Intelligent Speculator

Small caps and technology stocks have taken quite a hit over the past few months and I think now is a good time to start looking for bargains in these sectors.

There has been a rotation out of these “riskier” stocks with the threat of a potential recession looming but the selloff has been overdone. Some companies that I follow have lost over fifty percent of their value from their highs last year in spite of improving fundamentals.

Financials and home builders have seen quite a rebound from the lows they made earlier this year but I think it is too early to say the worst is over for these companies. I think there is going to be further losses due to the risky lending practices that have taken place over the last few years. The housing market is no where near a bottom and foreclosures are going to continue to increase. I would avoid these stocks.

I would also avoid companies that rely on discretionary income such as retailers and restaurant stocks. Consumers are cutting back on their spending and I don’t see that changing in the near future.

Whatever you invest in you should be more concerned with the fundamentals of the company than the stock price. Over time a company’s stock price will ultimately follow the improvement or deterioration in fundamentals.

MCZ – Mad Catz Interactive (American Stock Exchange) – (Closing Price – $0.82)

Mad Catz announced its fiscal third quarter 2008 results after the close yesterday and reported decent results. However, the stock sold off around 19% today because the company didn’t report an improvement in EPS and investors in the current market are extremely skittish and impatient.

Mad Catz came in with revenue of 34.27 million and earnings per share of 0.06. Revenue declined 6% year over year and EPS declined by a penny. The CEO blamed the shortfall in revenue on the strategy of eliminating less profitable product placements and focusing on higher margin products. While this strategy resulted in a higher gross profit margin, it didn’t translate into improved EPS. This is one reason investors decided to jump ship today.

I don’t think the focus to eliminate less profitable products was the only reason to blame for the decline in sales year over year. Consumers worried about a potential recession reigned in their spending this holiday season. This also factored into the sales shortfall. In spite of the weariness of consumers I still figured Mad Catz would post an increase in profits. However, Mad Catz reported big increases in sales/marketing expenses and G&A expenses. These unexpected increases resulted in the decrease in EPS year over year. (more…)

The economy is headed for a potential recession, we may already be in one, and the job market is starting to stall. In addition, the credit markets have become extremely tight due to the lax lending standards that have taken place over the last few years and are now resulting in defaults. Consequently, it is not a good time to be a borrower. If you unable to obtain credit and you are thinking about taking out a payday loan you should think twice.

Payday loans, also known as payday advances or cash advances, are small short term loans that are intended to meet a borrower’s expenses until his or her next payday. These loans have interest rates that range from 300% to as high as 1000% on an annualized basis. Borrowers who cannot meet their initial payments can get extensions for these loans but they have to pay an additional fee. Borrowers who continually miss their payments and continue to get extensions can end up in a debt cycle that they can’t get out of.

If you are thinking about taking out a payday loan consider other options first. Try to get a loan from a credit union or a cash advance from your employer. Also, make a budget and look for unnecessary expenses that you can get rid of. If you have no other choice but to take out a payday loan make sure that you pay it off as soon as possible. Also, make sure that you read the fine print and know the situation you are getting into.

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If you want analysis and commentary on microcap stocks you should check out MicroCapSpeculator.net. MicroCapSpeculator has analysis of stocks that trade over the counter and on the pink sheets, exchanges that I don’t cover, as well as microcaps that trade on the major exchanges. MicroCapSpeculator also features analysis of the gold market.

MicroCapSpeculator recently developed a stock blog search engine that will search through 120 hand picked financial blogs (my site is included). You should try it out if like to get insight on stocks from financial blogs.

SWIR – Sierra Wireless (Nasdaq) – (Closing Price on Friday 2/8/08 – $15.92)

Sierra Wireless announced its fourth quarter earnings on January 31 and reported very impressive results.

Sierra Wireless reported revenue of 135.6 million which was a sequentially increase of 22% and a year over year increase of 99%. Sierra Wireless reported diluted EPS of 0.37. This was up moderately from the previous quarter’s result of 0.35 and up significantly from 0.12 last year. For next quarter Sierra Wireless gave guidance for revenue of 136 million and EPS of 0.30.

In the conference call the CEO mentioned he expects continued revenue growth, improved earnings, and business diversification in 2008. He stated that revenue in Q1 will be constrained by component supply limitations but this should clear up by Q2. He also mentioned that the introduction of Gobi and Erickson has increased competition in the embedded module segment but he expects growth in that segment this year.

The stock price of Sierra Wireless briefly traded above seventeen dollars the day after earnings but has sold off since. Investors are selling off stocks indiscriminately and tech stocks and small caps in particular have been getting hit hard. Unfortunately this is depressing the stock price of Sierra Wireless. Over the long term the stock price of any stock will ultimately follow the improvement or deterioration of a company’s fundamentals. Since the fundamentals for Sierra Wireless continue to improve I would continue to hold or accumulate more shares.

Disclaimer: I have no position in SWIR.

SILC – Silicom Limited (Nasdaq) – (Closing Price – $16.70)

Today Silicom Limited announced an order for $1.8 million from “one of China’s largest domestic server companies, representing its first significant penetration into the vast Chinese market.” The stock traded up over 14% on the news.

This is obviously a positive development for Silicom Limited and the stock price is starting to gain some strong momentum. The company just reported very good fourth quarter results and I wouldn’t even consider selling right now.

Some other stocks in the WAN optimization field that have seen undeserved fifty percent drops from their highs last year are BCSI and RVBD. These two stocks are definitely worth further research.

Disclaimer: I have no position in any of the stocks mentioned.

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EGHT – 8×8 Inc. (Nasdaq) – (Closing Price on Friday 2/1/08 – $1.22) 

8×8 Inc. reported their Q3 2008 financial results on January 30 and reported record revenues and a small profit.

8×8 reported revenue of 15.8 million which was a 7% increase sequentially and a 19% increase year over year. 8×8 reported net income of 1.39 million and EPS of 0.02 per diluted share. During the quarter, 8×8 sold two of its non-core patents for 1.2 million and accounted for the sale as other income. Without the one time gain related to the patent sale and a gain related to the change in the value of warrant liability 8×8 would have reported a small loss. However, this loss is smaller than the previous quarter and the same quarter last year and the company is still on the right track towards sustained profitability. Overall 8×8 reported a nice quarter.

In the conference call the CEO mentioned a few positive catalysts to look for in the coming year. The CEO stated that the company is seeking to further monetize its intellectual property and to expect the introduction of new services in the coming year. He also said the goal is for consistent profitability going forward.

8×8 is continuing to show improvement in its financial results and I would hold or accumulate more shares.

Disclaimer: I have no position in EGHT.