Near-Term Catalyst Provides Attractive Opportunity For MGT Capital Investors

| About: MGT Capital (MGT)

Near-Term Catalyst Provides Attractive Opportunity for MGT Capital Investors

In the growing business of patent infringement litigation, investors have been pouring into stocks in this hot, investment sector. Over the last three years, once small companies like VirnetX (NYSEMKT:VHC) have taken on heavyweights like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) in patent infringement lawsuits and won. VirnetX's first high profile victory came on May 17, 2010, when Microsoft settled and paid them $200 million. The second victory came just six months ago when a jury awarded VirnetX $368 million in a verdict against Apple for infringing on four of VHC's patents.

These victories have taken VirnetX from a market capitalization in 2007 of $130 million to today's $1.02 billion valuation. And investors who bought shares when VHC first announced their suit against Microsoft in 2007 for $4.18 (split adjusted) have seen share price gains of 903% reached at VHC's 52-week high of $41.93 in July 2012.

So where does an opportunistic investor go today to invest in the next VHC-like opportunity in this growing, patent infringement litigation sector? And when is the right time to make that investment to maximize gains by benefiting from expected catalysts along the way?

Based on my recent analysis of three, small company patent infringement plays who are currently in the midpoint of the process in their litigation battles with heavyweight companies, the best opportunity in this sector today is an investment in MGT Capital Investments (NYSEMKT:MGT).

MGT Capital is the Top Pick

MGT's business is to acquire and monetize intellectual property rights. Just six months ago, MGT filed a high profile patent infringement suit against Caesars Entertainment (NASDAQ:CZR), MGM Resorts International (NYSE:MGM), WMS Gaming, Inc. (NYSE:WMS), Penn National Gaming (NASDAQ:PENN) and Aruze Gaming America, Inc. The suit alleges that these companies are violating MGT's patent used in slot machines. The estimated present value of the royalties over the life of this patent range from $330 million to $4.5 billion.

With a current market cap of only $19.8 million, a debt-free balance sheet, and approximately $5.5 million in cash, let me explain why MGT is poised to see potential share price gains of over 350% ($3.86 to $17.49) over the next 138 days. I am very precise in my forecast based on the following analysis of this sector and the past performance of three companies who have recently seen parabolic moves.

Analysis of Patent Infringement Sector's Current Hottest Stocks

In my search for the top undiscovered and undervalued pick in this sector, I began by looking at three companies that have seen incredible runs over the past few months - ParkerVision (NASDAQ:PRKR), Worlds, Inc. (OTCQB:WDDD), and Blue Calypso (OTCQB:BCYP). All three are currently in the middle of patent litigation against much larger, heavyweight companies (Qualcomm (NASDAQ:QCOM), Activision (NASDAQ:ATVI), and LivingSocial respectively).

About the three companies:

ParkerVision, Inc. Background:

ParkerVision, Inc. designs, develops and markets its proprietary RF technologies, which enable advanced wireless communications for current and next generation mobile communications networks. Its solutions for wireless transfer of radio frequency (RF) waveforms enable significant advancements in wireless products, addressing the needs of the cellular industry for efficient use of power, reduced cost and size, greater design simplicity and enhanced performance in mobile handsets as the industry migrates to next generation networks.

In July 2011, ParkerVision filed a complaint in the United States District Court of the Middle District of Florida against Qualcomm seeking unspecified damages and injunctive relief for infringement of six ParkerVision patents related to radio-frequency receivers and the down-conversion of electromagnetic signals. The trial is scheduled to begin October 7, 2013.

With a modest market cap of $325 million, ParkerVision is seeking unspecified damages against the $106 billion market cap heavyweight, Qualcomm.

Worlds, Inc. Background:

Worlds, Inc. (OTC:BB:WDDD) is a leading intellectual property developer and licensee of patents related to 3D online virtual worlds. The Company has a portfolio of 6 US patents and 1 "notice of allowance" for a seventh patent for multi-server technology for 3-D applications.

Worlds filed a patent infringement lawsuit against Activision Blizzard, Inc., Blizzard Entertainment, Inc. and Activision Publishing, Inc. in the United States District Court for the District of Massachusetts on March 30, 2012. Worlds' patents cover technologies and methods relating to a highly scalable architecture for a 3-D graphical, multi-user, interactive virtual world system.

With a small market cap of $36.9 million, Worlds is seeking unspecified damages and a jury trial against Activision, a gaming company with 2012 revenues of $4.86 billion and over $1 billion in net income.

Blue Calypso, Inc. Background:

Blue Calypso is a digital word-of-mouth technology and marketing company whose mission is to help brands leverage customer relationships to increase brand loyalty and drive revenue.

