It’s a Small Cap World (for Now) – Russell 2000 Index Up nearly 18 Percent for Year

Graphic courtesy of Russell Investments

 

The stock market finally “took a breather” on Monday of this week, as the Wall Street Journal characterized it. The resilient bull market of 2013 has seen only four sessions in May that had a decline in the Standard & Poor’s 500-stock index and Monday was one of them. This year’s bull market rally has recently been across the board–Asian markets have been up, European markets turned up, and market watchers are anxiously waiting for tomorrow, Wednesday, May 22, when Federal Reserve Chairman Ben Bernanke is scheduled to testify to Congress and the Fed releases the minutes from its last public policy-setting meeting. Will Bernanke offer up any clues about his next steps?

Most importantly for Smallcap World, the Russell 2000 index, which tracks the performance of smallcap U.S. equities, climbed above the 1,000 level for the first time Monday, a metric that MarketWatch considers “psychologically important” for smallcap stocks. As of Monday morning, May 20, the Russell 2000 was up 17.9 percent for the year-to-date, according to FactSet (The Associated Press reported the Russell 2000 up 17.5 percent for the year).

The conventional wisdom is that small caps stock are doing well because they are more U.S. focused than the large caps, which tend to be multi-national. And the U.S. economy is recovering as opposed to other economies around the world. But many large caps are doing well, too,

You don’t have to look far to find small cap stocks at 52-week highs, even “all time highs.” Of course the question always is, how much higher can these stocks go? Buy now or wait for the correction that so many experts have been predicting is right around the corner for months now?

We’ve selected a few stocks we know are at all-time or 52-week highs, and others we’ve covered lately that seem to be on the upswing.

Calabasas, CA-based National Technical Systems * (Nasdaq: NTSC, http://www.nts.com/) is a relatively unknown smallcap stock but also the world’s largest independent engineering services and testing company. It’s biggest markets include aerospace and defense, but also works in the automotive and telecommunications markets, among others. NTSC closed at an all-time high of $13.09, up 94 cents on May 21, with a market cap now of about $150 million. NTSC is lightly traded, only about 7,500 shares a day, although that is trending up. 

Northville, MI-based Gentherm * Incorporated (Nasdaq: THRM, http://www.gentherm.com/) is a global developer and marketer of thermal management technologies for a broad range of heating and cooling and temperature control technologies. Best known for its Climate Control Seat systems that actively heat and cool seats in more than 50 vehicles made by the world’s leading automobile manufacturers, Gentherm (formerly called Amerigon) has branched out into heated and cooled bedding systems, cupholders, storage bins and office chairs. THRM also reached a 52-week high of more than $18 this week, then closed May 20 at $17.78, down 33 cents for the day. Its market cap is now $594 million. As recently as last July THRM was trading at just above $10.

We recently featured Cincinnati-based LSI Industries (Nasdaq: LYTS, http://www.lsi-industries.com/) , a company that offers a different take on an LED lighting company. LYTS creates LED video screens and LED specialty lighting for sports stadiums and arenas, digital billboards and entertainment companies. It closed April 29 at $7.09 with a market cap of $170 million. LYTS closed May 21 at $8, up 1 cent for the day, with a market cap now of $192 million.

Analysts at CRT Capital recently upgraded Atlanta-based Beazer Homes USA (NYSE: BZH, http://www.beazer.com/), a company that builds and sells single-family and multiple-family homes in 16 states in the U.S., to a “Buy” with a $29 price target. BZH also acquires, improves and rents homes. The company operates through commissioned home sales counselors and independent brokers. As recently as last Sept. 14 BZH was trading for $3.77. It closed March 20 at $16.86 with a market cap of $410 million. BZH closed May 21 at $21.75, down 98 cents for the day. Its market cap is now $538 million.

San Jose, CA-based SunPower Corp. (Nasdaq: SPWR, http://www.sunpowercorp.com/), like many solar stocks, have been on the upswing lately. SPWR closed May 8 at $15.36, down 6 cents for the day, with a market cap of $1.8 billion. It closed May 21 at $21, down $1.70 for the day but got up to $23.76 just last week. Its 52-week trading range is now $3.71-$23.76.

Fremont, CA-based Procera Networks (Nasdaq: PKT, http://www.proceranetworks.com/) works with mobile and broadband network operators providing intelligent policy enforcement solutions for managing private networks. PKT’s products are sold under the PacketLogic brand name to more than 600 customers in North America, Europe and Asia. PKT’s 52-week trading range is $10.12-$25.99. At mid-day May 2 it was trading at $11.22, with a market cap of $229 million. At market close May 21 PKT was trading at $13.89, down 3 cents for the day, with a market cap of $282 million.

