Wolfe: Liquidmetal Charts New Territory
12/27/2002 12:00 am EST
"Liquidmetals is a pioneer on the frontier of developing new materials," says Josh Wolfe, editor of the ground-breaking newsletter, Forbes/Wolfe Nanotech Report. "Liquidmetal was developed by a scientific dream team at Caltech; its unique atomic structure makes it stronger and lighter than its counterparts, augmenting a broad array of products, ranging from mobile phones to golf clubs." Here are the details.
"Investors should keep an eye on Tampa-based Liquidmetal Technologies (LQMT NASDAQ). With strong management, clients, and technology validation, we think this is an oustanding investment prospect. Most metals used today are alloys, mixed together to get desired properties. They form ordered crystalline structures as they solidify. The problem lies in the gaps where the crystals touch each other, which cause weakness and rust. But liquidmetal rapidly cools its alloy to create a tightly packed, but random, atomic structure. The atoms' different sizes and random arrangement means that no groups of atoms can easily move past one another. This makes it very dense and relatively non-corrosive and wear-resistant. Liquidmetals is 2.5 times stronger than titanium with a strength-to-weight ratio that is more than double that of steel.
"Liquidmetal is gaining traction in the $60 billion worldwide mobile handset market because its casing is light and sturdy enough to hold large color displays. This quarter, it supplied the casings for Samsung's new SCH-X199 phone as part of a $400 million order from China Unicom. The company has other markets in mind, particularly the defense industry. It has already gained momentum in this market, with $5.25 million from the 2003 Defense Appropriations bill and a $2 million grant to make stronger armor piercing ammunitions to penetrate tanks. A major hedge fund manager I talked to who owns LQMT thinks this business alone could be worth $1 billion by 2005. Meanwhile, there are many other liquidmetal products in development today, including TAG Heuer watch cases and surgical instrument components made for Johnson & Johnson. Ping and Cleveland Golf will introduce golf clubs made with Liquidmetal in the first half of 2003 that can outdrive their titanium counterparts.
"CEO John Kang has become the Daniel Boone of the materials landscape, traveling into uncharted territory. He founded software firm Medical Manager and sold it to WebMD in 2000 for $3.2 billion. His belief that liquidmetal could have a commercial impact as big as plastics did in the 1960s drew him out of retirement. He went from being an investor to the company's CEO in 2001 and guided it to a NASDAQ IPO last May. Right now, LQMT stock is a battleground. The stock has overwhelming insider ownership amounting to north of 65% of outstanding shares. The largest institutional shareholders are Fidelity and Putnam. Another notable institutional holder is legendary commodities trader Paul Tudor Jones' Tudor Investments. On the other side, aggressive short-sellers are currently short an overwhelming 3 million shares of the company's 5 million shares in public float. The biggest weakness that short sellers point to is the company's inexperience in high-volume manufacturing and its yield problems in previous quarters. One major step to address these issues was the recent hiring of a leading manufacturing executive from Alcoa who ran its $1.3 billion casting business.
"At a recent price of $9.50, LQMT is trading at less than 3 times expected 2003 sales, hardly a nosebleed valuation for a company expected to improve next year's sales by more than 1,000% over 2002. Merrill Lynch forecasts sales of $7 million in the fourth quarter of 2002 and $15 million in the first quarter of 2003. Hedge fund manager Edward Neugeboren of Third Ridge Capital owns a big chunk of the stock and thinks it is worth over $15 a share in the near term based upon a valuation of 4 times estimated 2003 revenues."
The key risk-on and off drivers today are the same – U.S. politics, global growth, other centr...