As many of you know from our past chats, sailing is one of my real life passions.
And living out here in the San Francisco Bay Area, I was thrilled to get to see some of the just-concluded America’s Cup competition, which was one for the ages.
In fact, Yachting World‘s David Glenn called it “a comeback story of unbelievable proportions.”
Down a stunning eight races to one, and facing elimination, the U.S. entry known as Team Oracle refused to accept defeat – and won eight straight races to take yachting’s most prestigious prize.
I found myself thinking about Team Oracle’s miracle rebound yesterday for one very good reason: It reminded me of another comeback saga – a turnaround involving a tiny-and-troubled robotics company whose “we-won’t-quit” attitude has thrust it back toward the top of the heap.
But the best part of the story is still to be told.
And that means that this $7 tech stock still has plenty of room to run …
A Very “Special” Situation
We’ve talked a few times in the past about a unique group of stocks known as “special situations.” These are companies that don’t fit the rules we use to find big-growth tech firms – but whose “special situations” give us a chance to earn big profits.
These situations are “special” for a very good reason: They are usually “one-shot” catalysts that we believe will kick the stock higher. These catalysts include buyout deals, spin-off arrangements, IPOs, financial restructurings – and corporate turnarounds.
A turnaround is a special situation in which a troubled firm is literally trying to transform its fortunes – either by “fixing” its fundamentals, or by adopting a new strategic plan to jump-start growth.
This type of stock can be very risky because, if the plan fails, the turnaround stalls and the company often does, too – ending up as a perennial laggard with a lackluster future.
But when a turnaround plan succeeds, you enjoy a windfall. You not only substantially fatten your portfolio -you have one heck of a wonderful tale to tell at staff meetings and family reunions for years to come.
And you’re really the “hero” of your own story.
The stock-market “comeback” tale that I’m relating today begins back on March 19, when I wrote about Adept Technology Inc. (NasdaqCM: ADEP), a deeply troubled robotics-technology firm.
Most investors had written it off as an unfixable loser.
But I saw great promise.
Founded in 1983 as a unit of Unimation, a privately held robotics pioneer, Adept had simply lost its way in recent years.
And upstarts like iRobot Corp. (NasdaqGS: IRBT) were leaving Adept in their wake.
Founded seven years after Adept, iRobot currently has a market value of $1 billion – which dwarfs the $78 million market cap of the firm that beat it to market.
Adept’s finances were in disarray, leading to a series of losses – and the departure of the company’s CEO. The stock – which had been trading above $6 a share in late April 2012, opened the New Year at roughly $2.50.
And on that day in March that I told you about Adept, the stock closed at $2.95.
My largely Contrarian view of Adept was based on two potential catalysts that I believed would transform the company’s fortunes.
The first was a powerful trend that I knew the company could capitalize on. You see, high-tech advancements coupled with new-and-growing needs were speeding the worldwide adoption of robotics technologies – Adept’s core business.
And the second was a change in management. Adept’s board – wanting to be sure it capitalized on the crucial opportunity that I just cited – had hired an experienced “turnaround specialist” named Rob Cain to serve as CEO.
The board had originally hired Cain as a consultant who could help the firm identify and articulate a new strategy. After working with him for several months, the board made him CEO on Feb. 24.
An executive with more than 25 years’ of experience in the high-tech and capital-equipment sectors, Cain has a resume that included several prior tech turnarounds.
At Adept, he moved quickly, improving the company’s operations and financials to solidify its fundamentals, while simultaneously pushing the company into new markets to ignite growth.
The result: This profoundly out-of-favor stock has zoomed 144% since I first alerted you about it.
If you missed that surge, don’t feel bad.
You see, I believe this $7 stock could go much higher from here …
The Next Phase
The re-tooled Adept is staring directly at some huge potential growth opportunities.
According to a forecast by BCC Research, the total global robotics sector will grow from roughly $22 billion today to about $29 billion by 2018.
In becoming CEO, Cain had taken the helm of a company that has a great robotics legacy. As a global leader in factory automation and robotics, the Pleasanton, Calif.-based Adept has a client list that reads like a Who’s Who of global industry – firms like Hewlett-Packard, GE, Samsung, Kraft, Siemens, and Bosch among many others.
Under Cain, Adept is moving rapidly to take advantage of the new market for mobile robots. As the name implies, these devices are not attached to a factory floor. Instead, Adept’s new Lynx model is programmed to move around people and unanticipated obstacles without any human help.
