You’ll receive your new Investment Digest issue, with our experts’ updates on their Top Picks for 2013, this afternoon. First, here’s one more in-depth update from Gene Inger, whose Top Pick was Nuance Communications (NUAN).
“Nuance Communications, Inc. (NUAN) has actually made some progress here at midyear; lots of it isn’t yet grasped by the marketplace. However, this may not prevent at least a modicum of pressure on the shares for two reasons: 1) continued slippage of earnings as they transition from a software sales business and voice dictation model (like Dragon and professional dictation sales), to the ‘subscription’ and/or annuity-style revenue flow, which hurts short-term and helps long-term (as you have residual rather than one-time income from a product; but no heavy up-front charges as they were notorious for); and 2) the overall market’s projected mid-summer topping pattern, which alone is capable of causing some erosion. ...
“On the plus side; when the shares were in the mid-20s in our initial review; we urged investors not to buy it; but wait for them to miss earnings as we suspected; and thrust the shares down to the 18 area or thereabouts. We are less concerned than some about ‘price erosion,’ as Carl Icahn may well be absorbing supply. At last report, through various controlled funds, he’s holding in excess of 10% of the float; and the firm has retained Goldman Sachs to explore possibilities.
“One thing to note: Google is not quite the competition many fear; at least at this point. Nuance has the lead, experience and has migrated to medical, as well as other aspects which provide a substantial broad business base. As for voice command, we all know about clients like Apple for Siri, and now there’s better integration in BMWs coming, such as the 2014 ‘4 series,’ which not only has built-in Siri, but will be among the first Apple-certified wireless LTE access point. ... Nuance is involved in much of this, including their just announced ‘voice password’ system, which will, for example, allow you to unlock your iPhone by saying, ‘Good morning phone; please turn on.’ ...
“In summary: The Inger Letter believes that Nuance retains potential and has a favorable risk/reward ratio at prices of 18 or under. We projected it as a workout (or even takeover candidate) for 2014-2015, with the suggestion of buying on dips only after poor earnings reports. We are pleased to retain this posture as we look forward to late 2013 and 2014.”
Gene Inger, The Inger Letter, www.ingerletter.com, 7/23/13