TPS Trade Alert – March 27, 2015
Recommendation:
Buy Superconductor Technologies (NASDAQ: SCON) up to $1.55 per share.
Trade Rationale:
Microcap technologies companies can be an interesting challenge when it comes to investing. On one hand, these types of companies typically don’t have very good fundamentals.
Revenues are generally low, income non-existent, and costs can be high. Moreover, funding for microcaps can be hard to come by.
On the other hand, it’s exactly these sorts of businesses which are capable of producing the next big thing in tech. Even companies like Apple (AAPL) and Microsoft (MSFT) started from almost nothing.
Of course, a company doesn’t have to become Microsoft in order to be considered a success. The path for many of small tech companies is a buyout. Or, a microcap may go from a half million in revenue to $10 million. That’s still likely to be plenty successful for most stakeholders.
So how do you find the business gems from the pile of boring looking corporate rocks? When can you ignore fundamentals and just focus on the future of a product?
Well, there’s no easy answer. Otherwise, we’d all be filthy rich by now!
As always, you have to do your research. Basically, you’re looking for a compelling product and company which has enough resources to survive for the foreseeable future.
You can never guarantee a product or technology is going to take off. However, you can usually get a pretty good idea if a company is going to survive the next year.
It’s this sort of research which led me to very interesting, yet tiny tech company called Superconductor Technologies (NASDAQ: SCON).
SCON develops high temperature superconductor materials and related technologies. The company provides interference elimination and network enhancement solutions to the commercial wireless industry.
The way the company describes its technology is the best way to understand the importance of it. Basically, SCON says superconducting wire is to the power industry as fiber optics was to telecom. No technology comes close to how advanced it is.
Superconductor wire is significantly more efficient and effective than standard copper wire. It’s lighter weight, cheaper, and more flexible. Moreover, its performance is vastly superior to older tech.
SCON’s wire will help address the huge opportunity in the Smart Grid market. Aging infrastructure has provided several challenges (such as costly downtime vulnerability) which superconducting wire can help solve.
Not only is demand for superconductor wire on the rise, but SCON has technological superiority over the competition. Plus, their tech is protected by patents.
So, now we’ve identified a strong technology with a bright future. This is where you have to take something of a leap of faith. A company like SCON isn’t going to have robust revenues at this early stage. Nor will it be turning a profit just yet.
However, the company does have over $1 million in cash and no debt. Plus, management just raised another $5 million through a share offering. As such, there’s no need to worry about the company going under anytime soon.
Yes, the share offering did hit the stock price pretty hard. That’s normal during any sort of dilution activity. But, I’ll trade a temporary selloff in the stock for long-term viability of the company any day.
Not to mention, the shares have already sold off from the recent share offering news. That means we can get in at rock bottom prices.
In fact, at the current share price, SCON is trading at a miniscule 3.3x projected earnings. That’s absurdly low for a company with a great product and reasonable path to profitability.
Let’s grab SCON shares now while they’re ultra cheap.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
Company: Superconductor Technologies
Ticker: SCON
Recent Price: $1.37
Buy up to Price: $1.55
Market Cap: $18.2 million
Avg. Daily Volume (3 month): 63,142 shares
Chart:
Category: TPS Trade Alert
