Saturday, December 24, 2011

A huge play for EARLY 2012?

I'v already mentioned VirnetX before in my blog however I felt the need to reiterate my view of it and the large potential in it's price. VirnetX is an internet security software and technology company that boasts an EXTREMELY valuable patent portfolio including technology that will secure mobile devices on 4g networks. This last summer they ended a suit against Microsoft where they claimed Microsoft infringed on their networking patents (patent # 6,502,135 # 6,839,759 and # 7,188,180). Because it is vital for the judge to understand what exactly a patent describes (the wording of some patents can make it quite hard to discern what technology is really patented) before heading to trail, patent infringement cases go to something called a Markman hearing. A Markman hearing (otherwise known as a claim construction hearing) is a pretrial hearing where the judge examines the evidence that suggests the appropriate meanings of key words in the patents being disputed, you can think of it as the patent claims are broken down into "layman's terms" for the judge so he/she can understand exactly what the patent does and whether or not the defendant(s) infringed upon the patent. While this is only a pretrial hearing the decision of a Markman's hearing usually has a large if not definite influence on the outcome of the case as a whole. In February 2009 VirnetX faced Microsoft in the the U.S District Court for the Eastern District of Texas Tyler Division with Leonard Davis as judge of the case and won the Marksman hearing. It was determined that Microsoft had infringed on VirnetX's patents and in May of that year they settled for 200 million dollars. Now VHC faces CISCO SYSTEMS, INC., APPLE INC., AASTRA USA, INC., AASTRA TECHNOLOGIES LTD., NEC CORPORATION, AND NEC CORPORATION OF AMERICA claiming that they infringed on their patents as well. The Marksman hearing will be held in the same court with the same judge on the fifth of next month. While some could say this is a different story, there are several important reasons why I think there's no way VirnetX could lose. 

1) The win over Microsoft provides solid infrastructure that the patents VirnetX has are valid and that its legal team is fully capable of making that visible to the judge. 3 of the 6 patents VHC is claiming infringement on are the ones that won them the Microsoft case which strengthens that argument. Not to mention this case will be held at the same court with the same judge that was used in their case against Microsoft.  

2) Prior to the hearing Cisco had requested that the USPTO reexamine VHC's patent # 7,188,180. However, the USPTO rejected each of Cisco's ten proposed validity challenges to the '180 patent and found that Cisco had not shown that there is a reasonable likelihood that it will prevail with respect to any of the claims of the '180 patent and so rejected the request to reexamine immediately. This reinforces that the USPTO finds VirnetX's 180 patent valid and will aid VHC's argument in court.

3) Here you can find the Joint Claim Construction and Prehearing Statement that explains what terms the plaintif (VirnetX) and the defendants (mentioned above in caps) agree on, don't agree on and the evidence that supports both parties accusations.In the first column of exhibit B you'll see the claim term being related to a patent that VHC is saying the defendants infringed on as well as the patent the term refers to. In the second column is what VHC says the terms mean and in the third is what the defendants feel the terms mean. Without looking at the evidence from part C, it seems almost certain to me VHC has this case won already. For example the claim term virtual private network which relates to the 135, 759 and 180 patents is proposed by VirnetX to mean "a network of computers which privately communicate with each other by encrypting traffic on insecure communication paths between the computers " while the defendants interpret it as "a network of computers which privately and directly communicate with each other by encrypting traffic on insecure communication paths between the computers where the communication is both secure and anonymous". Now the term virtual private network plays a HUGE role in the patent claims of VHC so this is an important term for the judge to side with VHC on and while nothing in life is certain except taxes and death I can't see the judge siding with the defendants on this. Why? Because in their case against Microsoft the same term was challenged but VHC was able to persuade the judge that their construction was correct and resulted in the following direct statement. "In light of intrinsic and extrinsic evidence, the Court construes "“virtual private network"” as “a network of computers which privately communicate with each other by encrypting traffic on insecure communication paths between the computers". Sound familiar? Can't see how the court could rule against its own defintion, but like I said nothing is certain...  