* Denotes client of Allen & Caron Inc., publisher of this blog.

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Signs of Progress: Digital Media Stocks on Display

If you want to see the latest forms of digital signage, take a look at  Times Square on New Year’s Eve. Digital displays, in all their electronic glory, are literally everywhere on that night. But thanks to the rapid growth of the digital media industry, digital signage displays showing video or television programming, advertising, even menus and street signs, are popping up everywhere.

LCD or LED signage, as well as plasma displays or projected images, have taken over cities, retail stores, hotels, restaurants, corporate buildings, even bathrooms and elevators. Smartphones, too, use the same digital media technology.

You can use digital media technology for integrating social and location-based interactivity so you can send Twitter messages, SMS and text messages to advertising displays. Digital signage displays can be controlled by personal computers or servers via proprietary software programs.

To date, China has led the world in the number of digital signage displays with the country’s largest digital signage firm, Focus Media Holding (Nasdaq: FMCN), operating thousands of displays. San Antonio, TX-based Clear Channel Outdoor Holdings (NYSE: CCO) is another huge outdoor advertising company with close to 1 million displays in more than 40 countries across five continents. But those are large companies with market capitalizations in the billions of dollars.

Smallcap investors have opportunities to invest in digital media, too, by focusing on such things as the hardware, software or network infrastructure that support

Times Square, New Year's Eve

the industry.

Brookings, SDbased Daktronics (Nasdaq: DAKT, http://www.daktronics.com/) designs, manufactures, and sells various electronic display systems and related products. It offers indoor and outdoor scoreboards, digit displays, scoring and timing controllers, statistics software, and transportation products comprising various light emitting diodes-based displays for road management, parking, mass transit, and aviation applications. The company did pay a dividend in December, even lumping an additional $0.40 on top of the regular payout, which is now twice rather than once per year. DAKT trades about 150,000 shares daily, has a market cap of $340 million and a 52-week range of $8.00 – $12.25. It closed April 20 at $8.08, up 1 cent.

Cincinnati, OH-based LSI Industries (Nasdaq: LYTS, http://www.lsi-industries.com/) provides corporate visual image solutions around the world.  The company offers exterior and interior visual image elements related to graphics for use in graphics displays and visual image programs. Its graphics products include signage and solid state LED video screens for the sports and advertising markets designing and engineering custom designed electronic circuit boards, assemblies, and sub-assemblies used in various applications.  LYTS trades near $7 with a $165 million market cap and an average daily volume of about 600,000 shares.  The 52-week range is $5.45 – $8.91. It closed April 20 at $6.71, no change on the day.

Prague-based Kit Digital (Nasdaq: KITD, http://www.kitd.com/) provides end-to-end video asset management software and related services to enterprise clients. It offers the KIT Video platform for managing Internet protocol (IP)-based video assets across browser environments, mobile and tablet devices, and connected television (TV) sets and Digital Signage. KITD also enables delivery of social video apps to connected TVs, set-top boxes, game consoles, tablets and smart phones.  KITD has had some hiccups lately. Its stock has a 52 week range of $5.93 – $12.73, a market cap of about $360 million and an average daily volume of about 1, 265,000 shares.  In March and April 2011, the company announced delayed their 10-K filing and announced changes in the board of directors and management as well as some indications that the company may be putting itself up for sale.  But it appears there has been some short covering and buying in the past weeks. The stock closed April 20 at $6.99, down 51 cents on the day.

Seattle-based RealNetworks (Nasdaq: RNWK, http://www.realnetworks.com/) makes the RealPlayer media player software on computers, including features and services that enable consumers to discover, play, download, manage, and edit digital video. RNWK develops and markets software products and services that enable the creation, distribution, and consumption of digital media and signage, including audio and video.   RNWK has a 52-week range of $6.81 – $15.08, trades nearly 140,000 shares daily, and has a $326 million market cap. It closed April 20 at $9.43, up 3 cents on the day.

A more vertically and horizontally integrated company is Poland-based ADV Group* (ADV’s ADR is GPVSY, http://www.grupa-adv.pl/) which trades on the OTCQX market in the U.S. (www.otcqx.com.) (ADV shares also trade on the main floor of the Warsaw Stock Exchange under symbol ADV.) A fast-growing internet and digital media advertising company, ADV is the leading new-media agency in Poland operating in digital communications, innovative new technologies, IT outsourcing, dedicated application design, and mobile device applications.  GPVSY has enjoyed revenue and earnings growth for the past few years, including 74 percent revenue growth in 2011.  GPVSY is a relatively unknown stock in the U.S. with very little analyst coverage. Its market cap is just under $50 million and its average daily trading volume is less than 100,000 shares daily.  The Polish ordinary listed ADV stock trades over 14 PLN or zloty – the Polish currency. (1 Polish zloty = 0.31 US dollars as of April 12) and has a 52-week range of 7.10 – 15.59 PLN.

