Housing Prices Are Way Up, But Experts Disagree on Why

Photo courtesy of thejewishdenver.com

Photo courtesy of thejewishdenver.com

What is driving the recent rapid rise in housing prices? And is this a sign of a sustained economic recovery? Those were among the questions during a segment covering U.S. housing on CNBC May 28 (http://www.cnbc.com/id/100769361). Home prices during the first quarter of 2013 were up by 10.2 percent nationally, according to the S&P/Case-Shiller Index, the highest since 2007. Phoenix and Las Vegas, two of the regions hit hardest by the recession, were up the most.

Experts point to the very low mortgage rates (held artificially low by the Fed) and the low inventory of houses as among the reasons for the increase. Very few new houses are being built so sales are cutting into the inventory, increasing demand for the few left for sale.

Those who believe the housing market will continue to prosper say population growth will be a driver: One million new households a year are being created. Naysayers, who believe the price increases are not sustainable, say the market is being driven by investors who are buying and renting. They also point to still low construction employment numbers and the fact that college graduates, who should be a major factor in first time homebuyers, are not getting jobs and are shackled with $1 trillion in student loan debt.

While there is little doubt that houses are being appraised at higher prices, the small cap home builders, who had been on a tear since last summer, have seen their valuations flatten out. Here is an update on the home builders we have been following for the past year:

Red Bank, NJ-based Hovnanian Enterprises (NYSE: HOV, http://www.khov.com/) specializes in single-family detached homes, condominiums and town homes and operates in two segments: homebuilding and financial services.  As recently as October 2011 HOV was trading for $0.89. But since March HOV has been hovering around the $6 mark. HOV closed May 28 at $6.15, up 11 cents for the day with a market cap of $856 million. Its 52-week trading range is $1.52-$7.43.

Los Angeles-based KB Home (NYSE: KBH, http://www.kbhome.com/) is a home building and financial services company catering in large part to first time buyers. KB is an old Southern California home builder, founded in 1957 and formerly called Kaufman and Broad. As recently as last Aug. 31 KBH traded for $11.04 with a market cap of $851 million. It closed May 28 at $23.16, up 5 cents for the day with a market cap of $1.9 billion. Its 52-week trading range is $6.46-$25.14.

Columbus, OH-based M/I Homes Inc. (NYSE: MHO, http://www.mihomes.com/) builds single family homes primarily in the Midwest, Mid-Atlantic and southern parts of the U.S. The  company was founded in 1973 and, like most of the other builders, has homebuilding and financial services divisions. It also had a run up into March and closed March 20 at $26.03 with a market cap of $584 million. MHO closed May 28 at $26.47, up 29 cents for the day. Its 52-week trading range is $12.24-$29.07.

Atlanta-based Beazer Homes USA (NYSE: BZH, http://www.beazer.com/) builds and sells single-family and multiple-family homes in 16 states in the U.S. It also acquires, improves and rents homes. The company operates through commissioned home sales counselors and independent brokers. Back in mid-September BZH was trading for $3.77. It closed March 20 at $16.86 with a market cap of $410 million. On May 28, BZH closed at $21.79, up 44 cents for the day, with a market cap of $547 million. Its 52-week trading range is $3.46-$23.29.

Irvine, CA-based Standard Pacific (NYSE: SPF, http://www.standardpacifichomes.com/) builds single family and detached homes and targets a wide range of homebuyers. It also provides mortage financing services through its mortage finance subsidiary, Standard Pacific Mortgage. SPF closed March 20 at $9.07 with a market cap of $1.9 billion. It closed May 28 at $9.52 down 16 cents with a market cap of $2.1 billion. Its 52-week range is $4.39-$9.97.

Westlake Village, CA-based The Ryland Group (NYSE: RYL, http://www.ryland.com/) is a homebuilder and mortage finance company. RYL covers many aspects of the home buying process including design, construction, title insurance and escrow. RYL closed March 20 at $42.16 with a market cap of $1.9 billion. It closed May 28 at $47.60, down 86 cents, with a market cap of $2.2 billion. Its 52-week trading range is $19.25-$50.42.