4) Below that you'll see another claim term referring to the 135 patent that reads 
"determining whether the DNS request transmitted in step (1) is requesting access to a secure web site" and for VHC's proposed construction it says "[no construction necessary]" while the defendants say "determining on a DNS proxy server 
whether the DNS request transmitted in step (1) is requesting access to a secure 
web site ". Whoa, is VHC just throwing in the towel here and not giving any explanation to what this might mean? Absolutely not. In their case against Microsoft, they gave the same proposed construction and the court agreed. Now while this is a different court case altogether, it does clearly state in the Joint Claim Construction and Prehearing Statement when describing exhibit C that " VirnetX may also rely upon intrinsic and extrinsic evidence, including the prosecution history and/or  any re-examinations, to rebut  the constructions proposed by Defendants" which means the "prosecution history" they have with Microsoft can be used so any terms already defined from that case that have been accepted by the court already can be used again. That said, most of the proposed constructions of claims have already been accepted by the court leaving little room for the defendants to interpret it differently. 

5) In this case both the plaintiff and the defendants have experts to bring to the stand to aid their case or dispute something the other party said. Because these experts will provide their best interpretation of the disputed terms the evidence they provide is considered extrinsic evidence because it is not furnished by a document but by some external source (in this case, a person). However, the court can only assume some type of bias in these statements for each party and hence has stated " Generally, extrinsic evidence is “less reliable than the patent and its prosecution history in determining how to read claim terms.”"  To put it another way, if the plaintiff cites several textbooks or credible studies that the sky is blue, but the defendant has an expert claiming that in his/her opinion it can be considered green, the judge is going to go with the cited documentation and that the sky is blue.
(If you'd like to see the entire document regarding the claims of terms and outcome of the VirnetX vs Microsoft Case to see for yourself you can find it here. To get a summary of the outcomes of what the court found acceptable for the proposed constructions you can scroll to the bottom of the page to appendix B)

Now you'll also see that for several of the claim terms the defendants proposed constructions read "indefinite" while VHC's proposed constructions to these terms read  "No construction necessary, alternatively a construction that is consistent with the 
ordinary meaning of these terms". Here, the defendants are claiming the terms are too vague while VirnetX is essentially saying the opposite that the terms are obvious. An example of this is the term "allocating resources". Now I have no legal experience of any type so I can't be certain on this but honestly, I can't imagine there are too many ways to interpret the words "allocating resources", I can only assume the judge knows the definition of each word and will have the ability to put the definitions together to get a complete understanding. So while this may add a little fuel to the defendants fire, I don't see how they could present the words in a different manner to the judge and the defendants candle (if I may quote Robert De Niro from one of my favorite movies Limitless) "will have shed a brief but a lovely light".

The Marksman hearing is scheduled for January fifth, about 2 weeks away which gives you ample time to research and form your own educated opinion about possible outcomes. If you still feel VHC will not prevail, share why! I would love to hear someone's perspective from the other side of the fence or if you agree, are you taking a stake in VHC and if so, how much? Below you can find a link to VHC's website where you can find all their press releases and find out more about what they do. Merry Christmas!

Sunday, August 14, 2011

Picks for 8/14

 Oil States International (OIS) -  Thanks to the recent large dip in almost all securities, OIS is now selling for a discount. Oil State's earnings have beaten analysts expectations for 15 of their last 15 quarters and there are no signs of anything disrupting that trend going forward. Their EPS growth rate for this year is over 175% and their EPS quarter over quarter is at an 88% growth rate. They released their second quarter results on the first of this month with a revenue of 820 million, up 28% from a year ago. Next quarters and year earnings estimates have both risen accordingly with next years average up to $6.59 which would equal a 24% growth rate. Additionally looking at their chart for the last month it looks like a double bottom formed with the first bottom on July 28th followed by about a 10% rally and then the second bottom on August 8th. While the chart alone doesn't provide that large of a buy signal, in conjunction with OIS's fundamental indicators I think it presents a very favorable opportunity.Their forward p/e is barely over 10 leaving plenty of room for growth and with the future need for oil I think this stock will do well both short and long term.

