For me, this third major area that I use to determine whether to buy a stock is the most exciting. I don’t know what exactly I should call it…

Catalysts.

The X Factor.

The Story.

I am looking for an exciting story behind the stock. A unique set of circumstances that make the stock a compelling investment must be found…or I am not buying it.

Maybe the stock has a unique corner on some particular market and is just now starting to show signs that their business will explode.

Maybe they have recently added parts to their business or their products that they didn’t have before and are now ready to “attack” the market and rapidly grow their business.

When I am at this point, I have already determined that I like the stock chart, the fundamentals (financial statements) look amazing and I am now digging into the details, researching their business.

If I find an exciting set of factors that are promising, I am likely going to want to buy that stock.

Remember, for the most part, I am seeking smaller market cap stocks that I filter for. That typically means that the stock hasn’t been found yet by the average investor.

When the “catalysts/X-Factor/Story” start to become more obvious to everyone else, the stock has no choice but to move higher. A wave of buyers flood in, moving the stock higher and higher.

Ok, let me walk you through 4 examples of stocks that I bought and a brief summary of the story behind each of them.

I’ll start with the most extreme example of them all…the stock chart that probably caused your jaw to drop from the technical section on the previous step.

APPS – The Digital Turbine Story

Everything lines up perfectly for APPS (Digital Turbine). An amazing story is taking place (and still might be) with this company. It is a “Perfect Storm”.

Digital Turbine is a company with a platform for advertisements on mobile phones. Cell phone original equipment manufacturers (OEMs) and mobile carrier companies are their customers….their software is installed right out of the gate, before you even get your new phone!

• Some of manufacturers are: Samsung, Telefónica, S.A. Nokia and Xiaom.
• Some of the mobile carrier/wireless carriers are: Verizon, AT&T, T-Mobile, Sprint….they work with over 30 carriers and that list just keeps on growing.

Right off the bat, this caught my eye! What? This small company works with these huge companies? They must have an amazing solution.

Imagine have a business that consists of the following…

Their product is installed, from the factory, on brand new cell phones (from manufacturers that they work with primarily Android phones) that are going out the door every day. On top of that, they then work with all of those major wireless/mobile network carriers to then have their software activated to start serving advertising to those mobile customers!

How rapidly are they growing now? Towards the end of the 3rd quarter in 2020, their solution was installed on 60 million phones. They now have over 500 million installs and there is no sign of slowing.

Huge companies are essentially selling their product for them! They get a cut of those advertising dollars. The margins are so great (remember, the software is already written and installed so their primary costs are for software developers), they have had the potential to make money hand over fist.

Recurring revenues – Over 40% of those revenues are recurring! Look at it this way, they are getting paid on a monthly basis for something they sold in the past. They don’t have to keep selling to those customers. They are “sticky”, not going anywhere. Digital Turbine continues to get a cut of those advertising dollars.

They purchased a company called Mobile Posse. That company is allowing them to really kick their mobile advertising platform up a notch. Quickly researching Mobile Posse, it was apparent that they were one of the best at providing users with amazing media content (advertising) onto their phones. Mobile Posse was growing rapidly on their own, and this acquisition was likely going to allow both Digital Turbine and Mobile Posse to really accelerate their growth.

The 5G revolution – APPS is a major beneficiary of the move to 5G. If you are unaware of what that means, it basically is an increase in cell phone connection speeds, with less lag (latency) and more bandwidth capabilities. It’s the next generation (up from 4G). This is now pushing more and more companies to advertise on mobile devices. Users now make purchases with their cell phones, spend hours and hours each day staring at their phones and 5G helps by increasing functionality and features that these phones have.

Covid – The trend that I mentioned above with more mobile platform adoption by advertisers only accelerated further because of the Covid-19 pandemic…users were working remotely now. Users are stuck inside now. They have only their phones to connect them to the physical world that they used to enjoy. Cell phone usage rapidly increased because of the unfortunate pandemic, but the simple fact is, APPS has benefited it. More eyeballs on phones = more $ for APPS.

This is an amazing set of catalysts here, wouldn’t you agree? The wind is at their back. The wind is only increasing. There doesn’t appear to be any issues in front of them now. When the price was in the single digits, hardly anyone was paying attention. The company was relatively undiscovered.

