Note : Product names have been altered to keep the company name
confidential.
NEW BUY RECOMMENDATION
CVD Equipment Corp.
(CVDE - NASDAQ BB - $1.50)
Our Phone Service investors were informed to purchase CVDE @ $1.50 on
September 4. 900# investors were urged to buy on September 5.
Specialized Semiconductor company with record sales, earnings and
backlog. No long-term debt and management has been buyers of their stock during
the last quarter. An obscure company that deserves higher valuations. If the
second half of fiscal 96 equals the first half, CVDE could and should appreciate
dramatically. See our analysis.
CVD Equipment was incorporated in New York in 1982 and made an initial
public offering during September 1985.
CVD Equipment is a manufacturer of specialty equipment for the semiconductor
industry. It is one of a small group of companies that provide custom turn-key
deposition systems to universities, laboratories and major semiconductor
manufacturers for research and production. The company also offers specialty
furnaces, gas flow control systems and fabricated quartzware.
The company's products are generally sold to the semiconductor and aerospace
industries and are manufactured to the particular specifications of each of its
customers.
Chemical Vapor Deposition Equipment. The company offers advanced
Metal Organic Chemical Vapor Deposition Systems for sale to the electronics
industry. Chemical vapor deposition is a process which passes a gaseous compound
over a target material surface that is heated to such a degree that the compound
decomposes and deposits a desired layer onto substrate material.
The company also offers Annealing Furnaces which are used to heat materials
to temperature ranging from 300 degrees to 1500 degrees C in a gaseous
environment. The Annealing Furnace is equipped with an automatic process
controller permitting automatic process sequencing and monitoring with safety
alarm provisions.
Gas Flow Control Systems. The company offers standard and
custom-designed gas cylinder storage cabinets and gas control systems to provide
safe storage and handling of pressurized gases. System design allows for
automatic or manual control from both a local and remote location where the
handling of explosive, flammable, corrosive and toxic gases used in the
manufacture of semiconductor wafers can be hazardous.
Quartzware. The company offers standard and custom fabricated
quartzware. The quartzware is used by CVD Equipment Corporation and is also sold
as a separate item to the semiconductor industry.
Current backlog remains strong at $3.3 million.
Brief Fundamental Analysis
Fundamentally speaking CVDE is a very cheap stock. Upon review of the Select
Financial Data located in Box A, it is easy to conclude that CVDE's growth in
revenues and earnings has exploded to the upside.
For the six months ending June 30, 1996, sales ballooned to 2.27 million,
while earnings skyrocketed to .17/share. For the period ending June, 1995, sales
only reached 1.05 million and losses equalled (.03)/share. Revenues growth
expanded by 116% and earnings expanded by a mind-blowing 1900%.
Total sales and earnings for calendar year 1996 are anticipated to be just
as impressive. According to a management discussion, sales should approach $4.5
million and net income/share should equal an impressive 30¢. By the end of
1996 CVDE's book value should approach 95¢, the company's cash flow is
healthy and expanding, long term debt is $1,200.00 and management has been
purchasing shares in the open market. Even though this company is small in
nature, the fundamental picture at current levels look extremely attractive.
Upon review of Box B, which is a simple comparison of related companies with
respect to PE estimates for 1996, it is easy to conclude that the whole group
trades at fire-sales levels. In our opinion, all three issues look attractive;
i.e., AMAT @ 24 1/4 - PE of 6.8, NVLS @ 37 3/4 - PE of 6.2 and, of course, our
recommendation of CVDE @ 1.50 - PE of 5.
Upon review of Box C, we have made some conservative calculations using PE,
PSR and book value and all of our results indicate that this stock should trade
dramatically higher.
When we used earnings of 30¢ for 1996 and assigned a conservative PE
ratios of 10, a $3.00 stock price results - roughly 100% above current levels.
CVDE anticipates growth of around 75% during 1996. If we assign a PE of 25 to
take in account this rapid growth, then a share valuation of $7.50 is
formulated. If we examine book value and assume that CVDE should sell at 3x
book, again we develop and share valuation almost 100% higher than current
levels. Finally, if we assign a relatively low PSR to CVDE of 1.5x, a resulting
share price of $2.35 is calculated.
When one considers the anticipated growth in sales and earnings, pristine
balance sheet, management stock purchases, no LTD, fundamental comparisons to
peer companies, conservative assignment of PE, PSR and book values, all
indications are for a stock price of at least double its current level near
term.
We find CVDE very compelling at current levels for short and long-term
appreciation. We like it, own it and plan to profit from it!
Broker Contact: Mike Chesler at 1-800-331-1355; Corporate #516-981-7081.
We intend to monitor 5,000 shares of CVDE in our 100K Model Portfolio and
900# Portfolio for percentage gain performance.
NEW BUY RECOMMENDATION
HIA, INC.
(HIAI - NASDAQ BB
- $7/16)
Tapping the growth of the Western states - revenues and earnings
accelerating - solid book value, cash flow and no long-term debt - very
attractively priced @ $7/16 with attractive upside potential during the next 18
months.