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.

Tesla a Bright Spot in Still Dim, but Improving Electric Car Industry

Photo of Nissan Leaf S courtesy of evworld.com

Photo of Nissan Leaf S courtesy of evworld.com

Anyone watching the still slow but improving progress of the electric car industry may have seen the Bloomberg Businessweek story on the “Tale of Two Electric Car Makers: Tesla Soars, Fisker Flops” (http://www.businessweek.com/articles/2013-05-08/a-tale-of-two-electric-car-makers-tesla-soars-fisker-flops). Tesla Motors not only produced a profit in the first quarter, as advertized, but also increased its guidance on sales for the year, from 20,000 to 21,000 cars. TSLA revenues were up 83 percent year-over-year to $562 million and the stock is soaring (see below).

While the article outlines supply chain and battery issues and other “kinks in its processes” Tesla needs to iron out, their stock is soaring and the outlook looks good. The contrast was provided by Anaheim, CA-based Fisker Automotive, which is laying off employees and hiring bankruptcy consultants, the article reports. Another electric car maker, Los Angeles-based CODA Automotive, recently filed for bankruptcy protection and announced it was “focusing its business strategy on the growing energy storage market,” according to a company filing.

For more positive electric car news, the BBC posted an article this week on the Nissan Leaf (http://www.bbc.com/autos/story/20130509-leaf-charges-into-mid-life) as it “charges through mid-life.” The Leaf, billed as “the first truly global mass-produced electric vehicle,” now includes the Leaf S, a lower cost model “designed to lower the barrier of entry to EV ownership.” One of the cost cutting moves was to move its assembly line from Japan to another Nissan factory in Smyrna, TE.

The BBC put the Leaf through its paces and managed to get 75 miles from a full charge, right about in line with Nissan estimates. Competitors mentioned in the article include the Toyota Prius PH-V and Ford C-Max Energi, both plug-in hybrids.

If anyone out there is charged up about the electric vehicle market, and knows of a small cap stock play in this market, please let us know. Meanwhile, we’ve been following a few small caps, plus Tesla to see how their stock is moving. We’ve also added a new company, Car Charging Group, to our list.

Palo Alto, CA-based Tesla Motors (Nasdaq: TSLA, http://www.teslamotors.com/) manufactures the Tesla Roadster, the Model S and other electric vehicles and electric powertrain  components. It’s way too large for our small cap blog focus, but just as a reference, the last time we looked at Tesla last February 20 it was trading at $38.90 with a market cap of $4.4 billion. As we mentioned, TSLA stock has been on a huge roll. It closed May 15 at $84.84, up $1.60 for the day. Its 52-week trading range is now $25.52-$97.12.

Santa Rosa, CA-based ZAP (OTC: ZAAP.OB, http://www.zapworld.com/) makes a variety of all-electric vehicles including trucks, motorcycles, shuttle buses and sedans and was formerly known as ZAPWORLD.COM. When we last checked on Feb. 20 its stock closed at $0.08 with a market cap of $24. ZAAP closed May 15 at $0.14, up 3 cents for the day, with a market cap of $42 million. Its 52-week trading range is $0.06-$0.27.

San Diego-based Maxwell Technologies Inc. (Nasdaq: MXWL, http://www.maxwell.com/) was formerly known as Maxwell Laboratories. The company manufactures ultracapacitors that are energy storage devices and power delivery systems for use in transportation, automotive, IT and industrial electronics.  MXWL closed back on Feb. 20 at $10.01 with a market cap of $292 million. It closed May 15 at $6.36, up 11 cents for the day, with a market cap of $185 million. Its 52-week trading range is now $4.90-$11.08.

Miami Beach-based Car Charging Group (OTCQB: CCGI, http://www.carcharging.com/) caught our eye with the announcement March 12 that it was acquiring EVPass, a company building destination charging networks for EV charging. CCGI  is also in the business of building charging station networks and has been busy making more acquisitions. Earlier this month, CCGI announced it had acquired 350Green LLC. CCGI closed May 15 at $1.34, up 4 cents for the day, with a market cap of $70.8 million. Its 52-week trading range is $0.60-$2.

