REITs, REIT IPOs Among Equities Enjoying Strong Start of 2013

CyrusOne management rings bell at Nasdaq. Photo courtesy CyrusOne.com

CyrusOne management rings bell at Nasdaq. Photo courtesy CyrusOne.com

Record-setting highs for the Dow Jones Industrial Average and solid gains for the S&P 500 mean a wide variety of equities are enjoying a good run during the first three months of 2013. But many commentators have pointed out that REITs, or real estate investment trusts, are particularly good investments thanks to the improving state of the real estate market and the returns a REIT investor receives, among a variety of other reasons.

REITs are federally obligated to invest only in real estate, including physical properties and mortgages. The rules stipulate that if they pay out at least 90 percent of their earnings they do not need to pay income taxes.

While the case can’t be made that REITs did better than the overall equitly market in the first quarter, they had a strong showing, according to GlobeSt.com, a real estate site that focuses on REITs (http://www.globest.com/news/12_579/national/reit/REITs-Make-Strong-Q1-Showing-331904.html). The FTSE NAREIT (National Association of Real Estate Trusts) All REITs index “delivered a 9.11 percent return” compared to the S&P 500’s return of 10.61 precent.

NAREIT President and CEO said in a statement: “REITs continued to reward their shareholders with all the benefits of real estate investment. They did so while also providing the advantages of liquidity and moderate leverage.”

The GlobeSt.com story also highlights the three REIT IPOs completed in the first quarter, noting that each outperformed the market since their offerings. Here are the three:

Carrollton, TX-based CyrusOne Inc. (Nasdaq:CONE, http://www.cyrusone.com/) is a data center REIT providing storage facilities for about 500 customers including 9 Fortune 20 and 108 of the Fortune 1000 companies. As of Sept. 30, 2012, CONE’s portfolio included 23 operating data centers in nine markets: Austin, Chicago, Cincinnati, Dallas, Houston, London, San Antonio, Singapore and South Bend. CONE posted a 25.24 percent return in Q1. It closed April 9 at $23.39, down 3 cents for the day, with a market cap of $512 million. Its trading range so far is $20.53-$24.49.

McLean, VA-based Gladstone Land Corp. (Nasdaq: LAND, http://www.gladstoneland.com/) is focused on U.S. farmland where tenants grow annual row crops such as berries, lettuce and melons. LAND also leases part of its Oxnard, CA farm to an oil company. LAND posted a 6.1 percent return in Q1. LAND closed April 9 at $16, down 9 cents for the day, with a market cap of $104.5 million. Its trading range so far is $14-$16.77.

Chicago-based Aviv REIT (NYSE: AVIV, http://www.avivreit.com/) has been in business more than 30 years and owns post-acute and long-term care skilled nursing facilities and other healthcare properties. It is one of the largest owners of skilled nursing facilities in the nation. AVIV commenced its IPO March 11. AVIV closed April 9 at $24.96, down 35 cents for the day, with a market cap of $1.2 billion. It’s trading range so far is $22.10-$25.45.

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Small Cap Stocks See Significant Opportunities in ‘Cloud Computing’

You may know that the term “cloud” as a synonym for the Internet is based on the use of a cloud as the symbol representing the Internet in flowcharts and diagrams. Services that are hosted on the “cloud” are hosted over the Internet.

In general, hosted services over the “cloud” come in three service categories: Infrastructure, Platform and Software .

Graphic courtesy of yokotechspace.blogspot.com

A cloud service has characteristics that differentiate it from traditional hosting: it is sold on demand at a given time and the service is fully managed by the provider (the consumer only needs a personal computer and Internet access). A cloud can be kept private for a select group of users or made public for as many users as possible like Amazon (Nasdaq: AMZN) Web Services, http://aws.amazon.com/.

Cloud computing is at an early stage, with a fragmented group of providers large and small delivering a slew of cloud-based services, from full-blown applications to storage services to spam filtering. As companies and consumers take advantage of cloud computing technology, there will be significant growth opportunities for data center hardware and services along with demand for virtual services and storage solutions.

So let’s take a look at some small cap companies involved in cloud computing.

Chanhassen, MN-based Datalink Corp. (Nasdaq: DTLK, http://www.datalink.com) provides data center solutions and services to mid- and large-size companies in the United States. It engages in designing and supporting infrastructures, such as servers, storage, and networks.  DTLK has a $170 million market cap and trades about 140,000 shares a day. Its 52-week trading range is $6.11-$11.50. It closed June 29 at $9.55, up 31 cents for the day.

Alpharetta, GA-based MedAssets (Nasdaq: MDAS, http://www.medassets.com) provides technology-enabled products and services for hospitals, health systems and other providers  in the US. It operates in two segments, Spend and Clinical Resource Management, and Revenue Cycle Management.  MDAS has a $790 million market cap, trades about 500,000 shares per day and has a 52-week trading range of $8.52-$14.58. It closed June 29 at $13.45, up 21 cents for the day.