Jazz Pharmaceuticals (JAZZ) - Another stock beaten down courtesy of Mr. Market, JAZZ has gained over 360% in a year thanks to continually beating earnings estimates including its most recent quarter where revenue increased by $64.6 million.  The companies main product is a drug called Xyrem which treats excessive daytime sleepiness and cataplexy in patients with narcolepsy and increased its growth by 67% to $56.2 million. Their other drug is called Luvox treats OCD and saw its sales increase by 26%. Next quarter its supposed to grow its earnings by 54% and by the end of this year its expecting to have grown over 136% and see's an increase of over 18% for the next 5 years per annum.

Tuesday, August 9, 2011

Time to panic? Or time to buy?

The DOW has erased all progress since the start of the year, 9 out of the last 10 days we have seen stocks (as well as most of our bank accounts) spiral downward. Given the double top pattern the DOW showed in the last month, I exited most of my positions before considerable damage was done. That said, for those who didn't it may seem like the time to take the hits you have and sell for a loss. I disagree. In the words of one of the most famous investors of all time you should be fearful when others are greedy and greedy when others are fearful. Right now, others are fearful. Bluechips are at a discount. Some offer attractive yields that when you figure into their price provide an even LARGER discount. So instead of taking your losses, why not buy more? Buying more shares reduces the overall price of the total shares you buy, similar to the dollar cost averaging strategy associated with DRIP investments. If you don't understand consider this, you buy 10 shares of stock A at $2 a share. The price has fallen to 1.50 a share and you consider selling. But if you instead buy 10 more shares, then now instead of 10 shares at $2 you have 20 shares at $1.75 a share. This strategy turns opposition into opportunity, and longterm will payoff. That said, here are the opportunities that I like from Mr. Market.

VirnetX (VHC: AMEX) - Virnetx is an Internet security software and technology company that is engaged in commercializing its patent portfolio by developing a licensing program as well as developing software products designed to create a secure environment for real-time communication applications such as smartphones, instant messaging, VoIP, eReaders and video conferencing. Their technology will provide security for 4g peripherals and their patent portfolio assures no one else will use their technology (without paying the price)/ Here's why I see this stock going very far up in the short term

  • VirnetX security technology was deemed essential for 4g accessories. That means ALL 4g items including iPhones (all models), iPads (all models), Androids, all tablets, anything that will run on 4g in the upcoming years (not too far away either) will have to have their technology. 
  • Their patent portfolio is strong and has allowed them to already sue and win their case against Microsoft (for 200 million) for infringement on 2 of their virtual protocol network patents. Their patent portfolio included over 48 U.S and global patents and continues to expand
  • They are in the process of suing Apple, Avaya, Cisco,  Mitel Networks Corporation, Mitel Networks, Inc., Siemens Enterprise Communications GmbH & Co. KG, and Siemens Enterprise Communications, Inc. as well as others for similar charges. The court cases will be held in Texas where the Microsoft case was with the same judge and are expected to have the same outcome (no reasons have been given why there wouldn't be)
Yes it may be a bit risky to go with a company making the majority of its money from patent infringement cases but from current standpoint I feel VirtnetX has a lot more to gain then lose and I'm not the only one. Cowen Group is a financial services company that provides investment analysis and research as part of its services. They value VirtnetX at around 2.8 billion. Thats a huge some of money that will skyrocket this stock's worth. That doesn't include all the future royalties those companies will have to pay for products thereafter that use VHC's technology. Another potential cash flow from VHC is to be bought out  as its patent portfolio makes it an extremely attractive acquisition candidate.

My following pick is more conservative then VHC. I felt the need to diversify however I wanted stocks that at least provided a dividend but also have the opportunity for growth that due to market conditions were currently cheap. Here's what I found.

