Tech Investing with a Twist
09/30/2013 7:00 am EST
Small-cap expert Jim Oberweis shares how he finds growth plays in an increasingly crowded and commoditized smartphone sphere through "picks and axes" tech firms.
SPEAKER 1: My guest today is Jim Oberweis. Hi, Jim, and thank you so much for being here.
JIM OBERWEIS: Thank you.
SPEAKER 1: It is always wonderful for me to hear about small-cap stocks because I have always loved small-cap and mid-cap stocks and you have been buying some stocks in the smartphone arena. Is Apple one of them?
JIM OBERWEIS: Oh no.
SPEAKER 1: I didn’t think so.
JIM OBERWEIS: But Apple is driving the growth in some of them. One of the things that is happening right now is the industry is consolidating under Apple and Samsung but the lower tier companies are right on their tails so it is a mad dash right now to find new features, new ways to stand out in an increasingly commoditized product line.
SPEAKER 1: Exactly.
JIM OBERWEIS: We have tried to find companies that parallel and integrate into designs of cell phone manufacturers to give a competitive edge.
SPEAKER 1: So what have you found, like what is the sort of technology that is really driving the whole things now, and you are speaking to somebody who is not a tech person?
JIM OBERWEIS: Well let me give you an example. In the new Galaxy phones from Samsung, as you touch the numbers on your touch screen, you feel a very small vibration that kind of confirms that you have hit the right key.
SPEAKER 1: Okay, interesting.
JIM OBERWEIS: It uses a technology called haptics.
SPEAKER 1: Okay.
JIM OBERWEIS: The industry leader in that technology is a company called Immersion. It is one of the companies in our portfolio. Immersion Technology is growing roughly 30% a year, trading for about 25 times earnings through haptics technology, primarily integrated into Samsung phones. That is a risk too because Samsung comprises right now kind of the lion share of their revenue.
SPEAKER 1: But that can change rapidly.
JIM OBERWEIS: That can change very quickly. I wouldn’t expect Apple to be a customer because they are also very keen on the technology but they have engineered it in-house but certainly companies like LG and some of the smaller players, as they gain market share, could very likely be candidates and give them a little more diversified customer base.
SPEAKER 1: I know you don’t follow Apple much but what do you actually think about Apple with this whole ICON and Soros buying into the stock. Do you think Apple is going to go the way of RIM?
JIM OBERWEIS: No, I don’t. In fact, another one of our companies is a bit of a play on Apple and Samsung together. I don’t want to make that bet. It is not clear to me is it going to be Apple or Samsung or is it just going to be commoditized and distributed across many different manufacturers. One of the companies that we own makes gyroscopes that go into cell phones so it can detect the angular motion across axes. Right now, Samsung is their major customer. We think they are going to get Apple probably in the next six months. It only trades at 10 times earnings. It is growing 30% and that is not building in a possible win at Apple. That would make it a home run, right.
SPEAKER 1: Oh wow, huge, yeah.
JIM OBERWEIS: Trying to play the winner and the loser in technology is very difficult. A lot of times it can kind of be the picks and axes of the industry. You can make money either way. That is why _____.
SPEAKER 1: Right, right, here’s your best.
JIM OBERWEIS: Yeah.
SPEAKER 1: Super. Thank you Jim.
JIM OBERWEIS: Great.
SPEAKER 1: And thanks for joining us at the MoneyShow.com video network.