Quarterhill Inc (QTRH.TO)

Known as a patent troll, and will sue people with their patent portfolio, their primary source of revenue. It is a really cheap stock at 3.5X Price to Free Cash Flow, and 1.8X EB to EBITDA, .8 to BV. It is hard to find companies that have metrics this cheap. He wants this to find a bottom and some support before he goes Long.

He dropped coverage on this company, because of the mass of inconsistencies they had in terms of their earnings report. They would come out with a quarter and spend $10 million on litigation fees, and their revenues would drop and earnings would not be what he expected. It went on a big run, until they missed their quarter very, very badly. He would rather have a company that is not inconsistent.

(Market Call Minute.)

(Market Call Minute) The business is lumpy and volatile.

Used to own this and did well for a number of years, and then the bottom fell out. Management sort of lost credibility of his eyes. A huge Index fund sold all their shares, which drove it down, but it has had quite a rebound from the lows. They cut a lot of costs and it is probably being managed a little more responsibly now. Doesn’t think it is a big bargain. In a tough sector. If you made some money, he would take it and run.

You can’t actually predict where this company is going to go. Revenue is very lumpy. They win patent disputes and license it out to them, getting cash flows from that. It has been very up and down over the years, and right now it is on an upswing, and trading at something crazy cheap like 3X EBITDA. He can’t get his head around the business or the predictability of it, so has stayed away.

When nobody talks about a stock it can be a positive thing. It is how you make the greatest fortunes. This is another one that has broken out from a downtrend. It has popped off its consolidation. It may be done with its rally, but he would say it is a good spot to add to your position.

He has had a long history. They cut their dividend late last year and got decimated so he bought it and did well. Now it is at a regular valuation. They can acquire other patents on the cheap, but it is harder to enforce them. This is a large holding of his. He likes the fundamentals.

A patent management company. The price is pretty low right now. Technically it looks like it has broken out. Street targets are in the $4 range. If a longer-term holder, he would continue to hold.

(Market Call Minute.) Had bought this at about $2, and was a seller at about $2.50. He likes the way the business is going, and it is very, very cheap. Very volatile.

(Market Call Minute.) Very, very inexpensive on a PE basis. It has no debt. Free cash flow is something like 27%.

The environment for intellectual property companies has become more and more difficult. The CEO who founded the business is leaving. The company has a great balance sheet.

Early in the Obama administration, the US put in a lot of patent controls into their crosshairs, as it was stifling a lot of innovation in the US economy. Because of this, there have been headwinds against stocks like this. The whole sector has suffered over the last 5 years. Trading at about 4X trailing earnings, 4.5X this year’s and 7X next year. It is super cheap with a yield close to 8%. Attractive at these levels, but it is a black box. There is no insight as to what the patents are and how the patent litigation is going to materialize.

This company owns patents and collects revenue on those patents. They have to occasionally litigate on companies using their patents. This is one that falls in a deep, deep value category. If you have the time, there is value here. Trading at 3X cash flow and 3X EBITDA, very, very cheap. Has a pristine balance sheet. 8% dividend yield. There is value that can be unlocked here, and the CEO is retiring this year which might push that a little bit forward.

Used to own, but it is a name that they have stopped looking at it because they never deliver. They are in patent control. Very hard to predict what can happen in a patent trial. Likes companies that they can get to know well. The yield looks attractive and is probably sustainable. Not a name they are considering going back into.