Telefonica (TEF: NYSE) Telefonica is a Spanish broadband and communications provider in Europe and Latin America. They have been around for over 90 years and owns around 80% of the market share in Spain but also have a strong prevalence throughout the continent. Here's why I like them:

  • After recently hitting their 52 week low due to crisis concerns in Europe the stock is cheap. The Spanish economy is weak but with TEF's ability to dive into other markets Latin America I feel they will continue to fuel their revenue for years to come. This combined with the increased adoption of mobile broadband in TEF's high end smart phones will drive market share improvement.
  • Brazil has the fifth largest market for mobile phone users, and TEF plans to invest over $14 billion into Brazil throughout the next three years providing them with an even larger prominence into a rapidly growing market.
  • TEF is able to get solid returns on its assets (8%), invested capital (11%) and equity (48%). Its ROE is higher then 92% of others in it's industry. 
  • The real deal maker here is the dividend. It boasts a 9.52% yield, and the company plans to give out around 1.60 Euros a share in 2011 and 1.75 in 2012. 
Telefonica is dedicated to paying its dividend and with its long history of consistently providing high dividends there is no reason to doubt their ability to. To get an idea of the return on TEF, here's a scenario buying 100 shares tomorrow at their price of 20.68 and hang onto the stock until 3 years. Keep in mind Telefonica pays 2 dividends a year and has already paid their first this year of .75 euros, so well calculate 1.60-.75=.85euros per share for the remainder of this year and keep the same dividend for year 3, and the first half of year 4.

Cost: (100*20.68)+10 for brokerage fees = $2078.00
Dividends paid at last half year 1 = 100*.85euros or 1.2 dollars =     120 dollars +
Dividends paid at end of year 2 =100*1.75 euros or 2.48 dollars =    248 dollars +
Dividend paid at end of year 3 = 100*2.48 dollars =                          248 dollars +
Dividend paid first half of year 4 = 100* .88euros or 1.25 dollars=    125 dollars
714 dollars is over 35% of the initial 2078 you first put in, meaning if this stock stands still (highly unlikely considering its growth opportunities) at the end of 2013 you will be closing in on recouping half of your initial investment and thats without any further increase in dividends or any special dividends it may pay. Something to think about for the long term investor.

Saturday, July 2, 2011

AT&T vs Verizon

Decided to add a telecom stock to my portfolio and it came down to AT&T (T) and Verizon (VZ). I did some research to determine which was a better buy and came to the conclusion that AT&T had more value and will continue to have more value than Verizon in the years coming, heres what aided my decision.

                          ATT               VZ
P/E:                    9.38x            30.21
ROA:                   7.62              4.9       (%)
ROE:                   18.68            8.92     (%)
DivY:                   5.43              5.16     (%)
PR:                      50.13            153.53  (%)
AD:                      1.70              1.93*
5yr Div G rate:      5.46              3.76        [Compounded]
Debt/Equity:         .58x              1.57
Debt/Assets:         .24x               .27

* - Vodafone owns a 45% stake in Verizon wireless and will begin collecting dividends in the year 2012 (assuming the world doesn’t end). They are expecting around a 5.5 billion dollar dividend that year taking 45% of Verizons assumed 12 billion dollar revenue. With a payout ratio of already over 150% I feel this could leave Verizon struggling to find good numbers and cause a cut in their dividend. So while their annualized dividend is currently larger, I feel that the Vodafone dividend combined with their already very high payout ratio will hit Verizon hard somewhere in 2012 or shortly after.

As you can see, AT&T beats VZ in every category except annualized dividend and their growth rate combined with Verizon's Vodafone dividend, I believe it wont be long until they take over that category as well. 
 - I am Long In T

Wednesday, June 8, 2011


TICC Capital Corp (TICC: NASDAQ) - TICC is a closed end non-diversified management investment company. It invests in tech companies with market caps >$300 million in a variety of sectors including software, hardware, telecommunications and medical devices. This is why I like them, starting off with their (and most BCD's) most attractive element.

