Ted Stamas'  Instablog

I've covered Nuance Communications (NUAN) and Ruckus Wirleless (RKUS) in previous posts. My last focus article on Nuance Communications concentrated on their Analyst/Investor Day presentation back in December of 2012. For Ruckus Wireless, I wrote about their inaugural conference call three short months ago. I liked both company's prospects, but they traded too high for my investing style at the time of the writing. Circumstances changed when both companies recently reported quarters that didn't live up to Wall Street expectations. As shares fell, I put my money where my mouth is, and took stakes in both companies.

Ruckus Wireless

Although Ruckus Wireless has been around for over ten years, it's only been a public company for six months. It closed today at $13.40/share, and the WiFi plumbing provider is basically back to square one to when the underwriters valued the stock between $13-$15 for its IPO late last year. Although it closed under the IPO price after the first day of trading, the stock shot up to $26.50 its first few months on the market. Two months ago when Ruckus was trading at $24, I put a $16 limit order on it, then waited.

Be careful what you wish for. After missing Q1 earnings estimates, and guiding down for Q2 (a traditionally strong quarter for the company), the stock crashed through my initial offering, and I was stuck with shares at $15. Picked up more at $13.40, so my average cost is somewhere in the low $14 range. I'm not sure if this is like trying to catch a falling knife, but there's another Wall Street adage about bulls make money, bears make money, and pigs get slaughtered. I thought $14 was a good price for Ruckus Wireless, and I still do. You can't get all your holdings at 52 week lows.

The problem with the quarter and tepid guidance is a delay of orders from telecom carriers in China and North America. Lazard Capital's downgrade from a Buy to a Neutral rating didn't help either. According to the analyst at Lazard, it may take a few quarters for Ruckus to get back on their growth trajectory. I'm willing to wait. Q3 tends to be strong for Ruckus, and although this is six months away, I prefer to load up on good companies while they are experiencing some growing pains. I'd like to buy all stocks when they are at rock bottom, but it just doesn't work out that way most of the time.

Nuance Communications

Where Ruckus cratered 25% the day after their conference call, Nuance communications did almost the same, dropping 20%, from $23 to $19 right after their lackluster earnings presentation. Not only did they miss on the top and bottom lines, but they also had poor guidance for 2013. They are in transitional mode, from desktop to mobile, and also by the overall industry shift to on-demand, or cloud based services. I purchased shares at $19, and the equity hasn't budged even though Wedbush Securities rated the stock an Outperform yesterday.

Nuance has long been a favorite of mine for their futuristic voice recognition technologies. Just last week the company announced that they are providing a voice biometrics solution to securely and automatically confirm the identity of Barclays Wealth & Investment Management customers - using the sound of their voice. These are the type of companies I like to purchase, but it doesn't necessarily translate into a good investment unless the company can execute. In comes Carl Icahn.

In early April, Carl Icahn took a "passive" 9.3% stake in Nuance. After the conference call, it was made public that Mr. Icahn increased his stake to 10.7%. Carl Icahn has a reputation for making money, whether it be from good old fashioned "passive" investing, or putting pressure on the boards of companies he invests in. I am not sure what his intentions are with Nuance, but he may take an active role in the company's direction. This could be by taking it private, selling off some of Nuance's under performing divisions like imaging, or selling the company to a larger organization.

The fact that Mr. Icahn has taken a position in Nuance was not inconsequential when I decided to buy shares. I believe he may goose the share price in the short term if any headlines hit cyberspace spelling out his intentions. The stock trades near multi year lows. I thought is was a good bet despite my belief we are due for an overall market correction.

Conclusion

While the market has been roaring, both Nuance Communications and Ruckus Wireless have been snoring. My investing goals in technology companies is to try and double my money in three years. With my purchase price of $14.40 for Ruckus, and a 25% plus earnings growth rate once it regains traction, I think my chances are good it to hit $29 by 2016. However, just like my investment with Acme Packet (recently bought by Oracle), which was also dependent upon Telecom Carriers, you may have to languish for a quarter or two until spending picks up.

For Nuance, I think there may be pressure on the executive team to do something sooner than later. Besides Mr. Icahn's 10.7%, 14.6% of the company is owned by private equity firm Warburg Pincus LLC (as of March 14th). Although Warburg Pincus has been reducing their stake, those are two powerful entities that have a lot to say about the future of the company. Even if no actions are taken by Mr. Icahn, I still think I can double my money in 3 years. That would be a price of $38/share. Not an unreasonable goal if the market continues its climb.

Disclosure: I am long RKUS, NUAN.

The details are well chronicled of Oracle's (ORCL) acquisition of Acme Packet (APKT) for $2.1 billion in cash, or $29.25/share. Cyberspace is flooded with articles on the subject, and Bloomberg provides a succinct synopsis of the buy-out. It's like a pig in a python. I've been covering Acme Packet since it was a show dog for the momentum crowd, and crossed the tape at over $80/share. I recommended buying the stock when it dropped to $25, and also owned it in my personal account with an average price of $23.