Blue Calypso's patent infringement lawsuit filed on August 24, 2012 against LivingSocial, Inc. has resulted in a Claim Construction Hearing, or "Markman" hearing set for August 27, 2013. Blue Calypso believes that LivingSocial, Inc. may be infringing on two of its US patents, 7,664,516 and 8,155,679, which cover peer-to-peer advertising.

With settlements or jury trials still not forecasted to happen for about 6-12 months, investors at this point can only speculate whether these three companies will win their cases (like VirnetX did against Microsoft and Apple). So, why have their stock prices risen 240% - 449% in a very short period of time? What were the catalysts that caused these huge gains for early investors? After asking these questions, I quickly realized all three had one thing in common.

Their share prices all rose dramatically after their Markman Hearing date was announced via press release. For those of you who are unfamiliar with a Markman Hearing, it is simply the first, critical hearing in patent infringement cases, which establishes the basic parameters the judge will use for the patent under review in the case.

This summary explains what I mean:


Price on Day Markman Hearing Date Announced

Highest Price Post Markman Hearing Date Announcement

Highest % Gain Post Markman Hearing Date Announcement

Timeframe to reach highest % gain post Markman Hearing Date Announcement

ParkerVision Inc.




154 days

Worlds, Inc. (OTCQB:WDDD)




230 days

Blue Calypso, Inc. (OTCQB:BCYP)




32 days



138 days

What was most surprising is not only the 353% average gain in just 138 days, but the fact that it only took them an average of 68 days to quickly double with 100% gains:


Days for price to reach 100% gain post Markman Hearing Date Announcement

ParkerVision Inc.

65 days

Worlds, Inc. (OTCQB:WDDD)

115 days

Blue Calypso, Inc. (OTCQB:BCYP)

26 days

Average Days

68 days

With these parabolic moves in valuations, you can see how quickly the market capitalizations of these companies rose to an average of 332% (as of April 29, 2013) since they announced their Markman Hearing dates:


Market Cap on Day Markman Hearing Date Announced

Current Market Cap (as of 4/29/13)

Increase in Market Cap

Worlds, Inc. (OTCQB:WDDD)

$8.3 million

$36.9 million


ParkerVision, Inc.

$54 million

$325 million


Blue Calypso, Inc. (OTCQB:BCYP)

$17.9 million

45.7 million




Upon the discovery of these amazing, catalyst trends in three separate companies in the same sector, I looked for an opportunistic investment opportunity in a company who met their exact profile, but was six months or so behind them in the litigation process. I wanted to invest in a company that had recently filed a patent infringement lawsuit against a heavyweight but had not announced their Markman Hearing date yet.

Once I identified that company (MGT Capital), I now had to time my entry to maximize my gains. I could use the historical data of the case study companies mentioned above to estimate when MGT's Markman Hearing date announcement will be made. That data suggests that litigants must wait approximately 204 days from the date their suit is filed until the judge issues their Markman Hearing date. This is how it has worked with the three companies:


Patent Infringement Lawsuit Files

Day Markman Hearing Date Announced


ParkerVision Inc.



210 days

Worlds, Inc. (OTCQB:WDDD)



158 days

Blue Calypso, Inc. (OTCQB:BCYP)



246 days

Average Days

204 days

Based on the date (November 2, 2012) that MGT filed their lawsuit, it has been 178 days as of April 29, 2013. Therefore, I estimate that we will receive the Markman Hearing date announcement by May 25, 2013. Not wanting to get caught without a full position in the stock upon this announcement, I began my investment in MGT recently at an average of $3.93/share. Now I await the news that has sent other stocks in this sector soaring.


Investors looking for a speculative investment in one of the hottest sectors in the market need to look no further than MGT Capital. The timing of this buy recommendation is crucial to maximize the gains that have historically been generated when the Markman Hearing is announced.

Based on this analysis and the average calculations, my price target and time frame for MGT's likely run on this proven catalyst are as follows:

-Markman Hearing Date Announcement Estimate: May 25, 2013 (204 days from date lawsuit filed)

-Short-term price target post announcement: $17.49 (by October 10, 2013 or 138 days; 353% increase from 4/29/13 close of $3.86)

-Increase in market capitalization: $85 million (332% increase from $19.8 million)

A risk in this investment is if the judge dismisses MGT's case before a Markman Hearing is scheduled. While there is a small chance this could happen with one defendant, MGT's case includes five heavyweight defendants and at least a few if not all should make it to the Markman Hearing stage. As a matter of fact, my research showed that the case study companies had no problems getting to this early stage, Markman Hearing despite the preliminary objections and motions to dismiss by the defendants. And, MGT has contracted a Tier 1 intellectual property law firm, Nixon & Vanderhye P.C. to handle the case.

Disclosure: I am long MGT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.