Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Eric Stevens, vice-president, RENN Universal Growth investment trust.
I believe that investing alongside a firm's founder-owners and entrepreneurial CEOs produces superior returns in the long run. When a CEO has 'skin in the game' (his own money at stake), I know his interests are properly aligned with shareholders'. Here are three firms where this is the case.
Plures Technologies (OTCBB: MANY) specialises in selling advanced micro electro-mechanical systems (Mems) and spintronics (see below) technologies. Mems are micro-machines, typically measuring just 1mm by 1mm and built using semiconductor fabrication processes derived from the micro-electronics industry. Among other things, Mems devices are used in ink jet print heads, air bag sensors and the microphones in cell phones.
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Spintronics is short for spin transport electronics, which uses an electron's spin to produce advanced solid-state electronics devices. Harnessing an electron's full potential enables cheaper, faster, lower power processing and storage of more digital data than has previously been possible. Spintronics are used to make sensors and switches for the cell phone, automotive and medical markets.
Plures' CEO, Glenn Fricano, a well-respected industry expert, owns 13% of the company. Together, the top three employees own 33% of the company. Having gone public in August 2011, Plures is already making tremendous progress.
For the nine months ended 30 September 2011, Plures recorded only $2.5m of revenue, but $1.8m of that came in the third quarter. One of the things that impresses me the most is the fact that so many of Plures' customers rave about its technological capabilities. It is early days, but we believe that Plures is poised to become a world-class company.
My next tip, Hollysys Automation Technologies (Nasdaq: HOLI), provides automation and control technologies and applications to customers in the industrial, railway, subway and nuclear industries in China and southeast Asia.
Hollysys is run by Changli Wang, who holds a PhD in automation from a British university. Wang, who owns 17% of Hollysys, is the company's founder and largest shareholder. Over the past three years, Hollysys has grown revenue at 29% per year while maintaining a net profit margin of 16.7%. Yet it's trading on a price/earnings (p/e) ratio of only ten.
China has done a good job of developing its infrastructure, but it still has a long way to go. Hollysys is well positioned to participate in that future growth as it is one of only two or three firms capable of providing automation and control technologies in some of its business segments. As it continues to announce new contract wins, it's also starting to take on projects internationally.
Our third firm, Global Axcess (OTCBB: GAXC), has for years been run by professional management. But in February 2012 it announced that Chris Doucet had joined the board. This is good news as he owns 9% of the firm more than all of management and the rest of the board combined so his interests are aligned with ours and other shareholders.
As he puts it, he will "provide guidance on how we proceed to the next level of performance to unlock shareholder value".
Note: OTCBB stocks can be illiquid.
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