It was a good day for me when I sold my shares for a roughly 25% profit in a little under a year. However, I was a disappointed with Oracle's tuck-in acquisition of the company. I really thought Acme Packet would double or triple in three years, getting back to their glory days, netting me a handsome profit. What's done is done. Acme's Board of Directors unanimously approved the transaction. The deal is expected to close in the first half of this year (subject to stockholder approval).

So what to do with the proceeds? For my personal account, the simple solution was to place a $14 limit order on Fusion-io (FIO). If you aren't familiar with Fusion-io, they provide an enterprise storage memory platform. Basically, it's flash memory that is replacing disc drives in the data center. I've been covering the company since it had a blowout quarter in August of last year. I thought the equity was expensive back then when it traded at about $32, and still feel it's overvalued at $17.50. This stock was elevated to icon status, and got special treatment because of their two main customers, Apple (AAPL) and Facebook (FB).

These two impressive clients account for 50% of Fusion-io's revenues, and here is where the problem lies. Both of these tech bellwethers are expected to contribute flat revenue streams to the company for the next two quarters. Although these are leading edge organizations as far as technology adoption, they aren't going to do too much for Fusion-io's top line till the second half of the year. With a market that may be topping, and lack of visibility for the next quarter or two, I'm gambling that I can purchase shares for a lower price.

So what do I like about Fusion-io? Superior technology. My previous post about the company highlights their speedy facilitation of data that is significantly faster than their competitors. That's why Apple and Facebook invest so much in their products. However, their wares are expensive, and Intel (INTC) has gotten into the game with less expensive computing products. Fusion-io's solution was to introduce ioScale for price conscious customers.

With a technological lead, high-end to low-end pricing solutions, and quality clients (China Mobile (CHL) and Pandora (P) are also in the mix), I can see where initially, Wall Street was enamored with Fusion-io. What I also like about them for a second half of 2013 play are freshly minted partnerships with Cisco (CSCO) and NetApp (NTAP) to sell Fusion's products. That's a lot of boots on the ground. However, those synergies won't come to fruition till later in the year. September is seven months from now, and a lot can happen between now and then.

Before you put any money to work, let's examine some fundamentals. According to Yahoo Finance Analyst Estimates, Fusion-io is projected to lose money the next two quarters if we take the consensus. Last year, they made money, albeit, not much. This fiscal year, the company is projected to make $.18/share. That's a P/E Ratio of 100.

Because it was such a shooting star, Wall Street evaluated the company on revenue growth, not earnings. If we examine the sales econometric, we can see that revenues are declining 14% year over year on a quarterly basis for Q3 which ends in March. It's not till next year (fiscal year ending June 2014), that revenues ramp to a healthy 35% growth clip. I don't want to overstate my thesis, but that is a long time from now, even with a market that is forward looking.

With a 32% short float, you could purchase shares now, and take your chances that not only does the market move higher, but you'll also get a nice short squeeze. I'll stick with my $14 limit order and see if a bag my quarry. I think it's a great company, just not a great valuation.

Disclosure: I am long FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

It's been over two months since my last posting, and the markets have roared. In fact, when examining a calendar year, it's one of the best starts in decades. Since early October of 2011, the NASDAQ is up almost 30%. That's more than a nice return in a short period of time if you are long the cubes (QQQ). Because of the acceleration in stocks, in early January I liquidated my leveraged/short ETFs, which are the ProShares UltraShort S&P 500 (SDS) and the Direxion Daily Small Cap Bear 3X Shares (TZA). I'll just take the tax write-offs and move on.

However, I still don't believe we're out of the woods yet in regards to a double dip in the overall indexes. For every prognosticator of a new bull market, you get your Jim Rogers, George Soros, or Rick Santelli warning of some serious reckoning in the next year or two. A reckoning that likely will be much worse than 2008/2009. With IPOs like Yelp (YELP) gaining 65% on the first day of trading, it seems a bit like the late 1990's. I'm airing on the side of caution still, and, will remain in cash, although I have limit orders in on two securities that need to drop significantly in price before I buy them.

A few things have caught my eye in the last month. One is a statistic that: "Mobile devices will account for about 80% of all broadband Internet connections in the G-20 nations by 2016, according to Boston Consulting Group.". I enjoy my iPhone and fully understand what all the fuss is about. This is why I am going to begin writing a series of articles on primarily small, pure-play companies in the tablet and smartphone sector.

For the past 18 months, I've been blogging almost exclusively about cloud computing companies, and most of these securities have extremely elevated valuations. Sure, they will continue to grow at a rapid pace, but I wouldn't want to put my money behind them. I learned my lesson in 2000 when I sold stocks like EMC (EMC), Oracle (ORCL) and Cisco (CSCO) before the crash, only to get burned by investing in technology stocks with "decent" PEG Ratios. Everything got taken down in the aftermath of the crash, and I left some money on the table.

What I want to do with this new series, is look at the young upstarts that may be big winners as the wireless Web engulfs the globe. Many of these equities are dangerous because of their brief trading history, but what stock isn't? Just look at the recent history of "sure things" like General Electric (GE) or General Motors (GM). It's always what your risk/reward is. The type of equities I am going to cover in depth are primarily small caps or micro caps. I'll try to stay away from the pink sheets, but some of the companies I'll be looking at haven't made it to the major exchanges.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I am in cash with limit orders in on selected securities.