*Client of Allen & Caron, publisher of this blog.

Brightcove IPO Filing Highlights Fast-Growing Online Video Sector

The announcement this week that Brightcove had filed an S-1 to raise up to $50 million in an IPO was not really a surprise. Rumors about an IPO have been circulating ever since the company, a cloud-based video platform provider, was founded seven years ago, according to Videonuze.com (http://www.videonuze.com/).

Brightcove’s S-1 filing gives investors a look inside Brightcove, what would be another “pure play” investment opportunity in the fast-growing and consolidating online video space. By the looks of the numbers, Brightcove is thriving in this industry and doesn’t seem to be suffering much in the current global economic downturn.

While still not profitable, Brightcove revenue was $28.4 million for the first six months of 2011, compared to $20.3 millin a year ago. And the company delivered about 700 million streams per month in the first half of this year, up 72 percent over last year. 

There are several small cap companies that fit loosely in this space, including:

Plainview, NY-based Neulion Inc. (TSX: NLN.TO, OTC: NEUL.PK, http://www.neulion.com/ an Internet Protocol television company (IPTV) that offers end-to-end solutions for delivering live and on-demand content to any Internet-enabled device. Neulion just reported a 37 percent increase in revenue for the second quarter, compared to a year ago. The company is still very small ($47.6 million market cap) and its stock closed Aug. 25 up 3 cents to $0.34, at the low end of its 52-week range of $0.21-$0.61.

Prague-based Kit Digital Inc. (Nasdaq: KITD, http://www.kitd.com/) provides cloud-based video management solutions. Formerly known as Roo Group, KITD has a $418 million market cap and closed Aug. 25 down 26 cents to $9.85, also at the low end of the 52-week range of $7.90-$17.32.

Plano, TX-based ViewCast (or ViewCast.com) Inc. * (OTCBB: VCST.OB, http://www/viewcast.com) develops hardware and software for the capture, management, transformation and delivery of digital media over IP and mobile networks. While always full of promise, ViewCast has not grown quick enough to generate traction in the market. ViewCoast just named a new CEO, John Hammock, formerly the company’s VP of sales, who aims to leverage his experience and contacts in the telecom, cable and other markets. The stock closed Aug. 25 down 1 cent to $0.23. Its stock has traded as high as $0.41 in the past 52 weeks, and as low as $0.19.

Cambridge, UK and San Francisco-based Blinkx PLC (LSE: BLNX.L or OTC: BLNKF.PK, http://www.blinkx.com/) provides video search and advertising services worldwide and calls itself “the world’s largest and most advanced video search engine.” It’s market cap is not listed and it surely is no small cap but we include it as an example of the energy in this sector. On Aug. 25, an otherwise down day in the market and on no discernible news, Blinkx closed up $2.99 to $105.24. The pink sheet stock was up 6 cents to $1.69.

Shanghai-based Tudou Holdings Ltd. (Nasdaq: TUDO, http://www.tudou.com/), which operates as an online video company in China, also had a good Aug. 25. TUDO traded up 91 cents (nearly 4 percent) to $25.01, close to its 52-week high of $27.75. Tudou stock went public earlier this month at $29 but dropped 12 percent on its first day of trading. 

* Denotes client of Allen & Caron Inc, publisher of this blog

Transition to HD Could Help Digital Media Company Stocks Survive Sagging Market

The advent of high definition video has surely been a boon to electronics retailers like Best Buy and CompUSA. But HD is also creating a “transition” in the marketplace for players in the internet TV and video streaming businesses. That’s a message from Dave Stoner, President and CEO of Plano, TX-based ViewCast * (OTCBB: VCST, http://www.viewcast.com), during his Aug. 16 results conference call. “We are seeing a demand shift…the transformation and migration to high definition we have been expecting for more than a year now seems to be happening…”

That has to be good news for a group of small caps focused on various areas in the digital media space. For the moment, the overall market segment is dragging many small caps down, but perhaps this HD transition may serve as a catalyst to help prop them back up.

