(Editor's Note: A former CNBC market maven, Gene Inger now provides a weekly look ahead at the financial markets for Market Cap subscribers. Gene's daily comments can be seen on his website, IngerLetter.com.)
Intention or deception . . . might be appropriate questions about the unusual Naval maneuvers reported during Friday; though not noticed at all by American markets. It's of interest, especially, considering this now being post-Elections and post-threats and higher risk levels in various parts of the Middle East (including al Qaeda White House threats to attack the U.S., after saying the American people made a 'wise choice'..talk about Gaul in the face of what could be a policy restructuring favoring undemocratic, or at least intolerant, governance by the evolution of the Iraqi regime.
Meanwhile, led by Americans upset by the treatment of terrorists (where is a sincere empathy for the loss and injury to both our valiant troops and the Iraqi civilians by the hands of the barbarians who have never subscribed to the Geneva Conventions by any stretch of the imagination), there is now an effort to 'try' Rumsfeld and others in a German Court, which again is something that undermines the effort and our prestige.
Oh yes, the deception/intention remark relates to the perceived disengagement early today as one 'Battle Group' departed or retreated (or so it seemed) the Persian Gulf, while Iran cheered that as a successful intimidation by their missile volley as warning shots. Well, not so quick. Late today we heard an even larger 'strike group' entered the Persian Gulf; this time accompanied by (first time ever) Coast Guard Cutters too, which would enhance the ability to repel attempts to mine, assault or attack our Fleet. (We'll touch on this a bit more in the accompanying audio remarks this evening).
MarketCast (intraday audio-email) remarks focused on an up-and-down reversal day and week, by indicating a 'downside resolution' bias after the Election 'relief rally' of a sort, and despite the not unexpected late squaring on Friday, our view is unchanged. Continuation activity has lifted many smaller stocks as suspected, and as projected in the manner updated tonight in our 'weekly-basis technical corner' special feature typically accompanying the weekend report via audio for both PC's and even Mac's).
In addition to the 'technical' and reflection commentary via audio; the Daily Briefing on Thursday provided an additional audio commentary, on the Ionatron 'cc' review. It also commented on a 'new' formally covered optical component stock that broke out, in the wake of our discussion, and continued back-to-back gains on the NASDAQ.
We reiterate our 'redaction' request; that members not reveal or post anything about our remarks as relate to LightPath for awhile longer. Also since we'll not talk about it later, note that we previously mentioned that when a stock breaks a preceding high, it often pops based on either panicked shorts or buyers trying with no or limited price discipline, and then pulls-back to a breakout point before trying for further extension.
This is perfectly normal, and actually quite typical, price behavior; as now occurred. It is observed that in this case it could run-up ahead of the midweek 'cc' from the firm of course, and then it might consolidate or -depending on the interpretation of what they say in terms of an inflection turnaround evolving- it might just shoot higher before any dips of note. Do keep in mind this stock historically (even in post-reverse-split days I'll note) has a roller-coaster history, but this could be the first time progressive revenues are consecutively gaining, which combined with the opening of the new China facility, along with additional employment 'hires', make it tough to infer anything but growth.
It should nevertheless be reemphasized that a lot (shorter-term) rides on next week's 'cc' by their management, as we preferred waiting to hear all that ourselves, but given proximity to a (now achieved and then some in a beautiful chart formation) breakout, we decided to expand coverage ahead of that (risky in a sense, but not necessarily, if the implications of a turnaround growth story are real, as we suspected) even before I wrote it up this week as conveyed on occasion as something to 'eye' for months now. It is impossible to say whether any 'discovery' by institutions or others may follow; but it's not unrealistic based on comparable competitive stock, to say it was/is overlooked in terms of valuations, and could (in theory) advance more than we care to speculate if they actually execute on the game-plan hinted at by their pre-Q report statement as we outlined last month actually. Once the incentive options were announced Friday of last week, we simply concluded we couldn't wait until the 'cc' to contemplate write-up.
It is a high-risk high-reward potential way to approach things, but that's why we noted it surely isn't for everyone, and absent more detailed information, was/is speculation. Oh, by the way, though we don't know anything, you might like to know they do retain 2% (again adjusted) in Solaria; a potentially (non-public) hot alternative energy play.
And while we still know little or nothing, we think Intel and Lockheed Martin are both among their current larger customers of their efforts in Orlando; not to mention the rather unique Japanese chemical company that may have perfected blue lasers; but of course we don't know anything about this or whether Lpth work is involved therein, or whether the China factor production is related to storage equipment (BluRay style or other applications). And certainly we know nothing about their work for NASA too.