Warren Buffett’s ‘World’s Largest Solar Power Development’ Underway near LA

It’s being billed as the “world’s largest solar power development,” the joint construction effort started in January by Berkshire Hathaway’s MidAmerican Solar and SunPower Corp. north of downtown Los Angeles in Kern and Los Angeles counties. Officially called the Antelope Valley Solar Projects, the 3,230-acre development in two co-located projects are scheduled to generate 579 megawatts, or enough energy to power 400,000 average California homes or about 2 million people.

MidAmerican Solar is a subsidiary of MidAmerican Energy Holdings Co., which is controlled by Berkshire Hathaway. Warren Buffett is the primary investor, chairman and CEO of Berkshire Hathaway.

The two companies calculate that the electricity powered by the project will displace an estimated 775,000 tons of carbon dioxide annually, which they say is equal to taking about 3 million cars off the road over the next 20 years. MidAmerican  owns the development and SunPower is the designer, engineer and contractor for the construction and will operate and maintain the project. Southern California Edison is the customer that will purchase the power when it is completed by year-end 2015.

One of the other big solar power stories  of the week, “The Incredible Shrinking Cost of Solar Energy “(http://www.juancole.com/2013/05/incredible-shrinking-projects.html notes that thanks to the “dramatic fall in the cost of solar power generation” solar is at grid parity in many parts of the world, including Germany, Portugal, Italy and Spain, as well in the southwestern U.S.

Other data points in these stories include:

  • The cost of the best Chinese solar panels fell in cost by 50 percent between 2009-2012. Over the next two years, cost reductions will “slow” to a 30 percent rate.
  • By 2015 solar panels are expected to fall to 42 cents per watt.
  • U.S. solar installations rose 76 percent in 2012.
  • Hybrid plants that include both solar and wind turbines dramatically increase efficiency and help integrate into the electrical grid.

Given some of the interesting developments in solar power, how have some of the solar stocks fared in the past few months?

San Mateo, CA-based SolarCity Corp. (Nasdaq: SCTY, http://www.solarcity.com/ designs, installs and sells or leases solar energy systems to residential and commercial customers, as well as electric vehicle charging products.  It closed March 15 at $16.74 with a market cap of $406.5 million. By April 12 it was trading at $19.97 with a market cap of $1.5 billion. SCTY closed May 8 at $24.16, up 50 cents for the day with a market cap of $1.8 billion. Its 52-week trading range is $9.20-$28.23.

Ontario, Canada-based Canadian Solar (Nasdaq: CSIQ, http://www.canadian-solar.com/ ), which sells a variety of solar products, closed back on March 15 at $3.50 with a market cap of $151 million. It closed April 12 at $4.07 with a market cap of $176 million. CSIQ closed May 8 at $5.29, down 17 cents for the day, with a market cap of $228 million. Its 52-week trading range is $1.95-$6.09.

San Jose, CA-based SunPower Corp. (Nasdaq: SPWR, http://www.sunpowercorp.com/), which makes a wide variety of solar products and systems and is one of the principals in the Antelope Valley Solar Project, closed back on March 15 at $11.80 with a market cap of $1.4 billion. SPWR closed April 12 at $11.06. It closed May 8 at $15.36, down 6 cents for the day, with a market cap of $1.8 billion. Its 52-week trading range is $3.71-$16.04.

China-based Trina Solar Ltd. (NYSE: TSL, http://www.trinasolar.com/) designs, manufactures and sells photovoltaic modules worldwide. Back on March 15, TSL closed at $4.11 with a market cap of $291 million. It closed April 12 at $4.19 with a  market cap of $335 million. TSL closed May 8 at $4.72, down 22 cents for the day. Its 52-week trading range is now $2.04-$7.67.

China-based Yingli Green Energy Holding Co. (NYSE: YGE, http://www.yinglisolar.com/ makes photovoltaic products including cells, modules and systems. YGE closed back on March 15 at $2.47 with a market cap of $387 million. It closed April 12 at $2.12 with a market cap of $324 million. YGE closed May 8 at $2.20, down 7 cents for the day, with a market cap of $356 million. Its 52-week trading range is $1.25-$3.68.