For instance, Prague-based KIT digital (Nasdaq: KITD, http://www.kitd.com), which provides internet protocol-based video asset management solutions, reported record second quarter results on Aug. 16 with revenue up 120 percent year-over-year to $23.1 million. No doubt some of that growth came through acquisitions, but it seems to show that the HD transition could be helping them as well. The stock price was dragged down last week like many small caps, from $9.49 mid-week all the way down to $8.49 mid-day Aug. 23, which could indicate an opportunity if the market rights itself sometime soon.

San Diego-based DiVX, Inc. (Nasdaq: DIVX, http://www.divxnetworks.com) also reported a strong second quarter Aug. 4, only to have its stock price weakened shortly afterward. The company, which provides video compression-decompression software and digital video technologies for digital televisions, Blu-ray players, set top boxes , recently announced it would be acquired by Novato, CA-based Sonic Solutions (Nasdaq: SNIC, http://www.sonic.com), which develops products and services to manage digital media content. Its stock is trading at about $7.67, down from its 52-week high last spring of $9.02. Sonic’s stock has been on the rebound since dropping to $7 July 20. On Aug. 23 it was trading at $7.86.

Pompano Beach, FL-based Onstream Media (Nasdaq: ONSM, http://www.onstreammedia.com) reported sequential growth of 7.2 percent over its fiscal year second quarter on Aug. 16 but relatively flat numbers compared to the same period in 2009. Onstream, an online service provider of Internet broadcasting, corporate web communications and virtual marketplace technology, recently debuted its MarketPlace 365 platform for virtual tradeshows, which President and CEO Randy Selman called a “game-changing technology” because virtual tradeshows could become a growth driver as companies want to extend existing physical shows. Subway is the first customer.

As for ViewCast, CEO Stoner reported 26 percent top line growth year-over-year and the third consecutive quarter of sequential improvement. Highlights of the second quarter included the debut of its ViewCast Media Platform (VMp) at the National Association of Broadcasters tradeshow.

* Denotes Allen & Caron client

Mainstreaming Online Video: The Investment Angles

wsjgraphAdmit it – you’re getting hooked.  You hit “play” on your Google or Yahoo splash page at least once during the day.  A non-firewalled friend sends you a video link at least once a week, and you may have even been one of the 8 million pioneers, er, not so productive Americans, who covertly watched live streaming coverage of the hobbled Tiger Woods win a Monday playoff in last year’s US Open.  I am not even going to mention porn.

CNN Money just announced that a seeemingly unending appetite by marketers for online video has led them to invest in a much larger slate of online programming including additional online news programs.  Driven by advertisers, this move is in lockstep with others including FOX and CNBC and it forshadows whispered plans by the old guard “three letter” networks as well.  Even the social networkers are getting into the act as Facebook and Twitter have both become major referrers to online video content (http://newteevee.com/2009/03/06/changing-nature-of-virality-facebook-and-twitter/)  The verdict seems to be in, despite the early doubts of baby boomers, people are turning to the web for their fix of moving pictures and it is spawning a healthy group of new industries that warrant a close look by investors. 

Wall Street analysts seem to be in agreement that media content is universally shifting from offline to online and that the shift will create a decade-long adoption curve for digital media, content creation and infrastructure.  So who will benefit from this sea change?  There are a few ways to approach the question.  Streaming media is delivered via broadband access and the growing capacity of the “pipes” that deliver the content.  The bottleneck between the content and the computer is easing as will the bottleneck between the computer and the TV ( “home theater” for you folks in the OC).  These infrastructure needs will be filled by larger companies including telecom, cable operators, etc.

For the small cap investor, the best places for participation may be the vendors creating the nuts and bolts technologies surrounding the generation and delivery of the content to the various internet protocols that are a long way from being standardized.  Those players range from startups to .com-boom survivors and they seem to be gaining steam and getting funded, even in a disastrous economy. They can loosly be categorized into a couple of segments – content management and video compression, encoding and streaming.

Content management is the manipulation and delivery of the digital content, making it available and deliverable to the end user – think on demand videos or YouTube browsing (www.youtube.com).  These companies include MacroVision (Nasdaq:MVSN) (www.macrovision.com), OnStream Media (Nasdaq:ONSM) (www.onstreammedia.com) and Kit Digital (OTCBB:KDGL, a new symbol subsequent to a reverse split effective March 9, 2009) (www.kitd.com).

Compression, encoding and streaming companies create the hardware and software that make it possible for the content to travel from the front of a camera into the digital domain and then accommodated for viewing on a number of web-based viewing platforms.  Interesting companies in this space include On2 Technologies (NYSE Alternext US: ONT) (www.on2.com), DiVX, Inc (Nasdaq:DIVX) (www.divx.com) and Vividas.