Chicago-based Accretive Health (NYSE: AH, http://www.accretivehealth.com) provides revenue cycle management services that helps hospitals and healthcare companies manage their revenue cycles, which encompass patient registration, insurance and benefit verification, medical treatment documentation and coding, etc. Its market cap is near $1 billion and trades more than 1 million shares a day. Its 52-week trading range is $7.75-$32.82. AH closed June 29 at $10.96. up 27 cents for the day.

San Diego, CA-based The Active Network (Nasdaq: ACTV, http://www.activenetwork.com) provides organization-based cloud computing applications services to business customers internationally. The company offers ActiveWorks, an organization-based cloud computing platform that transforms the way organizers record, track, manage, and share information regarding activities and events.  ACTV has a market cap of $900 million and, trades about 400,000 shares daily. Its 52 week trading range is $12-$20. It closed June 29 at $15.39, up 43 cents for the day.

San Diego, CA-based CommerceTel Corp. (OTC: MFON, http://www.commercetel.com) develops marketing solutions and platforms for mobile devices. It provides a suite of services and technologies that enables brands, enterprises, marketers, and content owners to communicate with consumers via their mobile phone.  MFON’s market cap is small, only about $13 million and it trades less than 10,000 shares daily.  The 52-week trading range is $0.27-$2. It closed June  29 at $0.59, no change for the day.

Sold! EBay Buys into Alternative Energy Fuel Cell Power

Fuel cells made headlines in the major financial publications this week with the announcement that eBay is planning to build a new data center in Utah powered by, yes, alternative energy fuel cells. The new eBay data center will use approximately 6 million watts of power generated on-site by fuel cells made by Sunnyvale, CA-based, privately-held Bloom Energy, according to the New York Times (http://www.nytimes.com/2012/06/21/technology/ebay-plans-data-center-that-will-use-alternative-energy.html?scp=1&sq=james%20glanz%20ebay&st=Search).

eBay logo courtesy of LiewCF.com

While the new center, which will also serve eBay’s payment service PayPal, will be hooked up to the electricity grid as a backup, the news is considered a major victory for alternative energy backers, fuel cell believers and the environmental industry in general which has long complained that Internet companies are too often relying on coal power to run their data centers.

The Times’s story notes that fuel cell arrays are being used by major corporations including AT&T, Kaiser Permanente and Wal-Mart but nothing of this scale. Nearly all comparable data centers now draw the majority of the power from the grid.

Bloom Energy’s version of fuel cells are “essentially large batteries whose charge is maintained by by the hydrocarbon energy contained in natural gas,” according to the Times. Since the price of natural gas has plummeted in recent years, fuel cells have become more economically competititve, the story notes. And since the charge in the Bloom Energy cells is maintained by chemical reactions, not combustion, important efficiencies are gained. Another advantage is the fuel cells generate energy on-site, meaning no energy is dissipated as it travels along transmission lines.

All great news for environmentalists, Bloom Energy and, hopefully, eBay. But does it translate to hope for the mostly struggling small cap fuel cell companies? Based on investor reaction to the news, there seemed to be little benefit, at least initially.

Lathan, NY-based Plug Power Inc. (Nasdaq: PLUG, http://www.plugpower.com/) manufactures fuel cell systems for industrial off-road markets and stationary power markets. The PLUG stock, which was as high as $9 in early 2011, has traded much lower in recent months. Its 52-week trading range is now $1.11-$2.71 and its market cap as of June 21 was about $44 million. Roth Capital cleantech analyst Phillip Shen initated coverage of PLUG a year ago with a buy and a price target of $4. PLUG stock closed June 21 at $1.12, down 2 cents for the day.

Danbury, CT-based FuelCell Energy Inc. (Nasdaq: FCEL, http://www.fuelcellenergy.com/) makes a variety of fuel cells and its stock trades actively, more than 2 million shares a day on average. But apparently its second quarter numbers showing revenues down 15 percent from a year ago has soured investors. Its 52-week trading range is $0.80 to $1.95 and it closed June 21 at $1.06, up 2 cents on the day.

British Columbia-based Ballard Power Systems (Nasdaq: BLDP, http://www.ballard.com/) manufactures and sells fuel cells and fuel cell materials for the automobile and other markets. News from Ballard included business partnerships with Brazilian and European bus companies. But the company this week announced a revision in 2012 revenue and adjusted EBITDA downward due in part to contract negotiaations with a Brazilian customer. The stock, which was a high as $2.42 in April 2011 has dropped in recent months. It closed June 21 at $1.12, down 5 cents. Average daily trading volume is now about 124,000 shares.

Ontario, Canada-based Hydrogenics Corp. (Nasdaq: HYGS, http://www.hydrogenics.com) designs, develops and manufactures hydrogen generation and fuel cell products based on water electrolysis technology and proton exchange membrane technology. HYGS recently announced a significant order for a “power to gas” project for energy storage in Germany. The 52-week trading range of HYGS is $4.47-$7.10 but the stock trades lightly, about 7,500 shares a day. Its market cap is about $38 million. HYGS closed June 21 at $5.85, down 42 cents for the day.