China-based Suntech Power Holdings (NYSE: STP, http://am.suntech-power.com/), the world’s largest producer of solar panels, closed at $0.70 back on March 15 with a market cap of $127 million. It closed May 8 at $0.51, down 7 cents for the day, with a market cap of $92 million. Its 52-week trading range is $0.30-$2.67.

St. Peters, MO-based MEMC Electronic Materials (NYSE:WFR, http://www.memc.com/) manufactures and sells silicon wafers and photovoltaic materials. Through SunEdison, it’s a developer of solar energy products. It closed March 15 at $4.53 with a market cap of $1 billion. WFR closed April 12 at $4.76 with a market cap of $1 billion. WFR closed May 8 at $5.33, down 6 cents for the day, with a market cap of $1.2 billion. Its 52-week trading range is $1.44-$5.70.

LED: Looking alot Like Lighting’s Future

Our interest in small cap lighting companies was piqued this week with the announcement April

Photo courtesy of trinamao.en.busytrade.com

Photo courtesy of trinamao.en.busytrade.com

25 that New York-based ForceField Energy (OTCQQB: FNRG) had signed a letter of intent to acquire a 60 percent interest in 1-800 NY Bulbs.

The combination seems to make sense. During its 25 years of existence, Bulbs has more than 8,000 commercial clients, is an authorized dealer and distributor of GE Lighting Products and has projected about $5 million in revenue in 2013, according to the press release announcing the letter of intent. ForceField is focused on renewable energy, energy efficiency and LED (Light Emitting Diode) products.

LED lights are the latest in modern technology and energy efficiency, but have been slow to become the standard in households because of their price, according to Time magazine (http://business.time.com/2013/04/25/light-switch-why-youll-start-using-led-bulbs-this-year/). But the Time report suggests LED prices are coming down. Also, the Energy Independence and Security Act, passed in 2007, requires lightbulbs to become more energy efficient  and has led to the phasing out of standard 100-watt and 75-watt incandescent bulbs, with the 60-watt and 40-watt bulbs to follow.

So the day of the LED light could be near, as could be an intriguing jolt of energy to small cap lighting companies.

FNRG (http://www.forcefieldenergy.com) is a lightly-traded, $87 million market cap, pink sheet company with a 52-week trading range of $2.20-$5.64. It is also involved in transforming waste heat from manufacturing and other sources into electricity. It owns 51 percent of TransPacific Energy Inc. FNRG closed April 26 at $5.35, no change for the day.

Charlotte, NC-based Revolution Lighting Technologies (Nasdaq: RVLT, (http://www.nexxuslighting.com/) designs, manufactures and sells commercial grade LED replacement light bulbs and LED-based signage under the Array Lighting and Lumificient brands (Lumificient Corporation is a subsidiary). It was formerly called Nexxus Lighting and operates mainly in the global commercial, hospitality, institutional, retail and sign markets. RVLT closed April 29 at a 52-week high of $4.01, up 45 cents for the day with a market cap of $140 million. Its 52-week trading range is $0.11-$4.01.

Cincinnati-based LSI Industries (Nasdaq: LYTS, http://www.lsi-industries.com/) is 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. Its 52-week trading range is $5.81-$7.77. It closed April 29 at $7.09, up 18 cents for the day, with a market cap of $170 million.

Solon, OH-based Energy Focus Inc (OTC Pink: EFOI, http://www.energyfocusinc.com/) makes LED lighting products as well as products based fiber optic and other energy-efficient technologies. EFOI focuses on the government and public sector markets, as well as the general commercial and pool markets. Its 52-week trading range is $0.16-$0.40. It closed April 29 at $0.22, up 3 cents for the day, with a market cap of $8.4 million.

