By: Benj Gallander
This is the time of year when we focus on two things: tax losers and end-of-year buying. In fact, most of our duds that were primed for sale are already gone, having been sold a number of months ago. By selling stocks at a loss, we lower income, thereby paying less tax. And by selling earlier in the year, we are not competing with investors dumping their losers at reduced prices at the end of the year when tax-loss selling increases. These two strategies allow us to deploy our cash more effectively when looking to scoop up bargains.
So, where to stash it? For the first time in decades, GICs are attractive. Benj bought his first one in eons last year for a three-year term. Obtaining a rate of 5-per-cent-plus per year is excellent, with the downside being that it is taxed at full throttle. That reduces the net gain, but for safe money, it was deemed worthwhile for some funds.
Meanwhile, on the “sexier” side of investing are the usual stocks that we purchase: turnaround situations with potential upside of 100-plus-per-cent. One that was acquired in 2022 for the Contra portfolio at an average purchase price of US$1.90 was Israeli-based Ceragon Networks Ltd. ( CRNT-Q -1.23%decrease ). The stock was trading at about US$1.95 before Hamas launched its attacks on Israel. (It was hovering at around $1.80 midday on Thursday.) Longer term, this is unlikely to have an impact on the stock, but investors may want to avoid the risk of buying in the near term. The target sell range is US$4.25-US$5.00.
CRNT is a wireless transport solutions provider, transferring telecommunication between 3G, 4G and 5G networks, amongst other operations such as managing network services. It has been around since 1996 and as you can imagine, it has been forced to innovate regularly to keep up with the evolution of the technology.
It has been doing just that. In the most recent quarter, revenues were a stellar US$86.2-million, up 21.9 per cent from a year ago. The bottom line was a slight loss of US$2.1-million, but this was accompanied with positive cash flow. Revenues are projected to jump to US$334-US$358-million in 2023 from US$295-million in 2022.
Sales in North America and India are expected to continue to increase, with a gain this quarter of about 10 per cent. The Indian market represents about 31 per cent of revenues and North America accounts for about 26 per cent.
Not all has been proceeding smoothly. Europe has been a trouble spot, which led to a significant restructuring that is not yet complete. The new product lines to be introduced next year could complicate matters further. Losses have been frequent with the enterprise, with red ink in the past four years and six of the last 10.
A good indication for the future is that unlike many of its peers in the technology space, Ceragon has not been affected by a slowdown. Of course, if there is a major recession, CRNT will not go unscathed. But the US$24-million in the bank should help to shore up its position.
One thing to notice with this one is that it has a “spiky” chart, which means it has seen abrupt swings in its stock price. Investors have to remain vigilant and might consider selling when the stock price jumps before it recedes again. It is unlikely to climb to the double digits where the ticker traded over a decade ago. Insiders are well-aligned with other shareholders, as they own 22.6 per cent of the company.
Meanwhile, competitor Texas-based Aviat Networks Inc.attempted to take over Ceragon twice last year, first at US$2.80 in cash and then at US$3.08. Both times the board of directors at CRNT shot down the overtures. That does not mean that the pursuit is definitely off the table or that another suitor will not arrive on the scene. That would not surprise us to be sure.
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter