Wireless Opportunities

03/11/2005 12:00 am EST


One of the great advantages of an in-depth expertise within a specific sector is that one is better able to assess when a sharp sell-off in a stock is a reason to abandon the shares or a buying opportunity. Here, wireless expert Nikhil Hutheesing, looks at two such situations.

"OmniVision Technologies (OVTI NASDAQ) makes the CameraChip, which is  used to capture an image in a variety of consumer products such as digital cameras and cell phones. The company recently announced disappointing numbers in its third quarter and a mixed forecast for the fourth quarter. As a result, the shares fell sharply on the news. Nevertheless,  I believe the opportunities for OmniVision are great as phone manufacturers continue to demand the best megapixel camera technology they can get for their phones.

"In addition, OmniVision is financially strong. The company ended the quarter with cash and short-term investments totaling $315 million, nearly $5 per share. The company has no debt and its p/e is currently about 13.5. I believe that the demand for camera phones will rise later this year, taking some pressure off of Omnivision's growing inventories. CEO Shaw Hong said the growth in inventory reflects his company’s determination to be in a position to meet expected customer demand, particularly for 1.3 mega-pixel products this quarter and next. I think shares of OmniVision are particularly attractive now, given the over reaction to the company’s earnings announcement.

"Another stock, which recently fell was Jamdat Mobile (JMDT NASDAQ), despite announcing stellar earnings and revenue numbers for the fourth quarter and for 2004. The company makes wireless entertainment applications, including games, ring tones, images, and other entertainment content. To find out the reason behind the fall, I put in a call to Michael Marchetti, the CFO at Jamdat. His explanation was  that hedge funds are focused on the lockup period for big insiders, which expires on March 28. That means that holders such as Qualcomm (with 2.3 million shares), Benchmark Capital (2.2 million shares), and Apax Managers (3.7 million shares), who have held their shares since the IPO, could start to sell stock in one month. The pressure is especially great because Jamdat has a very thin float of just 11.3 million shares of 20 million shares outstanding.

"I’ve been talking with the company and with institutions and my research suggests that none of large shareholders have any plan to start selling on March 28. And, even if they did, it would be in a controlled manner thus not impacting the stock too much. Besides, the expiration of the lockup could be a good thing because even if the big institutional holders started to unload shares, that would result in increased liquidity and reduced volatility for Jamdat’s stock. In my view, now is a very good time for those looking to take a position in this stock. The company is growing fast and its revenues and earnings are strong. I expect to see JMDT back in the $20 range in the next couple of months."

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