Boom in Oil, Gas Pipeline Building Could Be Boon for Small Caps

Putting controversy aside for the moment, there are a variety of companies that may prosper

Photo courtesy of neteon.net

Photo courtesy of neteon.net

from the current recovery in oil and gas pipeline building. It’s the kind of boom that can create strange bedfellows, considering the pipe now being built from Iraqi Kurdistan to Turkey scheduled to open in the third quarter of 2013. The Kurds and Turks are not known for being friends.

The recovery in oil and gas pipeline building should be fueled by investment in unconventional domestic energy sources like gas shale and oil sands, pressure to repair and replace aging infrastructure and the uptick in the residential construction markets, according to a forecast from IBISWorld.

And if the proposed 1,700-mile Keystone XL pipeline from Canada to the Texas Gulf Coast gets approved, and its fate certainly remains in doubt, that would only add to the local boom. Supporters say it would create thousands of jobs, while environmentalists say it will endanger the environment and possibly the ground water supply. A decision from the Obama Administration is expected by summertime.

A random search turned up four small caps of the many companies involved in oil and gas pipeline business. We’re not endorsing them by any means. Please do your homework before investing.

Dallas-based Crosstex Energy (Nasdaq: XTXI, http://www.crosstexenergy.com/) builds oil and natural gas pipelines, among other services, and operates about 3,500 miles of natural gas and oil pipelines, as well as 10 natural gas processing plants and 10 fractionators as well as barge and rail terminals and product storage facilities. If you’d like to learn more, tune in to the company’s first quarter 2013 financial results conference call at 11 a.m. Eastern, May 9.  XTXI closed April 23 at $18.64, up 21 cents for the day, with a market cap of $886.5 million. Its 52-week trading range is $11.32-$19.51.

Calgary-based North American Energy Partners (NYSE: NOA, http://www.nacg.ca/) provides a range of construction and pipeline installation services to customers in the Canadian oil sands, industrial construction and pipeline construction markets. NOA’s primary market is the Canadian oil sands where it supports its customers’ mining operations and capital projects. NOA closed April 23 at $4.38, up 16 cents for the day, with a market cap of $159 million. Its 52-week trading range is $2.23-$4.70.

Houston-based Willbros Group Inc. (NYSE: WG, http://www.willbros.com/) is a full service engineering and construction company serving the oil and gas and power industries. Founded in 1908, WG has “developed a brand as a preferred contractor, with a reputation for quality, cost, efficiency and safety over its more than 100-year history,” according to The Motley Fool (http://beta.fool.com/asiavalue/2013/03/25/willbros-low-valuations-insufficient-to-compensate/27767/?source=eogyholnk0000001). Back in 2007, before the recession, WG was trading for more than $13. It closed April 23 at $9.79, up 56 cents for the day, with a market cap of $481 million. Its 52-week trading range is $4.07-$10.45.

Sarver, PA-based Geospatial Holdings (OTC: GSPH, http://www.geospatialcorporation.com/) provides pipeline management technologies and services for managing pipeline infrastructure assets in the U.S. Geospatial Mapping Systems, which provides centerline mapping of pipeline infrastructure, is a wholly owned subsidiary. GSPH closed April 23 at $0.08 with no trading for the day and a market cap of $3.5 million. Its 52-week trading range is $0.05-$0.22.

Whither Tech Investment Banking? Peter Blackwood Talks about Deal Flow and What’s Hot

Peter A. Blackwood is a Managing Director, and heads the Technology & Media investment banking group at Philadelphia-based Janney Montgomery Scott LLC, a bank whose roots go back to 1832, and probably the most prominent mid-Atlantic regional full-service investment bank, broker-dealer and asset manager (with more than $55 billion in assets under management).   Prior to joining Janney in 2009, Peter was a Principal and Head of the Internet & Digital Media Group at Merriman Curhan Ford & Co.  He joined Merriman from SoundView Technology Group, and began his career at E*OFFERING, a startup investment bank later acquired by SoundView.  He went to school at Ohio Wesleyan University.  pabmugshot

I met Peter at Merriman not quite 10 years ago when we were working with a digital media company headquartered in London, which was at length acquired by a larger digital media company that Peter had worked with.  We had a chance to talk on April 16 about the current state of the technology industry vis-à-vis investment banking, and what he foresees for 2013 in terms of deal flow, what he sees as “hot” in technology these days, and what kinds of public and private deal structures are most common in this market.

