Why You should Buy Rational Patent

Rational Patent (NASDAQ: RPXC) is a fast growing company in a niche industry: patent defense. Companies such as Google  (NASDAQ: GOOG), Samsung, Cisco, Sony, Nokia, and Verizon have all turned to RPX for patent management solutions. According to RPX’s prospectus:

“The core of our solution is defensive patent aggregation, in which we acquire patent assets that are being or may be asserted against our current and prospective clients.  We then license these assets to our clients to protect them from potential patent infringement assertions” (62, Prospectus).

In simple terms, there has been an arms race for patents over the past decade.  For example, Google recently bought Motorola for $12.5 billion in order to acquire its 14,600 patents and 6,700 potential patents.  Google believes that these patents from Motorola will help Google continue its success in the Android phone market.  Unfortunately for Google (but fortunately for RPX), managing a portfolio of patents is a time-consuming and complicated business.  Instead of wasting internal resources on patent defense, Google has wisely chosen to hire RPX.  To refer to the excerpt above, RPX continuously monitors the patent market and acquires patents that it feels will protect its clients.

RPX is the top-dog in this new market and does not face significant competition from other companies in the Patent Defense industry.  According to its prospectus, RPX listed its main competitors as internal patent risk management departments within companies.  For example, RPX competed with Google’s internal patent defense department to acquire Google's patent management business.  I believe that the need for patent management solutions will become so great that companies will move away from managing patents internally and outsource business to companies such as RPX.

Quantitative Analysis

Below I have provided a table from Fidelity.com highlighting RPX’s growth.

Key figures for me include revenue, earnings, and capital spending growth.  In RPX’s case, these numbers are all extremely good.  Revenue has increased 88% compared to last year, earnings have increased 96%, and RPX has continuously re-invested in itself through its 82% capital spending growth over the last five years.  It’s important to note that RPX spends its money on acquiring more and more patents on behalf of its clients.

Perhaps even more important is RPX’s high level of profitability. I have provided another table from Fidelity.com for your reference.

With a gross margin of over 70% and operating margin over 32%, it is safe to say that RPX is highly profitable.  My favorite one-two punch is growth and profitability.  Whenever a company is able to grow at a fast pace and maintain profits, it usually results in great return on investment for shareholders.  RPX’s share-price has been increasing as of late, and actually shot up 12% today on an announcement that Alcatel-Lucent will liscense its portfolio of over 29,000 patents to RPX.  According to Reuters.com, Alcatel-Lucent is basically allowing RPX to sell its patents to various companies such as Google and Intel.  Proceeds from the patent sales are estimated at $1 billion dollars.  Much of this money will of course go to Alcatel-Lucent, but RPX will surely charge a middle-man fee.  In addition, RPX will use this as an opportunity to protect its own clients such as Google and Nokia.  In other words, if RPX feels that Google could benefit from Alcatel-Lucent's patents, it will purchase these patents on behalf of Google.  RPX is starting to develop a strong network of clients in the patent industry that will serve as a barrier to entry for other companies trying to compete with RPX.  It appears that now is the perfect time to jump in and invest in RPX; it has all the signs of a winner.

Michael R. Caligiuri does not own a position in Rational Patent and will not initiate a position within the next 48 hours.

Zipcar Ready to Take Off

Former Caligiuri Investments Stock

Back on April 14th, 2011 I blogged about Zipcar after its IPO.  Clickhere to see the original write-up.  A couple predictions I made for Zipcar were:

1.  "Because Zipcar is a relatively young company, it has yet to turn a profit.  This will no doubt be a concern for many investors, however I believe that Zipcar will be profitable in the long-term."

2.  "If I had to guess, Zipcar will receive immense interest from outside companies such as Ford and Toyota."

3.  "In the end, I believe that this will be at least a multi-billion dollar company."

Prediction Number 1 = Correct


"I believe that Zipcar will be profitable in the long-term."

Zipcar has indeed finally turned a profit.  Turning a profit is kind of important (joke), so this is huge.  On November 2nd, 2011 Zipcar released its earnings report showing its profitability.  Scott Griffith, Chairman and CEO of Zipcar, said, "We are delighted to report a strong quarter of growth and profitability."  Click here for the article.

Despite the profit hurdle finally being passed, we should not be surprised if Zipcar fails to report profits for certain quarters in the short run.  Like all great companies that have come before it, Zipcar is aggressively spending money to grow its business.  Now that we have seen Zipcar turn a profit, we should have more confidence in the long-term plan of the company.

Prediction Number 2 = Correct


"If I had to guess, Zipcar will receive immense interest from outside companies such as Ford and Toyota."

Zipcar and Ford struck a deal.  Below is a brief excerpt from the New York Times describing the deal.  For the complete article, click here.

