On October 8, The Wall Street Transcript interviewed Robert J. Sullivan, Portfolio Manager of the Satuit Capital Management Microcap Fund. Key excerpts, including his small and microcap stock picks, follow:
TWST: Which companies represent your investment approach?
Mr. Sullivan: Let's begin with Taser (TASR). It is best know as the recipient of product liability lawsuits that happens to make stun guns for the law enforcement, military, and now the consumer market, but TASR is finally beginning to be known as a company that makes stun guns and wins all of its product liability law suits! We've owned TASR for some time in both Funds. We became more constructive as its track record for winning product liability suits gained momentum. At that point we felt we could focus on fundamentals and the fundamentals are pretty solid. Along with the decrease in the potential liability suits, more customers and potential customers have felt more secure in TASR's ability to add to already existing open orders or to create new purchase orders for their equipment. And they finally have their consumer product on store shelves. We don't expect much traction from the consumer side for a while. Taser's international customers include the French and Australian governments and several local law enforcement agencies. So here is an example of a less than $1 billion market cap company with some direct international sales!
Another company that I would probably talk about would be China Medical (CMED). As the name implies, based in China, China Medical's principal activity is that of a medical device company that develops, manufactures and markets advanced in-vitro diagnostic products using enhanced chemiluminescence immunoassay [ECLIA] technology and fluorescent in situ hybridization [FISH] technology to detect and monitor various diseases and disorders. In addition, it also develops and markets high intensity focused ultrasound [HIFU] for the treatment of solid cancers and benign tumors. The obvious driver here is the growth in procedures in the Chinese marketplace. Over the past few years the Chinese government has been trying to upgrade the scope and quality of its healthcare system and that includes diagnostic procedures. CMED's product line-up is part of the overall healthcare system and we continue to expect increased penetration of their product line. The Chinese government is tightening standards for equipment purchases by mid- and large hospital systems in an effort to fight corruption. We think this will help CMED's position. And 100% of CMED's revenue is generated outside the United States.
Another name we would share with the readers is Dawson Geophysical Company (DWSN). We own it in both the Micro Cap Fund and the Small Cap Fund. We bought DWSN several years ago for the Micro Cap and as it moved up in market cap we felt it would be a solid holding for the Small Cap Fund. The group's principal activity is to provide onshore seismic data acquisition and processing services in the United States. The group acquires and processes 2D, 3D and multi-component seismic data for the clients, ranging from major oil and gas companies to independent oil and gas operators as well as providers of multi-client data libraries. It operates 11 3D seismic data acquisition crews in the lower 48 states and a seismic data processing center.
Another holding we have had for some time now is $600 million market cap American Science & Engineering (ASEI). The valuation here is a bit tricky at a 21 times forward multiple and a 12% projected earnings per share growth rate, but we think that that 12% growth rate will eventually wind up being a lot closer to 30% or 35%. The company's principal activity is to develop, manufacture, market, sell, maintain and provide maintenance and warranty services as well as research, engineering and training services with respect to X-ray inspection and other inspection solutions. The products are used for critical detection and security applications. These security applications include X-ray inspection and screening systems for combating terrorism, drug and weapon smuggling, trade fraud and illegal immigration. These applications are used by seaport and border authorities, federal facilities and military bases, airports and corporations in the United States and around the globe. The group's patented Z(R) Backscatter and Shaped Energy technologies detect plastic explosives, plastic weapons, illegal drugs and other contrabands, even when concealed in complex backgrounds by terrorists and smugglers. It has export sales to Middle East and Africa, Europe and Pacific Rim. The obvious driver here is HLS.
$484 million market cap Radiant Systems' (RADS) principal activities are to develop, install and deliver solutions for managing site operations of retail and food service businesses. It operates through three segments: Hospitality and Food Service, Entertainment, and Petroleum and Convenience. The Hospitality segment provides solutions to meet the unique needs of various hospitality industry segments including fast food/quick service restaurants and table service restaurants. The Petroleum and Convenience Retail segment provides site-oriented technologies such as point of sale, customer self service, outside payment terminal and fuel control software and hardware to retail operators. The Entertainment segment includes innovative point of sale, self service kiosk and site management technology designed to help cinema operators. The group acquired Synchronics, Inc., in 2006. The hospitality industry is going through an upgrade cycle of their front-end and back-end systems. RADS product line-up integrates both the point-of-sale front office with the inventory and ordering control systems of the back office. Finally, according to our numbers, they have been consistently gaining share through greenfield activities and competitive bidding.