Summary
- "Risk On" investors are starting to come back into the market after a deep decline in some of the more speculative sectors that commenced in March.
- I am adding to my small cap allocation, trying to pick some bargains that did not deserve to sell off.
- One of these new positions is in Neonode, which has explosive growth ahead of it, as well as recent insider buying.
The market had its sixth straight day of gains today. As "Risk On" investors come back into the market, I am allocating a little more of my "dry powder" to small cap stocks that took a hit in the sell-off that commenced at the beginning of March.
One of these is a small touch sensor tech company called Neonode Inc. (NEON). I took a small position in this tech play this morning.
Company Overview:
6 reasons NEON is worth more than $6 a share:
- Neonode has been working with Hewlett-Packard (HPQ) since late in 2012. The first Hewlett-Packard printers are launching with Neonode's touchscreen technology. This is a huge relationship as the company sells over 40 million printers a year, and this technology will be incorporated into myriad models. Neonode's technology will also be featured in Apple's (AAPL) CarPlay product.
- Earnings are at the start of a powerful ramp up. The company lost 37 cents a share in FY2013, but the current consensus calls for Neonode to post a loss of just about a dime a share in FY2014. In FY2015, current projections call for the company to make about 70 cents a share in profit.
- Revenues are expected to skyrocket over the next few years as well. The company posted revenues of less than $4 million in FY2013. Sales are expected to more than triple this year to over $13 million on the back of new project launches. Over $70 million in revenues are penciled in using the current consensus for FY2015.
- An insider made two purchases of totaling some $200K over the past month. These were the first insider buys since September 2012. The stock more than doubled over the next year after those previous insider purchases.
- The company has net cash on its balance sheet, is priced at just over 8x projected FY2015 EPS, and has 16 patents with another 78 pending.
- The stock is significantly under the price targets placed on it by various analysts. Only three analysts cover the stock, but they have price targets ranging from $11.25 to $14 a share on NEON.
NOTE: As with all small cap stocks with no current earnings, Neonode contains risks. The most important is maintaining a good relationship with Hewlett-Packard. On small cap stocks, I tend to take more and smaller positions than with larger cap stocks to spread my risk among a larger pool of stocks.
By Bret Jensen
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