Every one of the below issues seems to have a different sad story: inept management, exposure to eurozone or a technological paradigm shift that leaves its business model in flux. The below companies are poster children for former high flyers that have crashed and burned. The violence in the sell-off of these more speculative tech shares can be alarming, especially in the path of large amounts of tax loss selling toward the end of the year. Compound this fact with a pile-on by short sellers and you have a chance for debilitating losses in a very short timeframe. Of course most of the above is precipitated by company or industry related issues that tend to muddy the waters in the eyes of market participants. And if there is one thing the market dislikes it is lack of certainty. All of the above have contributed to a catastrophic 2011 for each and every one of these five companies.
But as markets can take companies to euphoric heights, they can also take them far below intrinsic value. I see diamonds in the rubble based on the intrinsic value of each of these businesses that lies behind the shattered stock. To be sure, all of these present wild growth opportunities and the potential for extreme losses as well. Let’s examine each of these opportunities in further detail:
Alcatel Lucent (ALU). YTD Return (75%). Current share price: $1.56. Total debt net of cash: $1 Billion. Market Cap: $3.3 Billion. Investors have all but given up on Alcatel Lucent and this is an opportunity for intrepid investors. Alcatel Lucent has become a French titan of communications gear, software and services for all facets pertaining to mobile and wire line communications. Problems in Europe notwithstanding, Alcatel Lucent is primed to continue being a global leader in most things pertaining to communication equipment and services. This is especially the case as the innovation engine of the company, Bell Labs, continues to churn out patents and new products to fill the pipeline with mobile communication offerings. Thanks to asset divestitures in the past few years, the balance sheet is too strong to realistically entertain notions of a pending bankruptcy should Alcatel Lucent not gain near-term traction in next generation products.
Ren Ren (RENN). YTD Return (75%). Current share price: $3.60. Total cash (no debt): $1.20 Billion. Market Cap: $1.42 Billion. Is Ren Ren the Facebook of China? Perhaps not, but that doesn’t mean it can’t drive growth from an increasingly diverse set of social media web properties. Social networking, shopping and game playing can all be experienced on Ren Ren’s platform and users ARE gravitating to these sites. The market for these services is huge as China’s massive population gravitates to the web. Competition is fierce and there are better capitalized giants jockeying for users (TENCENT (0700.HK), Baidu (Bidu) and Sina (Sina) come to mind) but Ren Ren is small and nimble with a smart management team that has achieved traction and rapid growth in revenue. Year-over-year revenue growth clocked in at 30%+. Equally compelling is a balance sheet with over $1.2 Billion in cash and no debt. It is unusual to get growth AND intrinsic value in the form of cash in the same issue. Investors can get that by owning Ren Ren.
Motricity (MOTR). YTD Return (96%). Current share price: $1.18. Total cash (net of debt) $3M. Market Cap: $54 Million. For such an electrifying name Motricity has clearly lost its “mo jo.” How can over $400 million in invested capital turn into such a miniscule valuation? Investors fled en masse as its vision for a mobile market place in which consumers buy products through advertisements that flow through the carriers directly to their cell phones didn’t gain the traction expected. Granted Motricity built a very rich eco-system around this paradigm (plenty of capital can do that) but it became harder to monetize the offering as the supremacy of eco systems built around smart phones such as the iPhone and Android changed the game in the distribution of advertising. What to do now? Motricity is re-jiggering its offerings for a smartphone centric universe and while growth and profitability have not been in the offing in most recent quarters, the company should capture value in a market place it better understands after some very expensive lessons. It doesn’t hurt to have Carl Icahn looming in the background as the largest independent shareholder bent on extracting value from so much that was invested.
Broad Vision (BVSN). YTD Return (35%). Current share price: $8.45. Total cash (no debt) $56 Million. Market Cap: $38 Million. The first thing that investors notice is the discrepancy between market value and cash balance. This stems from the fact that investors aren’t giving Pehong Chen (company CEO) and management the benefit of the doubt on its “Clearvale” offering, which it bills as a sort of enterprise social networking platform. Investors might recall that Broad Vision was a leading performer during the tech boom and its legacy business for portal solutions still provide service revenue. It will need this ongoing revenue stream as it tries to capitalize on what is left of the Broad Vision pedigree to promote the Clearvale offering to its vast client base and beyond. While it is early innings yet, and the offering seems to make sense, the investment community has all but left the stock for dead. But that would be unwise. It is especially true in the tech industry that 2nd and 3rd acts are legion. To wit: look at how Apple (AAPL) and Steve Jobs were written off several times in the course of the past few decades. Broad Vision’s cash balance serves as a sort of insurance policy and Pehong Chen is known for his penurious ways.
UT Starcom (UTSI). YTD Return (30%). Current share price: $1.36. Total cash: $305 Million (no debt). Market Cap: $211 Million. UT Starcom was once one of those sparkly companies, which generated so much growth it was featured as a “can’t” miss stock by analysts and financial magazines. It was based in Northern California, and generated double-digit growth in emerging markets with its inexpensive mobile phones and network that ran circles around its larger competitors. The competitors caught up and UT Starcom has had to retrench and focus on new markets involving IP TV (Internet Protocol TV) and broadband offerings in those same emerging markets. To get more in touch with those markets, UT Starcom moved its headquarters to Beijing, China, and does most all of its R&D work in China and India. Growth has been elusive over the past few years, but the past two quarters did feature profitable growth (35% revenue growth in the latest quarter alone) and a confirmation that it does indeed hold $305 Million in cash instruments and no debt. It certainly appears that its strategy is finally taking hold and even if margins remain weak, it serves a growth product in a growing market and it holds all that cash on its balance sheet.