Now, you see investors and traders referencing Digital Turbine in the context of “finding the next APPS”, or “I think this stock will be the next APPS”.

Well, I was lucky enough to find APPS before it became so well known and it has been an amazing ride. Certainly an extreme example, and I don’t expect to find something like this all the time, but I want to share this one for you first so you see an extreme example of multiple, multiple factors that can drive a company higher. Just one of these factors that I listed for APPS would have been plenty to get a nice return…it just happened that this one tiny company has everything going it’s way!

GNSS – The Genasys Story

Genasys is a company that is in the business of providing emergency notifications. Their systems are used by governments for critical communications systems and solutions to help keep people safe.

This company had been plodding along for awhile, starting as American Technology Corporation in 1980, where it remained inactive. Things really got their start when they started developing sound (as in speaker) warning and communication systems. After the terrorist attack on the USS Cole, they created what is now known as Long Range Acoustic Devices (LRAD), and started to sell them to the government and military. These devices are basically speakers to broadcast messages across many miles.

All across the world, governments started to use their systems on their naval ships, essentially to warn any nearby threats to turn away or face the consequences. Police departments and local governments used their systems to communicate with citizens if there was an impending danger, like a wildfire or a flood.

At this point, I was kinda like….meh. I get it. They make these squawking loudspeakers that warn people. I get it, I get it….boring. And their stock had certainly been “boring” for years.

But I came to this stage after noticing the stock chart was showing signs of life…that things were happening with this company, apparently. I had to look a little further…and I found out why.

They have added additional methods for mass notifications. I mentioned their products that broadcast messages across distances of up to several miles. Their products in that area are actually industry leading and quite good, but it is the other methods of mass notifications that caught my eye.

They have integrated the ability to provide mass notifications across wireless/cellular networks to mobile platforms like cell phones. Their software can now use their physical speaker systems along with sending out broadcasts to cell phones. Everything is integrated into one platform.

No other product on the market has this.

The system can broadcast messages to anyone with a cell phone in a specific, geo-fenced location. None of those cell phone users has their software installed…everyone gets the message. That is some amazing technology. Maybe there is tidal wave about to hit a beach. Or a threat at a football stadium event. Everyone within that localized area can get a broadcast message, telling them of a threat and what to do about it!

I don’t think the market has fully-realized this major change in the company direction.

The Purchase of Amika Mobile

To show that they were serious about moving in the cell phone/mobile direction in a big way, was with the purchase of a company called Amika Mobile. This company had developed a fully-functioning platform that integrates with government agency alert systems.

Here is a snippet from their press release about the acquisition:

Amika Mobile’s technology enables information sharing, rapid 2-way communications across devices and networks, and control through advanced integrations with government agency alerts and physical security systems. The Amika Mobility Server is designed to initiate individual, group or en masse, any layer alerts, and manage simultaneous responses for VoIP, SMS, Pop-ups, web, overhead displays, digital signs, Twitter and tickers, based on any automations, including government agency or weather alerting feeds, panic buttons or sensor events from digital thermometers, access control, fire panels, camera systems and more.

The integration of a software platform for notifications with government agency systems is huge for their ability to sell their solution around the world.

That brings us to another catalyst….

Governments HAVE to spend money on emergency alert systems

Wildfires – Here in the United States, we have what has become more regular occurrences of wildfires, particularly in drought-stricken California. California is seeking to pass legislation for a statewide emergency notification system.

FEMA (the Federal Government) has also provided grants to local governments to install emergency notification systems.

Protests – Also, here in the United States, and now in other parts of the world, there have been increasing levels of protests and civil unrest…in some cases resulting in extensive violence and property destruction. For example, the GNSS systems were used by police in Seattle during 2020 protests. Genasys systems are in increased demand because of this unrest.

The European Union passed a law that requires member countries to setup a public warning system. The system has to send alerts to all citizens with mobile phones in a specific location. Sound familiar? Genasys, with their industry leading, integrated systems stands a solid chance to win a ton of this business. The countries have to have these systems in place by June of 2022.

Another example…Puerto Rico. Genasys won a contract (paid for by the U.S. Government through FEMA) to install warning system for $1 Million. They are hoping to win a state-wide contract for the entire island worth another $10 Million. Puerto Rico has been slammed with natural disasters, recently with hurricanes and an earthquake.

