares.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in MYG.to. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

China Solar and Clean Energy (CSOL): A Good Speculative Play for this Market

September 17th, 2009 by Yehuda Fruchter   |   3 Comments

The Chinese solar industry is the perfect analogue to the US financial industry. In both instances, you have many large companies that should be bankrupt, but due to various government schemes, and accounting shenanigans, have managed to remain afloat and in some instances provide triple digit returns during the recent market euphoria.

But don’t let the current financial Orwellinism scare you. As many have learned in the past six months, it is useless to fight against a tsunami of free government money, especially when its coming from China. Currently, the Chinese government is providing vast subsidies for its clean energy sector. Moreover, Chinese banks probably have a government mandate to lend money to Chinese Solar companies, irregardless of a company’s financial condition. In fact, it seems clear that the worse a company’s financial condition, and the more money it loses, the greater the likelihood that the banks will lend it more capital, and in turn the greater value Wall Street analysts will assign to the company. Though this type of twisted financial logic would have landed in you in an insane asylum a few years back, it is now a position implicitly espoused by our very own Fed and the Treasury.

The above situation has turned me bullish on the smallest publicly-traded China Solar play I could find: China Solar and Clean Energy (CSOL.ob). Since the company has been such a miserable performer, and management has displayed little ability to integrate new acquisitions, the stock now sits at $0.40, down over 80% the last two years. As always, the miserable performance, attracts my interest, since the stock price already appears to reflect this abysmal failure. Notably, the company sports an enterprise value of around $4 million (16 million shares outstanding), with zero debt, and nearly $3 million in cash. Interestingly, working capital was last reported about $10 million, fulfilling a classic value strategy of buying companies for less than their working capital. On the sales front the company appears to be doing between $30 million and $40 million in sales, and is modestly profitable.

Based on the numbers above, which are from recent SEC filings, it would appear that CSOL has limited downside at $0.40. However, on the upside, should the company succeed in garnering some attention via new clean energy deals in China, I would expect the stock to increase dramatically, especially given the low market cap and the continued hype surrounding China’s solar push. Ironically, it would appear that  CSOL’s main issue is that they have no debt, and are no longer burning cash, making the company a bad banking client, and an unlikely candidate for free government money. Nevertheless, at some point financial sanity should return, and if CSOL can deliver consistent sales growth, deal news, and profitability, investors may quickly bid up the price of this micro cap.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in CSOL. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.