PORTFOLIO UPDATE: PROBING POCKETS OF RISK
During the trading day, I tweeted the following:
IWSY has turned into a bit of an enigma for me recently from both a technical standpoint and a fundamental standpoint.
The price action in IWSY has always been a confusing mix of erratic volume and volatile price movement. This is why the stock never made it past a mid-sized holding, despite being the strongest performer in the portfolios for 2013.
It is one thing to be an erratic, unpredictable stock when a company is being valued at an unreasonably low valuation given the transformation of the business, as IWSY was in February and much of March. It is another thing entirely to be an erratic, unpredictable stock when your valuation has appreciated by 140%, with increasing pressure on management to deliver.
The biggest risk in IWSY from here on out is execution risk, specifically in the form of signing big name contracts over the next several months. Without those contracts, IWSY becomes a sideways drifting asset at best. At worst, it moves back into the $1.50 range before the market is able to gain clarity into what the company can become.
Without a doubt, what is occurring at IWSY has substantial upside potential. I believe that the company is a virtual shoe-in for acquisition should they experience a revenue ramp brought on by partnering with big name wireless companies that can showcase their technology appropriately. However, again, this comes with a fair share of execution risk at a near $200 million market cap.
Given the opportunities that exist in the market today, I can't justify taking on 30% downside in order to gain 100% from these levels in IWSY. There are companies like CIDM that are offering up less than 20% downside here in order to gain well in excess of 100% over the intermediate term and much more longer-term, without the pressure of execution given the depressed share price.
The research for CIDM is here. It is now a mid-sized, bordering on large position going into August with the additions that have taken place during the second half of July.
As it stands at the end of July, the portfolios are 90% long and 10% cash. Current holdings include: WMIH, HMPR, CIDM, SPNS and EVOL
