Two Small Niche Tech Plays

04/05/2010 12:00 pm EST

Focus: STOCKS

James Oberweis

President, Oberweis Asset Management, Inc.

James Oberweis, editor of the Oberweis Report, finds two small companies that have specialized, proprietary technologies in vital areas of the economy.

Insituform Technologies (Nasdaq: INSU) is a leading global provider of proprietary technologies and services for rehabilitating sewer, water, energy, and mining piping systems and the corrosion protection of industrial pipelines.

In 1971, Insituform invented a trenchless technology for rehabilitating sewer pipelines that enables municipalities and private industry to avoid the extraordinary expense and extreme disruption that can result from conventional “dig-and-replace” methods.

The company offers one of the broadest portfolios of cost-effective solutions for rehabilitating aging or deteriorating pipelines and protecting new pipelines from corrosion.

Insituform’s process for the rehabilitation of sewers, pipelines, and other conduits utilizes a custom-manufactured tube, or liner, made of synthetic fiber. After the tube is saturated (impregnated) with a thermosetting resin mixture, it is installed in the host pipe by various processes, and the resin is then cured, forming a new rigid pipe within a pipe.

In the company’s latest reported fourth quarter, sales increased approximately 56% to $214 million from $137 million in the fourth quarter of last year. Insituform reported earnings per share of 41 cents in the latest reported fourth quarter versus 23 cents in the same quarter of last year. (The stock closed just below $27 Thursday—Editor.)

Mellanox Technologies (Nasdaq: MLNX) is a fabless semiconductor company that provides high-performance interconnect products based on semiconductor integrated circuits.

The company designs, develops, and markets adapter, gateway, and switch ICs, all of which are silicon devices that provide high-performance connectivity based on the InfiniBand industry standard.

Mellanox began shipping its InfiniBand products in 2001 and started shipping Ethernet products in 2007. During 2008, the company introduced Virtual Protocol Interconnect, or VPI, which allows an adapter to automatically sense whether a communications port is connected to an Ethernet fabric or an InfiniBand fabric.

As the leading supplier of InfiniBand ICs, Mellanox enables the providers of computing, storage, and communications applications to deliver high-performance interconnect solutions.

The company’s products are included in servers from the five largest server vendors: IBM (NYSE: IBM), Hewlett-Packard (NYSE: HPQ), Dell (Nasdaq: DELL), Sun Microsystems, and Fujitsu-Siemens. In the company’s latest reported fourth quarter, sales increased approximately 41% to $35.5 million from $25.2 million in the fourth quarter of last year. Mellanox reported earnings per share of 28 cents in the latest reported fourth quarter versus 13 cents in the same quarter of last year. (The stock closed below $24 Thursday—Editor.)

Disclosure: Clients of Oberweis Asset Management own both these stocks.

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