"[Ford] will supply its vehicles to Zipcar locations on 250 college and university campuses in the United States.  The two-year program will provide Zipcar with up to 1,000 Ford Focus sedans and Escape sport utility vehicles."

This was not only a sweet deal because Zipcar received a bunch of free cars, but it also shows that Ford recognized Zipcar as the market leader.  In other words, Ford could have chosen to provide Hertz with free cars (a competitor to Zipcar in the car sharing industry), but it chose Zipcar.  CEO Scott Griffith said it best:

"Having Bill Ford and the Ford Motor Company validating Zipcar as a business model and as an emerging transportation brand is a big step for us."

Prediction 3 = Hopefully Correct!


"In the end, I believe that this will be at least a multi-billion dollar company."

The third prediction I made was that Zipcar would be at least a multi-billion dollar company, I.E. a multi-billion dollar market capitalization.  Right now, Zipcar's market capitalization is $724 million, so a multi-billion dollar market cap would mean triple digit returns for investors.

Now is the Time to Buy

I've been following Zipcar since April and think that now is a great time to buy into what I believe to be a future multi-billion dollar company.  Remember, own at least 15-25 companies in a portfolio and don't allocate too much to any one stock.  

Michael R Caligiuri owns shares in Zipcar

GMCR Drops 30%

Earnings and Revenue Lower than Expected

GMCR released a statement confirming that it missed earnings and revenue expectations this quarter.  More specifically, GMCR missed the forecasted EPS by 1 penny.  In addition, they reported a revenue stream of $712 million instead of the expected $761 million.  Despite the fact that these missed expectations are most likely due to normal fluctuations in demand inherent to the coffee industry, investors turned sour and sent shares tumbling 30% in after-hours market trading.  For more information click here.

GMCR Addresses Einhorn's Criticism

Another big story coming out of GMCR today was that it addressed criticism from David Einhorn.  The CEO of GMCR, Larry Blanford, said that the company hired an audit committee that found no misconduct or wrong doing with GMCR.  He also added:

“We understand with success comes scrutiny, and at times skepticism.”

Unfortunately, these positive comments did not prevent the drastic after hours share price decline.

What to do Now

As an owner of GMCR shares, I have held onto my position all the way through this crisis.  My investing strategy is to stick with a company unless my investment thesis for it has changed.  As I see it now, GMCR still has a strong product that will continue to produce high revenues and earnings in the future.  Investors must understand that GMCR's missing earnings and revenue expectations are simply a byproduct of the company's wild success.  If it hadn't been performing so well in the beginning, expectations wouldn't have been so high!

Having said that, I do not believe that RIGHT NOW is the best time to invest in GMCR.  With so much skepticism surrounding the stock amidst the Einhorn allegations, it is best to let the stock settle a bit before investing.  If you REALLY want to invest in GMCR, I would recommend pursuing a dollar cost average strategy where you invest a third of your intended investment now, another third a month from now, and a final third three months from now.  This way you will protect yourself and possibly benefit from possible price fluctuations.

Michael R Caligiuri owns shares in GMCR

Green Mountain Coffee Roasters Oversold

There are two possible reasons that GMCR shares have fallen 40% since David Einhorn's recommendation to short the stock:

1. Einhorn's analysis of GMCR was indeed correct and GMCR shares were grossly overrvalued

2. Investors simply sold off their shares in GMCR out of fear. Fear the almighty Einhorn!

I'm not buying Einhorn's recommendation and thus believe that investors sold their shares in GMCR out of fear.  Although I admire David Einhorn and his brilliant analyses of companies, I think it was his stellar reputation that was responsible for GMCR's fall rather than the rationale provided in his analysis, which can be found at this link: http://tinyurl.com/6zoztck.  Sure, Einhorn has had many successful short-sell recommendations such as Lehman Brothers, but all investors make mistakes.

Einhorn's two biggest reasons for shorting GMCR were unethical accounting practices and a likely loss of market share due to patent expiration.  I guess I can't really argue with Einhorn on either one of these points, but that's only because we have known both of these things for a while now.  Every stock analyst on the market and their mother knew exactly when GMCR patents were going to expire (this was explicitly stated in the 10K).  Furthermore, GMCR accounting practices had already been in question before.  If stock analysts and investors believed in GMCR prior to David Einhorn reciting information that they already knew, then why did so many people sell their shares? Fear.

The bottom line is that GMCR has a very strong product that has plenty of room to grow.  Although there will be new entrants to the K-cup industry, GMCR's first mover advantage and long term contracts with powerhouse coffee companies such as Starbucks and Dunkin Donuts should help it maintain its competitive advantage.