But we suspect that the 'leverage' existing from being so 'small' with a low stock float and modest market cap makes it potentially interesting should they actually 'execute'.
We do know the shares are advancing, pausing, and advancing more. That's good. If any of this diversification crystallizes into persistent revenue growth, then it wouldn't be unrealistic to nervously speculate that the shares would be value-priced even at a double to current levels. Problem is; we don't know enough about it to say that as yet.
Daily action . . . contemplates an ideal up-down-up-down week ahead for big-cap or fully-priced (for now) Senior Averages. Overall we still think we're either on a cusp of corrective action, or well into it, depending on whether you look at Averages or the individual stocks (and we welcome this adjustment particularly in big-cap tech stocks that we're interested in accumulating; as they are here-and-there getting kicked while the pundits generally act as if they're going straight-up, as we think already ended; in fact a few chip-related stocks now border on new monthly lows -not highs- anytime).
Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers an assortment of technology issues (needed for assessment of general factors in tech overall, or as compelling developments call for) that are key movers in the NDX, SOX or S&P, plus ideas ingerletter.com thinks might merit further reflection.
Broadwing (BWNG); Intel (INTC); Texas Instruments (TXN) Motorola (MOT); plus
Microsoft (MSFT); InkSure (INKS); Essex Corporation (KEYW); Ionatron (IOTN); PURE Bioscience (PURE); QPC Lasers (QPCI); and LightPath (LPTH), the latest addition to the small group we monitor are commented upon in accompanying audio.
It was pleasing to see 'two' of our little group in the 'most up' list for the week gone by (specifically those were Essex on the Northrop takeover rally, and now LightPath).
A reiteration (over the weekend to ease access for new members who aren't familiar with using the archives as yet) of the initial LightPath write-up follows without change.
LightPath Technologies (NASDAQ small-cap: LPTH), that we revisited after several years, in the 3's over the last few months, became a stock that we occasionally keep an eye on (and held minor positions in). That was especially so as we saw it start to 'creep up' almost mysteriously, which is what drew our attention to it since Summer.
While I've mentioned (via audio) recently that we would continue 'keeping an eye on it for members interested', and maintain a light or pilot position), we also noted that we'd defer more formal coverage consideration of LPTH (resumed if you prefer, due to the old and successful experience, that ended with a 'scale-out on rallies' starting at 54; got to near 70 afterwards before working to the downside as the optical sector essentially collapsed; which is now recovering, we'll hasten to note), which we'd be sure to relate equates to something over $500 / share on the current stock, which is really a restructured and reorganized company, with what seems conservative newer management) .. we deferred new coverage pending it possibly filling a breakaway gap that thrust it from around 4 to over 6 in a flash, and then back down into the 4's. It did retreat as suspected, into the gap area, but did not fill it prior to renewing gains.
With no idea as to whether or not it would fill that gap (more or less), as it is very thin and volatile, we gave it some room to shuffle around and ideally get back into the gap (but stocks don't always accommodate that, especially if a turnaround is perceived), I became compelled to see (technical only) structures that the charts make fairly clear. So, I see the shares in the lower 5's, and suspect that if it moves above the mid 5's, it has a chance to press the breakaway high over 6. That might or might not happen in the near term. And given that we're loathe to chase a stock up, we are resorting to a brief addressing (because we don't have time to do more) of this behavior sooner vs. later, because of simple price action. We don't know of any particular story (aside the reported increase in revenue, which they emphasize may or may not continue, and of course the new facility in China), outside of overall sector recovery or diversifications on the part of LightPath, that seem to broaden their customer base and possibilities.
So, because of price action, with the usual caveats about not chasing price (as well in fact as noting we're just addressing our own trading approach and certainly not trying to encourage or suggest any decision-making by anyone else) we'll resume coverage a little more formally now, given that we have indicated a curiosity several times over the past few months (not just days or weeks). One other reason: after Friday's close, the firm issued a number of 'options' to insiders at the then-current price, around 4.80 / share (they can't be exercised for at least a year). While it doesn't say much per se, it's sure better to see insider interest than the opposite. Again, given lack of specifics we can sink our teeth into, this is primarily technical. That makes it a total speculation for most players -volatile to boot- but in a firm now shipping product increasingly, and may be on the edge of an interesting January Effect kind of move (may have started; hard to pinpoint that).
If there is a rub to this, it surely must be awareness that next week, on November 15th the President of LightPath is hosting a 'conference call' about the company's financial report and presumably game-plan going forward. He's a respected (Sarnoff Award by the way winner) engineer with a long respected history in the optical industry, and the defense sector has increasingly been a contributor to the company's revenue stream (which now has annual revenue run-rate at something better than 50% of market-cap .. as may not be significant, but on the other hand maybe it is, if they can continue it). We look forward to Ken Brizel enlightening us all about the nature of any turnaround.