JA:  How is 2013 compared to 2012 in terms of deal flow?

PB:  The first few months of 2013 have been busy for us.  A number of transactions we were working on last year were delayed as people worried about the negotiations in Congress over the sequester, and moved into this year.  In the first quarter our team was quite busy executing and completing these transactions, as well as evaluating and pitching new business opportunities.  With regard to Q2 and the balance of the year, we are witnessing a marked increase in activity with regard to public offerings, both with companies selecting underwriters and working through the registration process.

JA:  Interesting that you mention IPOs first.  What is the situation these days with regard to IPOs vs PIPEs?

PB:  Over the past 2 years, PIPEs, or Private Investments in Public Equities, have fallen somewhat out of favor.  Today traditional unregistered PIPEs from the mid-2000s are few and far between.  We are seeing a preference for Registered Direct (RD) offerings, and even more for CMPOs or Confidentially Marketed Public Offerings, a variant of RD offering.  Both the CMPO and Registered Direct offerings are based on shelf registrations, but the Registered Direct is an agented offering and the CMPO is an underwritten offering.

Many issuers now prefer a CMPO structure because it opens up the number of institutions that can participate due to the underwritten vs. agented format.  Some institutional investors have charters that restrict their ability to buy agented offerings vs. underwritten offerings – which means they are excluded from Registered Direct offerings, because they are not underwritten, even though they are fully registered and tradable.  The difference is that the CMPO provides a publicly-filed prospectus supplement prior to pricing, even though it is marketed to a limited number of institutional investors, so the fact of the offering is public knowledge, and it can be underwritten by the investment bank.  As a result, CMPOs have been quite popular over the last few years.

With that said, this year we are beginning to see a bit of resurgence in structured deals, or PIPEs.  We are learning that buyers are more risk-friendly now than they have been for a few years, and are looking to invest in structured deals, which are most commonly PIPEs with common stock and warrants, with registration being filed only after the deal is completed.

JA:  How about size of deals?  Are you seeing small-caps back in the public offering market?

PB:  At our firm, and particularly in technology, the size of companies we deal with is quite broad.  For example, we recently closed a sell-side advisory deal for under $20 million, and are actively working on several deals over $200 million today.  For us, deal size is not the primary motivational factor for new business, but is rather driven by our ability to add value to help a client achieve their goals.  So, if we see an emerging technology that has potentially great demand, we will look to be involved regardless of the size of the company.

On the financing front, today we are primarily oriented toward working on financings for public companies, either IPOs or Follow-Ons.  When it comes to M&A transactions we will seek to work with both private and public companies.  At the moment, we are seeing venture capital at an unfavorable inflection point these days, and we’re not looking at VC deals as a result.

JA: What’s hot in terms of tech sectors?  What can we expect to see industrywide in terms of new issues?

PB:  Many companies across the technology and media landscape today are positioning their solutions as SaaS (Software as a Service) or a Cloud-based solution – for the obvious reasons pertaining to valuation.  So I would say those are two of the hottest sectors.  There are so many companies claiming to be SaaS or Cloud-based that it is creating some confusion, as a matter of fact.

Broadly speaking in software land, perpetual software licensing business is being transitioned to term-based licensing.  Companies with traditional software licensing strategies are in the midst of trying to convert these perpetual relationships to hosted and recurring-revenue models.  So we are seeing, for instance, a business that might have been 65% perpetual licenses, 20% maintenance, and 15% term licenses actively converting or sunsetting these perpetual licenses to either term licensing or recurring, seat-based licensing..  As the value proposition goes, it is more cost-efficient on the client to pay for what they are using.

JA:  What other sectors are you seeing more of?

PB:  Another emerging area that we are quite excited about is where e-commerce and technology intersect, and the emergence of next-generation e-commerce platforms, many of which are SaaS-based.