  • Dividend yield of 10.09
  • Revenues have increased since Q2 2009 (currently $9.8 million) and are expected to continue increasing including an estimated increase of $2.5 million by Q4 2011 which supports and will increase the dividend
  • Payout ratio of around 42%, a comfortable percentage that provides room for dividend increases or allows for flexibility should the company require funds immediately.
  • Dividend growth rate for past 5 years of 2.3%, not especially exciting however with an already high yield I like a more sustainable growth rate.
  • ROE and ROA around 20%, showing that TICC is able to utilize it's shareholders equity and assets effectively
  • No debt
  • Conservative payout ratio, dividend growth rate and no debt means they have cash on hand for expansion which could lead to the potential for growth and stock price appreciation in the future.

Monday, March 7, 2011

Picks 3/7

Who: Potash Corporation (NYSE: POT)

Why: Potash is the world's largest fertilizer company by capacity. They produce the nutrients potash (K), Phosphate (P) and Nitrogen (N) which are all essential for crop growth. At the turn of 2011-12 the world is going to reach a population of 7 billion. Simply put, we will need more food. Agricultural commodities are experiencing increasing prices which means farmers will be planting more crops to take advantage of the trend. More crops means more fertilizer. They have a gross margin of 40.15%, the highest out of companies in the non metallic mining industry meaning its has a lot of extra cash on hand for operations or expansion. In 2010 BHP Billiton Limited, a diversified resources company, offered to buy Pot for $139 a share, for a total of 39 billion dollars only to have Potash deny the offer. That kind of interest indicates Potash could have some serious value. It trades today at $59.12. I don't own Potash Currently, but am looking to buy shares in the near future.

Wednesday, February 16, 2011

First Round Picks

As I mentioned the stocks I select will vary for both short and long term using fundamental analysis, technical analysis or some combination of the two. That said, here are a few of the stocks I think that are poised to do well.

I think one smart sector worth researching is energy, primarily from Canada.

Why:  The United States Energy Information Administration expects the average of oil to rise to $93 in 2011 (up $14) and then to $98 in 2012. The EIA is also predicting the production of US oil to decrease, which means we will have a larger reliance on foreign oil. The website at the U.S. Department of State states that "CCanada is the single largest foreign supplier of energy to the United States--providing 20% of U.S. oil imports and 18% of U.S. natural gas import". 20% is a considerable number and with oil production decreasing, it can only grow larger. That said, I think Canadian oil stocks are going to be key in a winning portfolio. Here are some of my picks for some major players in 2011+.

Who: Pengrowth Energy Corp (NYSE: PGH) $12.39

   Pengrowth was part of several other Canadian royalty trusts (CANROYS) that switched over from being trusts to corporations in late 2010 and early 2011. This is because trusts don't pay federal income taxes if they distribute it to shareholders. However, the Canadian government was losing around $500,000,000 in revenue due to this structure, and so consequently made trusts pay the same for taxes as corporation did. This resulted in a lot of these old trusts ditching a percentage of their dividend to make up for the loss. While this companies dividend fell as well, its currently yielding 7.40% annually. Its also currently holding a P/E ratio of 14.30 which is a lot lower then most other Canadian oil companies. The dividend dropped in October of 2009 but has essentially maintained or slightly risen since at around $.0700. This gives me confidence that the stream of monthly dividends this stock provides wont just disappear on me, and the fact that its located in Canadian Energy which is becoming such a hot spot for equity trading recently, I have even less reason to believe in any drop in dividend payment.

Suncor Energy (NYSE: SU)

   Suncor recently completed their acquisition of Petro-Canada a former large integrated oil company and I think it will have a large impact on their role in the Canadian oil industry.  Their revenue has increased over the last several years with annual rev in 2009 of $22.3B, $30.5B in 2010 and a projected $36.4B and $41.0B in 2011 and 12 respectively. Their cash flow per share has increased as well, giving me confidence that this company is pretty healthy financially.  Additionally, their EPS growth rate is at 414.9 greater then 98% of its oil industry peers. I feel like the combination of increased demand for crude oil driving up prices with the increased value in Canadian tar sands in Alberta (where Suncor's oil sands business is located) supports these revenue projections and will lead to a nice increase in stock price over the next year+. Their dividend is nothing to get excited about yielding only 1.20% compared to Pengrowth, but I am in this company for growth as I think they have a strong potential to hit around $50.00 within the next few months. 
I currently hold SU in my portfolio.