In indicating in recent day's audio remarks that we might consider coverage, we were contemplating first listening to the presentation next week, and then weighing factors. Since hardly anyone is eyeing this issue, we were optimistic we could then determine if coverage was appropriate, and write about it afterwards, since sometimes stocks of course get bid-up ahead of cc's; then back-off afterwards, even if eventually they rally anew later. But you never will know for sure. So this one is highly volatile, previously, and potentially very much so; given low shares outstanding plus low market-cap too.
So, while we wish it were a bit lower-priced just now, and won't chase it up, we will be initiating coverage (and without postulating any story or potential, but may at a future time) with buying consideration in the 4.40-5.60 zone. It might still drop to the 3's but at the moment it is acting as if it would rather move to the 6's. I really don't know how this will perform short-term ahead-of -or after- the 'cc' next week. There is no 'target' as such, and depending what it does, we might personally be buyers or sellers as we see fit at any time. We will point out that after the optical collapse in 2000, the shares were reverse-split (1 for 9) so have been volatile at low price levels fairly persistently at various times (ie: $ 5 on the new stock is like 50-60 cents on the old crashed stock post-optical-meltdown). A key here seems to be whether they have 'real' turnaround activity afoot, or whether (with patents) they continue the recovery and demonstrated recent ability under stable management to execute in a competitive world. If so, then the 'leverage' of the low-float and market-cap could work handily to their advantage. I would caution that the shares have already firmed somewhat recently (and again just in recent days after the incentive options); so care should be used if one participates.
We don't know if the stock will go to the 6's, and then retreat, or go to 8 and then drop back to 5 or 6 before going to 8-10. It may do none of that; it might do more if they do execute well. The chart hints at progress; that's why we're moving-up a contemplated date to initiate coverage, with the caution that some players will be more comfortable (if the volatility and potential chaos suits them) waiting to evaluate post-the-'cc'. We'll keep an eye on it and write about it more thoroughly after the upcoming presentation; at which time we are hopeful the company will enlighten investors about the future; including any indication about 'critical mass', 'positive cash flow' timing, or objectives.
Bottom-line: monitored and reflected-on since the 3's; coverage now initiated for the first time in years in: LightPath Technologies (LPTH); listed on NASDAQ small-cap.
Finally tonight . . . on Thursday the Ionatron (IOTN) Q3 report and 'conference call' were held, and there were only three participants in the Q&A session (myself as one).
The 'intraday' Market Cast audio review is deleted, because it was pretty much fresh in my mind after the 'cc', and those who wanted to hear it did so (it may be in archive form, but that depends on space availability). This was separate all 'daily basis' audio as related to current stock market action. However the text portion is reiterated:
The bullet points:
• Management transition essentially complete; good working relationships both with staff, and working on expanding both customer and contractor relations;
• Did not hear anything about possible development contracts for this year, but of course anything would be welcomed and assessed if and as it may occur;
• 'scheduling' availability of high-explosive capable testing range necessitates a delay of the latest variation of certain counter-IED technologies into early '07;
• delay of such will not obviate funding mandated and segregated by Congress for this utilization, should Congress / DoD decide to employ such technologies;
• combining / integrating (whatever JIN or its successor may be known as) into a resilient platform was touched-on, and we may delve into this more another time.
Update: after (Thurs.) close, an expected contract for Force Protection (FRPT) was issued (with options) for Buffalo and lighter 'Jerry' vehicles. Speculation does exist with respect to inclusion of other technologies with that in the future, but was not specified as such (though implied) during the 'cc' of Ionatron's today. As to the shares of FRPT, we had some of that; sold too soon. Now it corrected some, but might gap-up and then correct again, as virtually everyone expected this 'award'.
• Commercializing 'spin-off' LGE products was addressed, including the VIS (or Vehicle Interrupt System; it is not called a vehicle stopper, and is not fired by a vehicle, but rather laid-out across a roadway, as we are given to understand), while at the same time following final evaluations and enhancements, we may hear more about it during the months ahead;
• LGE (LIPC is the same thing) testing and development proceeding essentially on schedul, including extending the range necessitating 'knocking-out' a wall at their facility (in Tucson) so as to be able to fire it adequately (very desired);
• CEO Marshall gave a thorough description of his 'take' on semiconductor laser systems of a solid-state (chemical or otherwise) variation, versus LGE. He did expand to a certain degree per my queries; and was reserved on others (think you'll grasp the extent of my gentle probing, and that of a fund manager, in the audio that follows these bullet points);
• 'Sniffer' explosive residue and/or chemical vapor detection products continue moving towards potential funding during the course of 2007;
• NotrthStar is shipping product, after some reorganizing following a move from Albuquerque to Tucson, and should contribute more to revenue during 2007;
• FCS (Future Combat Systems) may not only get more favorable receptions by the new team at DoD and in Congress, but benefit Ionatron's efforts over time;
• Finally, the 'cash burn' rate is about 750k monthly; implying that whatever R&D monies are coming from Government customers is sufficient to defray most of the draining of corporate coffers.
