A stock is like a model rocket. Inside the engine is propellant that makes it fly and a delay charge that lets it coast higher — often for a ridiculously long time — before reaching the ejection charge that pushes out the parachute. An investor’s challenge is to guess which rockets in a field of rockets are likely to take off. Some are obviously too heavy for their engines; some lie on their sides or are pointed straight down. A few of those sleek rockets will attract the horde of people required to press their ignition buttons.
Once your rockets are flying, you have another problem. How long will the delay charge burn? The delay charge is made of speculators and momentum investors who pile in while the rocket climbs past all reasonable heights. Value investors begin to scream that this rocket is impossible, and they leave the field altogether. They endure years when they refuse to play with rockets because they cannot accept the delay charge.
We are living through a period of delay charges and speculation fueled by trillions of dollars that our government pumped into re-starting our economy since 2009. You can see it in the feverish trading of marijuana stocks, cryptocurrencies, and tech companies. Most of the press is devoted to events of well-known rockets that have already traveled past 4,000 feet; let’s look for payloads that are about to take off or whose delay charges expired in the recent downdraft.
Perhaps you have noticed that, of late, Bluetooth devices actually work. Connecting printers and phones through Bluetooth was annoying for years, but Bluetooth and other low-powered nearby wireless technologies are increasingly deploying as part of the “the Internet of Things” or IoT. For instance, I grew tired of paying opaque electric bills, so I installed a device from Sense.com (a private company) in my home’s electric panel that recognizes the electrical signatures of appliances, and sends usage reports to my phone. It gathers information from other Sense users who collectively identify devices, and the service becomes smarter with more users. Sense is just the tip of the IoT iceberg, though.
A Princeton company (also private) called NectarKast.com is distributing beacons that broadcast short promotional messages to phones up to 300 meters and for up to 10 years on a single battery. If you’re within 300 meters of Pizza Palace, you might get a message that says, “15 percent off pizza in the next 15 minutes at Pizza Palace — just show us this message!” When a phone is near a beacon, the beacon becomes part of a mesh network that enables NectarKast to update the messages in the beacons. NectarKast beacons use chips from Nordic Semiconductor, a company that is powering wireless devices around the world.
Nordic Semiconductor (NDCVF, www.nordicsemi.com) is listed on the Oslo exchange and makes Bluetooth and proprietary wireless chips for cars, phones, PC peripherals, gaming controllers, mobile phone accessories, consumer electronics, wearables, buildings, sports and fitness, multi-media controllers, toys, healthcare, automation, and other applications. Nordic is a market leader in short-range wireless technology with ultralow power consumption.
Nordic’s sales for the last three years are increasing: $193M, $197M, $236M. Margins are better than 50 percent. The company has $95M in cash and short-term investment, no debt, and has netted $11.1M in the last four quarters. The firm had a problem with a major Chinese customer in the last year, but, despite that, management anticipates growth of 20 percent this year. The stock is down from $7.22 on June 4 to about $4.50 today, and has a market cap of $787M. It pays no dividend.
I like Nordic because it is already growing and making money in IoT, a market that will see a lot of investment. It has no debt, plenty of cash, and a staid, entrepreneur-led management team that understands the business. Nordic is large enough to defend its position, but small enough to double and triple as IoT grows, or be acquired by a larger company.
Of course, there is much we cannot know about any company and the future economy, but Nordic Semiconductor looks like a company that has demonstrated an ability to make money, has the potential to participate in a powerful trend, and could provide out-sized returns for your portfolio.
To comment, suggest a perfect company, or ask a question, please e-mail me: gpaul @perfectcompany.com