On September 4, 1996 our Super Fast Phone service subscribers were
notified and urged to purchase shares in HIA, Inc. @ $7/16/share. On September
5, 1996, our 900# investors were informed of this new recommendation by calling
our 1-900-990-0909 Ext. 192 hotline.
HIA, Inc. was incorporated in 1974. The company is a holding company with
all of its business conducted through its wholly-owned subsidiary, CPS
Distributors, Inc. Through CPS the company distributes turf irrigation equipment
and commercial, industrial and residential well pumps and equipment on a
wholesale basis.
CPS serves customers in the Rocky Mountain region in five states consisting
of Colorado, Wyoming, New Mexico, Kansas and Nebraska. CPS carries a variety of
brand name products, including pumps and water systems, water conditioning
equipment, pump and well accessories, pipe values and fittings and sprinkler
system equipment. The industrial, commercial and residential pumps and turf
irrigation equipment represented 20% and 79%, respectively, of net sales for
1995 and 21% and 79%, respectively, of net sales in 1994.
Quotation activity is especially intense in the winter and spring months
(December to April) when contracts are reviewed and eventually awarded for
spring or summer construction. Since over 80% of CPS' business relates to turf
and irrigation products, its sales are concentrated from May to September and
are therefore seasonal in nature.
CPS has six major competitors in its market area for turf and irrigation
equipment and six major competitors in its market area for industrial,
commercial and residential pumps and equipment. It is estimated by management
that CPS has over 18% of the total market in Colorado for residential pumps and
30% of the total market in Colorado for turf and irrigation equipment.
Brief Fundamental Analysis
Nervous investors looking to participate in a volatile market should
consider investment opportunities that are easily understood and that have
strong fundamentals. Opportunities that have steady revenue and earnings, no
long-term debt, good cash flow and management that continually buys back stock
should allow most low priced stock investors a good night sleep, even in the
most turbulent times. HIA, Inc. (HIAI - NASDAQ BB) is not a barn burner, but has
been in business for over 22 years sporting steady growth in sales and earnings.
During the past few years sales have been accelerating due to the massive influx
of new business into the Western States, due to a higher quality of life; i.e.,
lower crime, clean water and air, lower land and housing costs, greater tax
incentives at the state and federal level and an eager work force. All of the
above bodes well for HIA, Inc. to continue to grow during the next few years
with little downside risk from current levels.
From Box F investors should easily see that based upon very conservative
fundamental variables for fiscal 96 and 97 that all calculations indicate higher
stock valuations for HIA, Inc.
If we average a share price based upon fiscal 96 earnings of 7¢ (note:
Management is very comfortable with us using this value in our calculations) and
derive calculations from standards, i.e., S & P 500 PE of 16 ($1.12), PE of
10 based upon revenue growth (70¢), PSR of 1/2x estimated 96 sales (85¢)
and 3x book (875¢) - the resulting share price equals 89¢ - a 93%
appreciation from the current level of 44¢. If we average a share price
based upon fiscal 97 earnings of 10¢ and use the same parameter, one
derives $1.60, $1.30, 95¢ and $1.17. The resulting share price equals
$1.25, a 173% appreciation from the current levels of 44¢.
At present HIA, Inc. has a $3 million line of credit available at its
disposal. To date HIA, Inc. has borrowed $500K and anticipates payback by fiscal
96 year end. At that time the company has the option to pay dividends (we
believe that during fiscal 97 one could be paid). We also believe that during
the later part of fiscal 97 HIAI should qualify for NASDAQ listing (if share
price is not $3 or above, the company could do a reverse split).
As mentioned earlier, HIA, Inc. is not a barn-burner, but might be
considered a stock at fire-sale prices. This opportunity offers conservative
speculators a solid growth opportunity based upon the demographic shift, which
in our opinion should continue through the year 2000 and beyond. This
opportunity has steady revenue and earnings growth (see Box E), no long-term
debt, ample credit line, good cash flow, strong book value, stock buy back by
management (currently owns 49% - 2000 shareholders own the balance), and trades
100 to 200% conservatively from fundamental analysis target prices during the
next 18 months.
In our opinion, we believe that revenue and earnings estimates are on the
low side. In speaking with management, they present themselves as very
conservative in nature and we look for surprises on the upside (2 and 3 quarters
are the strongest, while the first quarter is always a loss and the 4th quarter
somewhat flat. Sprinkler system are not usually put in the ground when the snow
blows, just in case you didn't know that.
We intend to monitor 10K shares of HIA, Inc. (HIAI) at 7/16 in our 100K
Master Portfolio and our 900# Portfolio for percentage gain performance. Broker
contact: Mike Chesler at 1-800-331-1355; Corporate # - Alan Bergold at
1-303-394-6040.
In order to stay in line with SEC guidelines, S.A. Advisory may buy, hold
or sell positions in all securities recommended. The portfolios are all
hypothetical in nature. It is likely that all recommendations were purchased
prior to the recommendation. We may buy additional shares or may sell shares at
any time. S.A. Advisory's portfolios are geared towards sophisticated investors
aiming for long-term capital gains. Our trading habits may vary at our own
discretion. Most recommendations are based upon strict fundamental analysis.
Usually revenue and earnings EST for low priced common stock result from
management discussions.
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