In conclusion: while there was little or no discussion of any 'lock-up' agreements to restrict insider selling or resale insider's large holdings to investors with long horizons (of course these areas would be of interest), we were impressed with Dana Marshall and his incredibly impressive grasp of the laser 'battlefield', as well as the challenges he's assumed. We believe he's the ideal man to lead this company into better times.
Clearly the 'race' (if there is one) presently might be perceived to be between contract and revenue producing 'awards' or agreements, and share price, but it's complicated by (in my view) the unknown aspects of yearend tax-selling considerations, and even yearend buying considerations, because of the overstaying short-selling whittling-off their positions while they can.
Thus we believe 2006 was essentially a 'bust' for the company, but 2007 may be yet another story. The risk-reward ratio, sufficient for us to issue a 'caveat emptor' over a few days ahead of the unobtained JIN Army contract many months ago, increasingly will shift to an attractive one, especially if and as any tax-related selling or despair will drive the price even slightly lower over the course of the weeks immediately ahead. It is not as typical as it might seem, again, because not only of the eventual potential as the company envisions, but also because of the likely complex (impossible to grasp) trading strategies of some players (whether perceived as longs, shorts, or even both).
Superficially, barring any substantive news developments -in the weeks immediately ahead- we'd not be surprised to see a bottom develop, or slight erosion enroute to it. We really do not watch the stock that closely, and find the trading complexities much too challenging to try divining this short-term period. So if asked if we know whether it will be 2 or 3 before it's 5 or 6; we don't have a clue. But if asked if we suspect a year from now it will be higher, maybe considerably so, the answer is; if the firm is able to 'execute' plans remotely as they convey, then that is not at all out of the question. At least we can say that the intrigue and political inside and external politics seem to be historical elements, and that the new Congressional setup is perceived potentially as a plus. Combine that with the potential of successful product testing and 'actual sales' in 2007, and the mood of shareholders -and others watching- could change radically.
Scheduled Economic News Releases:
Monday:
• API earnings & 'cc' (remains back-burnered; not surprised nothing from DHS yet);
• Treasury Budget Statement.
Tuesday:
• Redbook & ICSC Retail Sales Indexes;
• Oct. PPI (Producer Price Index);
• Oct. Retail Sales;
• Business Inventories;
• FOMC Minutes.
Wednesday:
• LightPath Q3 report and 'cc';
• MBA Refinancing Index;
• Nov. NY Fed Manufacturing Index.
Thursday:
• Initial (weekly) Jobless Claims;
• Oct. CPI (Consumer Price Index);
• Treasury Int'l. Capital Flows;
• Industrial Production;
• Capital Utilization;
• Philly Fed Business Index;
• NAHB Housing Market Index.
Friday:
• (Oct.) Housing Starts.
In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including organized terrorist forces in various countries. A world addressing terror threats continues, as domestic issues absorb us less as we focus on the Middle East crisis and World War III avoidance.
Though few generally concurred for three years, our consistent view has been slow but persistent American growth isn't negative, allowing the protracted gradual growth without ancillary significantly high interest rate pressures. There's no truly-restrictive monetary policy; nor is there likely to be one, irrespective of oil-induced inflationary pressures. This is a continuing saga. Often we get a speculative phase later in a bull market, but increasingly towards the end of an overall rising phase. In our view, there has not been that degree of speculation, but that is a potential feature developing let us suggest somewhere in the years ahead, maybe late 2007-2009, barring disaster.
McClellan Oscillator finds NY 'Mac' oscillating, at +15; NASDAQ softer at +3; fairly unimpressive readings as continue to vacillate, which is reversing down short-term.
Issues continue including oil, terror; the whole Middle East, Korea, and elsewhere. Ideally the new week's Election hoopla plays-out, then new defensiveness; or even a sobering reassessment of the world situation follows in the days ahead, as expected here, even before the Congressional Elections (since we speculated that we thought a series of policy changes were not only considered, but possibly decided, all the way at the White House level, before the Elections took place; to be implemented later). It looks like we might have hit the nail on the head on that one; which is barely ignited.
~Gene Inger’s Daily Briefing™ (The Inger Letter daily analysis on www.ingerletter.com)
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