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Confessions of a Money Manager: Selective tech stocks worth a longshot

By Ray Unger
November 21, 2003

Last week I wrote about bad timing, buying Audible, Inc. (ADBL, $3.60) in early 2000 when the stock was in the low teens.

Even though we averaged down as the stock fell, when it slipped below a dollar a share, we were very disheartened. But it's recovered and because its underlying business continues to grow and is now close to profitability, we're feeling much better.

The timing of today's stock idea, however, should be better. Like many tech companies during the dot.com bubble, its future was thought to be so bright that investors bid its stock to over $100 a share - it peaked at $113 in late February 2000. But when it fell, it fell hard.

This past March, its stock sold as low as 84 cents a share. That's what I mean by a 100 to 1 shot. The company in question is Superconductor Technologies, Inc. (SCON, $6).

Since March, however, a number of positive developments have unfolded. In April, SCON won an important patent infringement lawsuit. In June, it raised $11 million in equity to bolster its balance sheet. It now has $13 million in cash and only $2.2 million in long-term debt. In August, the company introduced its new SuperLinkTM Rx 1900 for wireless network carriers and in October announced solid results for the third quarter ended Sept. 30.

Sales rose to $14.2 million, up 26 percent compared to $11.3 million in the second quarter and up 202 percent compared to $4.7 million in the year-ago third quarter. They also narrowed their loss to just a penny a share compared to a loss of 20 cents in last year's third quarter. Full year 2003 sales are now expected to be in the $45-50 million range, over four times 2000's sales.

Superconductor Technologies' founders virtually invented high-temperature superconductivity (HTS), and adapted it to electronic systems that enhance wireless communications. Their line of cryogenic receiver front-ends (CREFs) - sold under the name SuperLinkTM Rx systems - are installed between a wireless base-station's electronics and the base-station's antenna.

They're virtually "plug-and-play" boxes that can be up and running in less than a day. (If you're an engineer and want more details, log on to www.suptech.com and click on the article entitled "Superconductors Do More With Less" by Rich Conlon in Wireless Systems Design, July/August 2003).

What these CREFs do is rather remarkable. According to Superconductor's Web site, in benchmarked field trials, they reduced dropped calls by 43 percent and blocked calls by 26 percent. In other words, these CREFs improve cell phone transmission sensitivity and reduce interference.

I'm not an electrical engineer, but since engineers of cash strapped wireless carriers buy them and SCON shipped 556 of these units in the third quarter alone - more than they shipped in all of 2001 - I'm assuming they work.

Today's wireless communications carriers like ALLTEL, AT&T Wireless, Cingular, Sprint, U.S. Cellular and Verizon face a real conundrum. Demand for voice and data communications over wireless networks is exploding. But these same carriers are strapped for cash to expand.

In steps Superconductor Technologies, with an easy and cost-effective solution to not only expand capacity but also improve efficiency. SCON now has 3,400 of these boxes in the field and with 140,000 wireless base stations in the U.S. alone, future growth looks promising.

The risk is that NEC, Toshiba and DuPont have also shown an interest in this market and may soon have competing products. But with such a huge market, new competition may not hurt Superconductor in the near-term. And if one of these major firms wants to hit the market running, they could acquire Superconductor. It's that cheap.

In any event, three years ago, when SCON's sales were under $10 million and faced competitive and legal hurdles, its stock sold for over $100. It was obviously overpriced and slumped to under $1.

Today, it's four to five times larger, and has met these challenges. It now sells for $6. I think this 100 to 1 shot stock is a good bet for further recovery.

http://www.madison.com/captimes/business/stories/61741.php