There are plenty of other Canadian energy stocks poised to blow up in the near future, but I have firm belief Suncor will continue to rise in price and that Pengrowth will continue paying its steady dividends.

Additionally, another stock in my portfolio that I was holding primarily for the dividend but has experienced a recent jump in price, most likely catalyzed by the turmoil in Libya, is Genesis Energy (NYSE: GEL). Genesis is a MLP that supplies crude oil, refined products and pipeline transportation services for oil, natural gas and C02 in the Gulf Coast region of the US. They are fairly new, formed in 1996 but are dedicated to being a major energy player through growth from construction and expansion projects combined with strategic acquisitions.  They bring a 5.46% div yield with a payout ratio of 266.63% which is slightly intimidating as a ratio like that can be hard to support, however a high payout ratio is a sign of higher earnings growth (There is a chart posted on another stock blog that you can find here that supports my reasoning). While Revenue dipped in '09 it has increased since, and is projected to steadily increase into 2012. 
I currently hold GEL in my portfolio.

The world is always in need of oil,  and a barrel of crude oil is currently going for $98.23. After the situation in Libya dies down, I expect a slight decrease in these stocks price, however longterm I see no way how this oil can dip too low, and as long as this commodity is high, these stocks will be high and if you look at US oil consumption levels over the last decade, you would see that there is no sign of ending our oil obsession anytime soon...or later.

Monday, January 17, 2011

Bosses of the Market

     Unemployment has been recorded at 9.4% according to the report from the US Department of Labor in December, thats slightly scary.  They calculate this number by analyzing a monthly survey (known as the Current Population Survey) sent to households that includes people who have been looking for work within the last 4 months...and only those people. This figure ignores those who have some sort of job but are paid much less then an amount to live comfortably, and those people who have flat out given up looking for work in such a down economy. Now technically you cant call these people unemployed due to legislation, however because there is such a large discrepancy between adding these people to the unemployment rate and the unemployment itself, in 1995 The Bureau of Labor Statistics at the demand of several economists began tracking this alternative rate and called it the U-6. The rate for unemployment including the U-6 is 16.7% according to the December report, thats really scary, at least for me it is.

    With numbers like this, it can be discouraging looking for some sort of job to produce income. Some people may look for odd jobs to make money on the side. Others may create startups and run the risk of winning big or losing it all. Some might look to gambling to cover monthly bills. However the method, people are looking (frantically) to find way to make income and are wondering what they can do to make money. This blogs intention is to answer that question with the answer of smart investing.

  Stocks can be intimidating as fortunes can be won with the right picks, but they can also be lost with the wrong ones (or at the wrong time).  The estimates of the percentage of people who lose money in the stock market has ranged from 60-95% depending on where you look for the data. Either way, its essentially universally agreed more people loose money than make money.  That said, 1/175,711,536 or about .000000006% of people win the mega millions lottery, depending on the industry start ups have around a 30% success rate and relying on odd jobs is essentially the same as gambling your income on the hopes that some work eventually pops up. With investing you cant control the market or any exogenous factors that may affect it, but you can make informed decisions that will leave your losses buried by your winnings.

  In this blog, we will discuss potential profitable investments with in depth research to help each other make the best decisions possible. Through the scrutiny and feedback of our colleagues we can use each other to create a greater amount of money for ourselves. Each stock pick will be backed with research supporting reasons to buy and then a discussion on the given evidence and whether the stock really is a winner, or if perhaps something slipped by the initial person to post the stock that someone else caught. This type of analysis will include both technical and fundamental, and it will be a learning experience to find what works best with what and when. With the ability to have others review our decisions we can combine our intellects and make smart profitable investments.