Mobile bots work great in places like warehouses, distribution centers, hospitals and semiconductor plants. Adept says the global mobile robot market is worth about $1.2 billion all by itself, giving the $50-million-in-annual-revenue firm plenty of room to grow.
And it’s not stopping there…
Adept also sees a lot of growth potential in the food-packaging business. The company has a patented robotic “gripper” that allows for hygienic food handling.
And that market represents another $1.4 billion that’s up for grabs, the company says.
Those two niches by themselves represent a combined $2.6 billion in revenue opportunities.
Adept is obviously pursuing this business through the usual sales channels.
But it’s also trying to generate a little market buzz of its own.
The firm recently opened a new application-and-demonstration center in New Hampshire. That’s getting Adept some nice ink in the kinds of “trade journals” that corporate purchasing agents read and talk about with the same care and interest that you and I devote to Barron’s, The Wall Street Journal and the professional journals that relate to our own jobs.
All these moves are coming as Adept seems to have greatly improved its finances and turned the corner operationally.
Following a string of losses, the firm surprised the Street with a profit of $157,000 for the fiscal 2013 fourth quarter that ended in June. (It had posted a loss in the year-ago quarter).
Although sales were down 19% on a year-over-year basis, they were up 25% on a sequential basis, having jumped to $13.7 million in that fourth quarter from $10.9 in the third.
“During the quarter we made inroads within the food space, the mobile product family and won a significant reorder from an Asian semiconductor customer and an initial order from a European luxury watch manufacturer,” Cain said of the company’s fiscal fourth quarter. “In our industrial robot business we received a major order for SCARA robots to be used in the manufacture of smartphones in Asia and received a large reorder from a European consumer electronics company for line expansion.”
With that quarter in the books and a new one well underway, Cain was already looking ahead.
“We enter fiscal 2014 a reinvigorated Company, with focused execution across all aspects of the business,” he said. “Adept is the leader in vision-based autonomous robotics, with an installed base of more than 57,000 automation systems worldwide, addressing a broad spectrum of high-growth markets. We are well-positioned to execute on our strategy of organic growth with mobile and industrial products, and to capture the momentum in the robotics industry.”
That’s proper “boardroom-speak.” What Cain probably really wants to say is that “this scrappy firm that’s trading at seven bucks is going to go out and give some of its bigger bully rivals a nice kick in the seat of their pants.”
On that score, don’t count Adept out …
Tracking Our Quarry
When I study all this data on Adept, I see a company that’s making a lot of shrewd moves as it seeks to leverage its rich history and capitalize on the huge business opportunities that stand right before it.
Adept is making the moves it needs to make if it’s to capitalize on both its rich history – and on the huge potential of its global industry.
And if Cain continues to hit all his milestones, that 144% gain I already brought you on this stock could be just the beginning.
Some of the “smart money” appears to agree. In fact, an investing unit known as Special Situations Funds in New York, is the largest institutional investor in this robotics firm, owning roughly 20% of Adept’s shares.
Run by Austin Marxe and David M. Greenhouse, these guys have a history of finding undervalued stocks, particularly in high tech, and riding them for sizzling gains.
There are several ways to play this opportunity.
You can certainly follow that money – that “smart money” – in pursuit of Adept’s next surge.
But there’s another approach – one that will let us ride out the current general market uncertainty, while also giving us a chance to be certain that Adept’s turnaround efforts continue to bring results.
As you can see, I believe Adept has a bright long-term future. The opportunities are vast, and the fundamentals are much improved.
However, given the already huge gains this stock has enjoyed in a very short time, let’s consider putting this one onto the section of our investment “Watch List” that’s reserved for our most aggressive profit plays.
We’ll follow the financials for the next several months to make sure that Cain’s progress has continued – and watch for signs of a new technical “breakout.”
I’ve already loaded the ADEP ticker into my “black box” here at the office and will track the stock carefully for you.
And don’t worry: If Adept stays on its current course, there will be plenty of time to score yet another windfall on this high-tech turnaround.
Have a great weekend.
[Editor’s Note: I want to thank you all for the kind comments, excellent observations and shrewd questions you posted in response to Tuesday’s Strategic Tech Investor. In fact, I see a need for a follow-up column that addresses many of the things you said to me – and plan to do so very soon. I read everything you send to me. And as I also said Tuesday, I am continuing to research some individual stock opportunities. The first of those will be presented to you very soon. So please stay tuned. And continue to let me know what’s on your mind below. ]