One company, ViewCast, Inc (OTCBB:VCST) (www.viewcast.com), which has a long history of steady growth, has historically played a key role in the encoding and streaming side of things, but last week announced that it was making a bold leap into content management with its purchase of Ancept, an IBM-platform company that will allow ViewCast to drive additional revenues, take another link in the value chain of streaming media and likely take a greater share of attention on Wall Street. ViewCast is an IR client of the publisher of this blog.

Regardless of your approach to playing the online video opportunity – do play it.  It has become a part of the media fabric across the globe and will soon overtake traditional television as the medium most watched.

Cisco Outlook: Global Mobile Traffic to Increase 66-Fold by 2013

The fourth generation, or 4G, mobile internet transformation is expanding the world of global mobile traffic–very rapidly. According to a forecast released this week by computer networking giant Cisco Systems (Nasdaq: CSCO, http://www.cisco.com), global mobile traffic is expected to increase 66 times in the next five years (2008 to 2013) with a compound annual growth rate of 131 percent in the same period. The highest rates are expected to occur in emerging markets: Latin America will be the strongest with a 166 percent annual growth rate, followed by the Asia-Pacific region at 146 percent. By 2013, Asia Pacific will account for one-third of all mobile data traffic. Cisco released the results of its Visual Networking Index Mobile Forecast Tuesday (http://finance.yahoo.com/news/Newest-Cisco-Visual-iw-14309618.html).

These forecasts represent significant growth prospects for a host of small private or smallcap companies. How about Newport Beach, CA-based Mindspeed Technologies (Nasdaq: MSPD, http://www.mindspeed.com), which makes chips that help deliver voice, audio and video data. Mindspeed’s stock price (about 80 cents, down from a 52-week high of $4.90) and revenues have suffered recently due to the recent economic downturn but obviously the future beckons. Or there is privately-held, Minneapolis-based Digital River (http://www.digitalriver.com), a provider of a variety of global e-commerce solutions.

The forecast also includes mobile video traffic, which is expected to grow at an annual rate of 150 percent in the five-year period. By 2013, 64 percent of the world’s mobile traffic will be video, according to the Cisco forecast. That’s welcome news for Plano, TX-based ViewCast (EBB: VCST, http://www.viewcast.com), which manufactures hardware and software for live streaming and on-demand video. ViewCast in January released its Niagara 2100, the lowest priced streaming appliance on the market. Or Clifton Park, NY-based On2 Technologies (AMEX: ONT, http://www.on2.com), which sells video compression software and related services. 

According to Wikipedia, “4G (also known as Beyond 3G) is a term used to describe the next complete evolution in wireless communications. A 4G system will be able to provide a comprehensive IP solution where voice, data, and streamed multimedia can be given to users on an ‘anywhere, anytime’ basis, and at higher data rates than previous generations.”

Online Video Ad Spending Growth to Slow, but Stay in Double Digits

Itblog-pic-1 appears that 2009 will be another stellar growth year for online video ad spending, although not quite up to the levels reached in 2008 or what is predicted for 2010, according to projections from AccuStream iMedia Research (http://www.accustreamresearch.com/) reported recently by eMarketer.com (http://www.emarketer.com/Article.aspx?id=1006896)

AccuStream is predicting online video ad spending will grow by “only” 22.5 percent in 2009, down from the 2008 growth rate of 36 percent (and spending of $2.1 billion). Growth totals for 2010 are projected to climb back to 28.2 percent in 2010, according to AccuStream. While the dip for 2009 is substantial, that’s only as compared to 2008. No doubt a growth rate of more than 20 percent would be welcomed in most any other business sector.

Double digit growth is wonderful news for large players in the online video business such as Cambridge, MA-based Akamai Technologies (Nasdaq: AKAM, http://www.akamai.com/) but perhaps more important for smallcaps focused more singularly on streaming video such as Clifton Park, NY-based On2 Technologies (Amex: ONT, http://www.on2.com) and Plano, TX-based ViewCast (OTC BB: VCST, http://www.viewcast.com). Both ViewCast and On2 are currently trading at about 40 cents, although ViewCast is closer to its 52-week high of 54 cents while On2 has been very volatile, trading as high as $1.11 in the past year (52-week range 11 cents to $1.18).  It is also an up-vector for content-rich providers like NYC- and Dubai-based KIT Digital Inc (EBB:KITD, http://www.kit-digital.com), whose $0.17 stock hit a yearly high of $0.49 some time back.