Another example…Australia. Australia has had 3 emergency notification contracts up for a competitive renewal. So far, Genasys has won 2 out of those 3, with the 3rd still unannounced as I type this. That tells me that their system is industry leading and provides everything that a government would be looking for in a system. More government contracts like this should follow….like those European Union countries, perhaps?

Bottom line: This is a super-small company that has industry leading products.

There is likely a ton of room left for this stock to run. I think it is only just getting started and I don’t plan to sell anytime soon.

OIIM – O2 Micro

O2 Micro designs and sells integrated circuits that are used in all types of products used in the computer, consumer, industrial and auto markets. These circuits are integrated into battery designs and also into lighting systems.

Battery market – The demand for lighter batteries, longer lasting batteries and batteries in smaller and smaller packages is a rapidly growing industry trend that is only accelerating. Their products are now being used in all types of devices made by brands that we have all heard of like:

Bissell, Black & Decker, Dyson, Electrolux, Lexy, LG, Makita, Murata, Panasonic, Philips, Samsung, Sharp and TTI

Here is a tiny company that has absolutely massive, big-name clients! Very similar to APPS, right?

Their designs are being “baked into” the battery designs used by these companies. Apparently, once that is done, it is very hard for a company to change direction and re-configure their designs and go with another company. Especially with a company that has innovated major improvements in battery design circuitry that helps maintain a charge for longer than previous battery generations.

They have also become more involved in the electric car battery market…though I think it is small at this point, you can read in their annual reports and on their website about their work in the electric and hybrid car market.

Patents – O2Micro has numerous patent grants in the United States for their integrated circuit designs. Any company wishing to capitalize on improving battery life has to consider paying O2Micro royalties to use their patent design. And more likely than that, they will simply work directly with O2Micro on their product designs.

One of their recent patents was related to integrated circuits used in light bulbs that are dimmable and intelligent. Their designs are integrated with a lighting company called Feit Electric which has technology for dimmable light bulbs, an trend that will only continue to grow in the effort to reduce electricity waste.

Management is turning around the finances – Management seems to be serious about turning around their finances and cost structures.

• Share repurchases – They have repurchased over 20 million shares in a buyback which improves the per-share ratios for all existing stockholders.
• Overall cost cutting and improved gross profit margins
• They have reduced their debt to almost nothing
• Their cash hoard has grown to over $40 million

A rapidly growing industry

OIIM is doing all the right things…in the right industry. The battery and lighting industry is one that is seeing rapid innovations and improvements to products being used in areas that are rapidly growing and changing – batteries in mobile devices, TV’s, handheld tools, smart-lighting, electric cars.

On top of that, I think they have benefited from the unfortunate Covid pandemic. With more and more people staying stuck at home, they need things do do…watch TV, work on their house with power tools, eBikes, etc…The sales for high end TV’s and battery powered devices is absolutely booming.

Overall, this company seems to have everything going in the right direction, with multiple catalysts all pointing in the same direction…up

Summary

I hope these examples give you some insight about what I refer to as “catalysts”. These could be details that one would not find just by studying financial statements or stock charts alone.

For stocks that make it through my fundamental analysis and technical (stock chart) filters, I then dig into the details to find companies like these. It takes time, but I consider it to be time well-spent.

By doing this, you are likely to find stocks that have a changing story, details that the general market is just starting to realize, but hasn’t become fully “obvious” yet. This is especially true when targeting small companies. Hardly anyone is looking at them at that point. But that can change…everyone knows about APPS right now.

When you have these positive catalysts working in a stock’s favor, it doesn’t take long for the price to start rapidly appreciating.

I don’t want to buy a stock that has “great fundamentals” that nobody knows about yet…that is stagnating in price.

I don’t want to buy a stock that has a great looking chart, but has crappy business fundamentals.

Time is money, and I needed the money that I saved to start working for me right away…finding companies that fit the first two requirements and also had catalysts, was the final piece of the puzzle!

The next step is just as important as everything I have described up until now.

You need to set some financial goals.

Part 5 – Setting Financial Goals

P.S. – Get Tips on the Free filtering tool I use