As the Storage Market Booms, So Does Potential for Small Cap Growth

Considering the moves to cloud computing, virtualization and the regular onslaught of information that gets pumped over the Internet by the second, it’s not hard to understand the growing need for data storage. Hence the headline in the recent NY Times Bits blog: “Data Explosion Lifts the Storage Market” (http://bits.blogs.nytimes.com/2011/09/09/data-explosion-lifts-the-storage-market/?scp=1&sq=emc%20howard%20elias&st=Search).

The article notes that sales of disk storage systems rose more than 10 percent in the second quarter, to $7.5 billion, according to International Data Corporation (IDC) reports. And it adds that the storage boom is an indicator that technology is working the way it should: “you get more for less.”

According to Bits, the most rapid growth is in the more technologically sophisticated storage systems “that can quickly shuttle data back and forth.” Virtualization software also requires “more capacity and more high-performing storage” so the demand just keeps on growing.

Predictably in big pubs like the NYT, the two big storage specialists, EMC and NetApp, grab the highlights and perhaps rightfully so since they are grabbing market share. But there are several small cap stocks toiling in the memory/storage arena that feed products into the datacenter industry that might benefit from the rapidly expanding growth in this sector.

Salt Lake City-based Fusion-io Inc. (NYSE: FIO, http://www.fusionio.com/) develops and sells storage memory platforms for data decentralization. The company’s platform enhances the processing capabilities within a datacenter by relocating process-critical or active data from centralized storage to the server where it is being processed. Despite signing up huge customers like Apple and Facebook in recent months, Auriga Securities analyst Kevin Hunt took the rare step earlier this month of initiating coverage with a Sell rating and a $16 price target (http://blogs.barrons.com/techtraderdaily/2011/09/07/fusion-io-slips-auriga-starts-at-sell-16-target/?mod=yahoobarrons) because he believes the stock is too expensive and cash flows don’t justify its current price, according to Barrons. FIO stock closed Sept. 14 at $20.40, down 48 cents on the day.

Santa Clara, CA-based Inphi Corporation (NYSE: IPHI, http://www.inphi.com/), among other things, creates high-speed analog semiconductor solutions for the communications and computing markets, including an interface between analog signals and digital information in high-performance systems such as data center servers. It was formerly known as TCom Communications. CEO Young Sohn formerly worked at Intel and is the former President of Agilent Technology’s semiconductor group, now known as Avago Technologies. IPHI stock sold for about $27 in February, but has been falling (like many small caps) throughout the summer. It closed at $9.69, up 24 cents, Sept. 14.

Irvine, CA-based Netlist Inc.* (Nasdaq: NLST, http://www.netlist.com/) designs, manufactures and sells intelligent memory subsystems for the datacenter server, high-performance computing and communications markets. One of its products, called HyperCloud Memory module, was designed to improve server utilization by improving performance in memory-intensive applications such as high-performance computer simulations, virtualization, and cloud computing applications. NLST announced Sept. 13 that HyperCloud has been qualified on GIGABYTE’s high density server motherboard. NLST stock closed Sept. 14 at $1.60, up 6 cents. Last October it traded for nearly $4.

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

When are 2 Googles Like a Cup of Tea?

Physicist Alex Wissner-Gross claims two Google-type searches combine to leave the same carbon footprint as boiling a cup of tea.  http://technology.timesonline.co.uk/tol.news/tech_and_web/article5489134.ece

This piece has piqued the technorati’s attention. One Google defender suggested that less frequent trips to the libary to look up information more than offsets his individual searches.  Another demands to examine his math.  Whatever the validity, it should remind us that Internet use gobbles up a huge amount of electricity.

Data centers consume more than 1.5% of US energy use each year.  US data centers’ energy use more than doubled from 2000 to 2006, when it reached $4.5 billion.  Under current conditions, that figure wil hit $7.4 billioin by 2011.

Cooling costs are a big part of running a data center.  The cost to cool a data center now exceeds the cost to lease the space for it.  For every dollar spend on new server hardware in 2007, more than 50 cents was spent on powering and cooling.  http://www.wwpi.com/top-stories/6493-getting-ahead-of-the-data-storage-energy-crisis-the-case-for-maid

Two small-cap firms that are addressing this issue are Netlist* (Nasdaq:NLST,  http://www.netlist.com/) and Amerigon (Nasdaq:ARGN, http://www.amerigon.com/).

Netlist develops high-density memory products for server applications.  Its low-voltage solutions offer substantial energy savings by significantly lowering power consumption and minimizing cooling costs.  Consider that a typical server memory system uses 25% of total system power and Netlist’s modules reduce memory power usage by 30% and 8% of overall server system power.

Amerigon provides spot cooling (and heating) by running electricity through a solid-state heat pump.  commercially successful in automobile seats, Amerigon and its BSST subsidiary are developing thermoelectric technology applications for larger spaces, such as data centers.  The energy saved by providing spot over ambient temperature control promises huge energy savings in a number of personal and industrial applications.