Michael R Caligiuri owns shares of GMCR

Buy InterDigital (IDCC)

Google Buys Motorola


The big news of the week was that Google paid $12.5 billion dollars to acquire Motorola.  The purpose of this acquisition for Google was to substantially increase its patent portfolio to make it more competitive (and perhaps the top dog) in the mobile phone market.  Because Google paid a 63% premium for Motorola, Motorola shareholders were rewarded with a 63% share-price increase in one day.

An Arms Race for Patents


A very important factor for success in the mobile phone market is access to patents.  Google took a big step forward by acquiring Motorola, but there are still many companies with desirable patents out there.  Two of Google's main competitors in the mobile phone market include Microsoft and Apple.  Both of these companies have huge cash positions; Microsoft has over $51 billion of cash and Apple has over $20 billion of cash.  The word on the street is that Microsoft, Apple, and potentially Samsung are looking to acquire more patents to stay competitive with Google.

The company with the most desirable patent portfolio according to many sources is today's recommendation InterDigital (IDCC).  With a market capitalization under $3 billion dollars and a patent portfolio that could potentially be worth $20 billion dollars, Interdigital has a TREMENDOUS potential return.  I'm talking about over 500%.

For a more detail analysis of IDCC's patent portfolio value check out Seeking Alpha's write-up.

Downside Limited


Although we never know exactly how the market will behave, Interdigital shares do not appear to be super overvalued.  In other words, IDCC is a pretty good company in its own right with the added bonus of potentially being bought out by Apple, Microsoft, or Samsung.  IDCC has been successful with its patent portfolio business by increasing both revenues and cash flow consistently year in and year out.  In addition, all the profit margins are extremely high, which is to be expected from a company that simply collects royalties for its patents.  Whether or not IDCC gets bought out, it will continue to receive royalties for an expanding mobile phone technology market.

This is the type of company that you have to be patient with.  Because there is so much speculation as to whether or not it will get bought out, the share price will no doubt be volatile.  However, the bottom line is that IDCC's patent portfolio is worth A LOT of money.  I believe that the huge upside and seemingly small downside to IDCC make it an attractive risk vs. reward investment.  Remember to invest responsibly and never allocate too much of your portfolio to any one stock!

"Seeking Alpha" Likes VPRT

Below is an excerpt from SeekingAlpha.com in regards to VistaPrint; definitely a good read.

VistaPrint NV (VPRT) has seen loss in excess of 35% over the last month. The company announced earnings on July 29 which reflect revenue growth of 27% and net income of $14.4 million over $11.7 million year over year. This financial report caused the stock to decline along with guidance below analyst expectations. The company has increased revenue, EPS, and assets each year over the last 5 years. In addition, the company has eliminated it's total debt during the last 5 years and currently have no debt. The company announced potential EPS of $5 and revenue of $2 billion by 2016 which show the company expects continued growth over the next several years.

I believe this stock is offering investors the perfect buying opportunity, regardless of how the markets feel about the company not meeting EPS expectations. Revenue is growing at the same rate and EPS has increased year over year, and is projected to continue. I expect P/E to increase along with earnings, making the current price of $28.35 a bargain for any investor.

Buy Vistaprint (VPRT)

The Business


Vistaprint is the premier resource for small businesses.  Whether you need to make a website, create and distribute business cards, mail special reports to clients, or create an email database, Vistaprint has all the answers.  In fact, Vistaprint has a specific niche in the market for micro-businesses that have ten employees or fewer.  Although this may seem like a small market, Vistaprint's research has shown that there are at least 50 million micro-businesses in the United States, Europe, and Canada alone.  This global perspective has influenced Vistaprint to diversify its business, which can be shown through their revenue distribution: 57% of revenue comes from North America, 38% from Europe, and 5% from Asia Pacific.  It is important to note that Vistaprint is pursuing increasing its footprint in the Asia Pacific market.

The Stock


Vistaprint appears to be a very attractive growth investment because of its strong financials and solid value.  Compared to last year, revenue and earnings growth have increased over 21% and 22%, respectively.  This means that Vistaprint has successfully expanded its business in North America, Europe, and Asia Pacific.  With zero debt and over $230 million dollars have cash, Vistaprint is poised to continue its aggressive expansion and increase its customer base.

Over the past month, shares of Vistaprint have dropped 42%.  For a company of this quality, the share price drop is quite astounding.  Aside from the market getting beat up in general, Vistaprint shares dropped because they produced lower than expected earnings expectations for next year.  Despite the large sell-off, Vistaprint has a very sound business plan to continue its expansion.  With a market capitalization of $1.29 billion and a P/E ratio of 16, I believe that Vistaprint represents tremendous value.

Side Note


Remember not to allocate too much of your portfolio to any one stock.  A general rule of thumb is not to let any stock represent over 10% of your portfolio, and to also own at least 20-30 companies.

Michael R Caligiuri owns shares of Vistaprint.