To give you a case study for the growing need for these eCommerce platforms, let me run through a brief example.  Ten years ago, if you were a company such as Best Buy, as a traditional retailer also seeking to sell goods online with the growth of the Internet.  With the rapid growth in web-based business opportunity, an entire department was created to focus on your web presence, from website creation to product description, pricing, and IT/server management. Today, much of these eCommerce initiatives are being contracted to a third-party provider due to the increased complexity with so many new customer interaction ‘channels’ being used, which is broadly referred to as Omni-Channel.

A few examples of leading brands that have outsourced their eCommerce solutions include UnderArmour and Crocs.

In pre-Internet days, maybe you would have received a catalog from someone like Best Buy, for instance.  You would flip through it and then call in your order on the telephone.  Today, with the rise of these Omni-Channels, you may still get that catalog, or you may get it digitally.  But if you get the catalog  you throw it in your briefcase and look at it on the train or bus while you are going to work.  You use your smartphone or tablet or Kindle and have a look at the items you are interested in.  You get to the office, go on your desktop and have a look at the website to see a bigger image.  You scroll down and look at the reviews.  Maybe on your way home you actually stop by a Best Buy store to look at the laptop or television that caught your eye, but then you go on home.  They maybe you make the actual purchase on the desktop at home.  So you had a catalog or a digital catalog, a smartphone platform, a visit to the store, a visit to the website from a desktop, and a purchase made from a different desktop at home.  All of these consumer touch points have to be tracked and managed seamlessly; order execution has to be flawless, and the branding has to be identical across all platforms.  The retailer, in my example, Best Buy, is now collecting information about your various visits to understand what is attracting you about the product, what you like.  Typically they do not have all that expertise in-house and have no intention of building an inside empire to address it.

Another area we are focused on is within the marketing & advertising space, and also where this content meets technology platforms.  Whether it’s the growth of video-based advertising over traditional display, or the emerging channels of mobile and social, we expect to see this ecosystem to be fertile ground for both new equity issuance and M&A activity for several years to come.

JA:  Are retail investors back in the market, or are all these deals institutional?

PB:  From our perspective, the retail investor is very much back in the market.  Janney has completed 23 public equity offerings so far this year, and retail participation from our platform has been significant across the board.  We find that the retail investor has gotten much more active on IPOs and follow-on offerings than for several years past.  For quite a while now, the retail investor has focused on yield – dividends, interest, and other forms of income.  What we’re seeing this year is retail beginning to be more open to risk by way of more traditional equity, and pursuing capital appreciation over traditional yield.

Retail investors have traditionally been more interested in large caps, but we are seeing them reach into the mid-caps now as well.  We have more than 95 retail offices at Janney, and 10 institutional offices, so we are clearly weighted toward serving the retail constituency by those numbers.

JA:  What are a couple of the deals that the tech group at Janney has participated in recently?

PB:  Over the past year, we worked with Angie’s List (ANGI) on their IPO and follow-on offering, CaféPress on their IPO, and on a secondary offering for WNS Holdings (WNS), which is a business outsourcing company.  We also recently worked on the acquisition by Lexmark (LXK) of Twistage, a unique cloud-based media management platform, and expect to continue to be active in M&A through the balance of the year.

JA:  Is Janney likely to stay regional or will it follow some of the other middle-market banks and go national or international?

PB:  Founded in  Philadelphia in 1832, I would say it is a safe assumption that Janney is and always will be a mid-Atlantic firm.  We have offices in most major metropolitan areas of the United States, but our strongest coverage in terms of sales and trading is geographically centered in the mid-Atlantic.  I am in San Francisco with a part of the technology team, and Janney has had both sales & trading and equity research here for a while but we only added investment banking here in mid 2012 – I was in Philadelphia before that.

Janney’s capital markets presence has seen significant growth over the last few years, across our sales & trading, research and investment banking divisions. Today, we are not seeing many new investment banks being formed.  There are some boutiques out there who are working on specialized deals, mostly in M&A.  The consolidation of Wall Street as a whole after 2007-2008 has been an opportunity for us to pick up key talent as people have been displaced from other banks.  So in many respects, the last few years have been a time of opportunity for Janney.

JA:  Thanks, Peter.