"Not profitable"
Here is the article for the readers. The pimp Markman has been hyped as a "value investor" on TSCM. This is the worse joke. Only putting Meeker or Bloggett as value investors would be funnier.
Investing in value stocks is an essential strategy for a diversified and profitable portfolio. In fact, over the past 25 years many value-oriented funds have outperformed the S&P 500 by a wide margin. But with so many companies to choose from, how does the self-directed investor find the very best opportunities for long-term success? Meet Jon D. Markman, renowned value fund manager, award-winning financial journalist, and contributor to RealMoney. Using a proprietary screening methodology that combines core fundamental analysis with specific sector expertise, Jon researches and identifies stocks positioned to beat the market over a 1-3 year period. From some of the most recognizable large-cap names to undiscovered companies with vast potential, Jon's portfolio will offer investors of all levels money-making ideas every week.
Telkonet: Betting on BPL's Big Potential
By Jon D. Markman
RealMoney.com Contributor
10/28/2004 3:08 PM EDT
URL: thestreet.com
Telkonet BULLISH
Price: $3.48 | 52-Week Range: $1.80-$5.74
It makes equipment to route broadband through the electrical grid of a building.
It has relationships with hotel chains and the U.S. Navy, but says apartment buildings are its main focus.
This is a speculative play with the financial profile of a developmental biotech.
Position: None
The Red Sox victory on Wednesday proves that if you work hard at something for 86 years, it might just work out eventually.
It hasn't been quite that long for advocates of a little-known Internet technology known as broadband over power lines, or BPL, but it has seemed that way. For years it was always the next big thing -- a way to leverage the ubiquitous U.S. power grid to bring a broadband connection to every hill and dale in the land. Rural electrification, 21st century style.
A variety of utilities have fooled around with pilots of the technology -- which takes advantage of the fact that an Internet signal can travel along power lines because it occupies a different frequency than electricity -- but they haven't gotten traction until recently due to trouble with radio interference and regulatory obstruction. And, of course, utilities aren't exactly R&D or marketing machines, so they haven't pressed the matter very hard.
But two weeks ago, it turned out that BPL had a good friend at the Federal Communications Commission. Behind the surprising cheerleading of FCC honcho Michael Powell, the feds gave their blessing to rules that will let BPL blossom. In a statement, Powell said: "Given that BPL can offer broadband services through any electrical outlet, the technology has the potential to provide ubiquitous service to all Americans at affordable rates."
Sadly, there are no direct ways for investors to take advantage of this turn of events because BPL deployment will be slow at best, the equipment makers are private or listed on the OTC bulletin board, and it will provide only a fraction of the relevant utilities' revenues.
But there is an offshoot play that is very intriguing, and that is through an Amex-listed small-cap called Telkonet (TKO:Amex) whose shares have advanced 21% since the FCC decision on steadily increasing trading volume. (The stock was recently up 9 cents, or 2.7%, to $3.48.)
Telkonet is the only public company, as far as I can tell, that makes equipment to route broadband through the electrical grid of a building. Its products capture a conventional T1, DSL or cable broadband signal from the street, then transform it into a signal that is propelled along a building's already-installed copper wires to turn every wall plug of an apartment complex, hotel, school, military installation or even aircraft carrier into a broadband outlet.
Telkonet's technology is well out of the pilot-project stage. You can actually check into more than 100 hotels today that will offer you, at check-in, a little canvas bag that contains a power-plug modem. One end of the device sticks into any wall plug in the hotel, and the other has an Ethernet cable that plugs into your laptop. Connect the two, and voila -- you are on the Web, surfing at speeds faster than a typical home cable or DSL line, with much more reliability than Wi-Fi and none of Wi-Fi's configuration headaches. I made a spot-check by phone of a Quality Inn in Surprise, Ariz., that is listed on Telkonet's Web site as a customer, and the front-desk clerk said the service worked well.
Telkonet has a relationship with Choice Hotels (CHH:NYSE) -- which is the franchisor of Comfort Inns, Rodeway Inns and Quality Inns -- as well as the U.S. Navy and some relatively small commercial entities. CEO Ron Pickett said the company expects to be in up to 3,000 hotels by the end of 2005, but will be focusing much more of its attention on selling its wares to the hundreds of thousands of apartments in America though distributor relationships. A 5% share of the nation's hotels and motels would bring in $7.5 million in annual sales, he said, while a 5% share of the apartment market would mean more like $100 million in sales.
The Telkonet value proposition is compelling. To install Ethernet cabling in an existing building is very expensive and a huge hassle. Wi-Fi is less costly, but service is spotty and it can be hard for travelers to get online due to individual computer configuration issues. Pickett said the Telkonet solution installs in one day with no room disruption, and the monthly service fee includes modems for 10% of a property's rooms. Configuration is easy because your computer thinks it is just plugging into a standard Ethernet jack.
The solution is said to work especially well with old government buildings because there is no need to bust up concrete walls or remove asbestos to get the places wired. Pickett said the company is being well received in 10 pilot projects in Europe for the same reason. "We are a high-tech solution to a low-tech problem," he said.
If we learned anything from the dot-com era, though, is not to get all starry-eyed about a technology. It's about revenue and earnings. So be warned that Pickett said Telkonet will not be ready to provide quarterly revenue guidance until next quarter, though he expects to swing from an $8.5 million annual loss to profitability by the end of 2005. For a company that has only taken in $500,000 in revenue and lost $11.5 million in the past 12 months, that sounds ambitious.
Managers are veterans of Safeguard Scientifics (SFE:NYSE) , Digital Angel (DOC:Amex) and Internet Capital Group (ICGE:Nasdaq) , and the chairman is Warren Musser, famed warhorse of the Internet start-up era and a founding investor of Novell (NOVL:Nasdaq) , the QVC shopping network and Safeguard. Institutional owners are private funds Fortress Investment Group LLC, Ritchie Capital Management, Corsair Capital Management and PAW Capital Partners. Larger institutions Mellon, Vanguard and Advest also have small stakes. The company was reverse-merged into an Amex shell three years ago. All of these smart people could be completely off base in their decision to support Telkonet, so make sure to do your own due diligence.
The odds are against this little outfit, but it seems to me that the idea could catch fire with the buzz of BPL and generate momentum. It could also be a buyout candidate. Valuation at this time is off the charts, since it essentially has the financial profile of a developmental biotech at this point. (Through the end of its summer quarter, the company listed $18 million in cash and just $600,000 in long-term debt.)
If you take this name, just keep in mind that it is a trading idea only until those promises of larger-scale hotel, government and apartment deployments come through. Watch the deal flow via press releases and Securities and Exchange Commission filings. There is a long way to go for Telkonet to be a fully viable operation worthy of real investment money, but it seems to be on an electrifying path.
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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Telkonet, Safeguard Scientifics, Digital Angel and Internet Capital Group to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
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Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment research service, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. At the time of publication, he had no positions in stocks mentioned although holdings can change at any time. He also writes a weekly column for CNBC on MSN Money. While Markman cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jon.markman@thestreet.com. |
