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Resonant adds a customer, plus CTL, FIT and energy market thoughts +4

Resonant announced this morning that it has added a "significant" customer.  The customer is described as a new entrant into the radio frequency front end market "with a background in high performance manufacturing of optoelectronic products."  It will be developing a high-performance quadplexer using a license on Resonant's recently introduced software module.  Macom, which I mentioned here, vaguely fits this description, but that is just a wild guess.

What is important here is the evidence of continuing demand for Resonant's services, and that it is disrupting the market by drawing in customers who were previously unable to engage in such products.  How that translates into revenue and hopefully allays dilution remains to be seen.  Towards the end of the press release, we also have this somewhat confusingly worded quote from the CEO:

Finally, signing this contract for a quadplexer design, coupled with the fact that Resonant’s year-over-year unit volumes, although still relatively small, have already more than doubled and we have tripled royalty revenues in 2018 over 2017 through the end of September...
I note that Resonant's total sales for 2017 was $653K.  The statement above indicates progress towards triple-digit revenue, but the company will have to do much more to achieve profitability and avoid further dilution.  A deal with a company such as Macom would mean that matters might not get that far.  The situation makes RESN the ultimate GRoDT stock, but I'll also note that the recent market downturn has brought MTSI to levels that are interesting to me.  There is room for a weak current quarter and further decline, largely depending on what the market does, but Macom is a high growth technology company similar to Integrated Device Technology, which I think can eventually outgrow even a bear market.  I further note that the spread on IDTI has narrowed somewhat, which I regard as a slightly bullish sign for the market.

In that context, I'd like to share a conversation with a subscriber this morning which encapsulates some of my thoughts on recent market action:

On 12/18/18 7:55 AM, a subscriber wrote:
I had a couple questions for you. The first is your thoughts on a recession and bear market over the next year? The second is how you think CTL will fare in such a scenario? Given their dividend and the natural demand/growth for their product it would seem as though they would hold up in an overall negative market environment. That said, I’m surprised the stock price is where it’s at currently only roughly 10% above its 5 year low (seems attractive). I also noticed the Jan 18 $15 calls had tremendous volume yesterday of almost 12,000. Not sure what to make out of all of this?
My response:

I was rather pressed for time yesterday, but I called out CTL and BGCP at the end of the note I sent particularly because they are defensive.  With regard to the market and recession, although there are some negative fundamental factors weighing on the market (trade wars, debt) I see current market action as being media rather than fundamentally driven.  Recession is quite possible, but the market and the economy are actually fairly decoupled these days, so that's not quite as significant as the media is making it out be.

Specifically, nobody knows exactly how the trade wars will pan out, but you can be sure that somebody will know before we do.  Tariffs are negative for both sides, so it's possible that both sides will relent.  China has more to lose in the short term, and more to gain in the long term.  However, Trump is operating from a position of political weakness now, and shown some willingness to compromise when it will allow him to claim some media glory.  We'll have to see how it goes.

Debt is actually the bigger problem that's not going to away, but that's not something that necessarily needs to affect the market at this juncture and I doubt that there is new-found foresight that's going to keep the market depressed over this problem alone.

Another factor is Trump and Mueller.  I've already written that I think not much comes over this in the next two years, though there may be prosecution after the president's term, and that could exert some behind-the-scenes checks on his administrative actions.

Your note on the CTL Jan calls at the $15 strike is a good catch, though I am not able to verify yesterday's volume, which would constitute most of the open interest.  Assuming you are right, I would see that as a strong indication that some institutional traders were calling a tentative bottom yesterday, perhaps in advance of tomorrow's FOMC press conference.  I've said all along that there is still significant swing trading in CTL, so I'm not so surprised at the undervaluation, since December is a prime month for that.  I still think it's better for individual investors to focus on the long-term, though, and what CenturyLink is doing with the business, most recently in ways that I foreshadowed, as well as building out its infrastructure.
As always, thoughts on the broader market direction are guesswork.  Crashing hydrocarbon markets indicate that there is still plenty of volatility to come.  I note that natural gas was not spared, though it does appear to be maintaining independence from oil, recovering today to $3.67, whereas Brent and WTI are still declining below $60 and $50, with a $9.70 spread.  Despite the move towards renewables, signs abound that demand for both natural gas and crude oil is still in place.

To the extent that I try judge market direction at all, I sometimes look at the pricing of deadbeat stocks like FIT on potential bounce days like today.  Fitbit's updated watch operating system is an improvement in my view, but not one that going to significantly change the company's fortunes, especially if health care companies start getting squeezed.  We'll see how things go... Enjoy the ride!