By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 12/21/09 Sign up for free Cabot Wealth Advisory e-newsletter
My recommendation is an attempted home-run swing with Airvana (AIRV), an unknown little player in the femtocell market, whose revenues were just $4.9 million in the second quarter...mainly from non-femtocell electronics.
What's a femtocell?
In short, it's an in-home cellular tower that covers up to 5,000 square feet, and that connects to your cable or DSL connection, so that your cell phone activity (voice and data) travels on the Internet and not on those crowded airwaves.
Airvana, located here in Massachusetts, has been working with Alcatel-Lucent, Motorola, Hitachi, Nokia Siemens, Thompson Electronics and Pirelli ... and most of all, Nortel. But Nortel filed for bankruptcy back in January, which not only slowed business down but also made the stock pretty cheap. Since then, Nortel's relevant intellectual assets have been acquired by Ericsson (for $1.13 billion), and I have little doubt that Ericsson will be a big player in the femtocell market using this company's technology.
In the meantime, the company has been recently buying its stock back, a clear indication of how cheap management thinks it is. (It's currently trading around 7.) Another fan of the stock is Tom Garrity, editor of Cabot Small-Cap Confidential, who recommended the stock back in July, when it was trading at 6.
Here's a little of what he wrote:
"The average operator's core traffic, measured in terabytes, is up some 35 times in the past year. Data is flooding the network and carriers are struggling to stay afloat. Airvana (AIRV) is here to teach them how to swim.
"Airvana's established relationships with the biggest players in the telecom industry have us imagining a day when its superior technology is not only dominant, but ubiquitous. In other words, we think this company is setting a new industry standard. Airvana's wireless technologies and its network management software are second to none. Investors have an opportunity here to get in at the beginning of a period of industry-transforming growth of a kind that's not seen every day."
The reason I bring up the company today is that last Friday a group of private equity investors (combined with current management) announced they'd buy Airvana for $530 million, a premium of 23% over Thursday's closing price. So the stock zipped up 23% on Friday, and it pulled back a little today.
But here's the interesting part of the story. Numerous legal firms jumped into the fray immediately. They're fishing for shareholders to get on board class action suits that claim the buyout price is too low. And editor Tom Garrity agrees; he told his subscribers today to sit tight. He suggests another suitor might emerge and a bidding war might erupt to drive the stock higher. Time will tell.
All I know is that the femtocell story continues to be one of my favorite technology themes. With data-hungry smartphones proliferating around the world, demand is growing for technology like Airvana's that gets traffic off the airwaves and onto wires.
For a head start on small companies with big stories, click here for information on Cabot Small-Cap Confidential.
Timothy Lutts President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
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