>Patience with Magnet Stocks: Interview with Acacia Research Corporation (ACTG) CEO

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When a new name appears in the “Top 10” of my Magnet Stock Selection List, I want to understand the fundamentals driving the company. When it is a company that is under-followed by analysts, it provides even better opportunity.

Magnet Investing is different from technical day trading in that it requires patience. While I do use some technical timing tools to time entries into Magnet stock positions, they often require more patience than your standard momentum trade. While I am not sure of the future for this company (and nobody ever is about any company, obviously) I will continue to monitor it by the Magnet score and the price action of the stock. For now, it’s so far– so good. Today it is making another new all-time high.

For more on this topic, watch my video below about the need for patience with top-ranked Magnet stocks, where I use Acacia Research Corporation (ACTG) as an example.

http://www.t3live.com/resources/flowplayer/flowplayer.commercial-3.2.5.swf

I always want to attempt to determine if the fundamentals are sustainable or if a “one time event” is creating the Magnet score. I asked Paul Ryan, the chairman and CEO, to share the details of the growth behind ACTG numbers. His response to my interview questions are below:

Jordan Kimmel: Can you explain the current growth of margins and revenues that your company is currently experiencing?

Paul Ryan: Acacia continues to grow rapidly in all key performance metrics. Revenues for the first 9 months of 2010 were $118.7 million, an increase of 150% over the prior year period. We have accomplished this growth while also increasing our gross margins to 64% from 46% and increasing working capital by 153% to $91 million. Acacia’s growth is accelerating as we generate revenues from a larger number of our patent portfolios. We have generated revenues from 52 different patent portfolios this year compared to 25 last year and have started generating
initial revenues from 27 new licensing programs this year.

JK: Are there any “One Shot” occurrences that have taken place that explain your current growth, or can we expect this growth to continue?

PR: Acacia’s growth is the result of having built the country’s leading patent licensing company. We see a major trend of large companies throughout the world deciding to generate revenues from their patents to improve their balance of payments in intellectual property. We have acquired control of 27 additional patent portfolios over the first 9 months of 2010 and are on pace for another record year. Our continued revenue growth will follow the increase in patent assets we are acquiring. In the 3rd quarter of 2010 we entered into a strategic patent licensing alliance with Renesas, the world’s 3rd largest semiconductor company, which has a portfolio of over 40,000 patents.

JK: What do you believe is the #1 risk your company faces?

PR: Acacia’s top priority is incentivizing and retaining our talented teams of engineers, business development and licensing executives who have generated our success in this new and highly specialized market. Our biggest risk is losing any of our talent. Fortunately we have not had any turnover in the past couple of years.

JK: Do you have any other comments you would like to make?

PR: Intellectual property is an emerging asset class. As the leader in outsourced patent licensing Acacia is very well positioned to benefit from the rapid growth in this market. Having built a proven track record in patent licensing over the past few years an increasing number of large companies are interested in having us monetize their patents. This should lead to continued growth.

Paul R. Ryan
Chairman & CEO
Acacia Research Corporation
500 Newport Center Drive
Newport Beach, CA 92660
(949) 480-8310

*DISCLOSURE: Long ACTG

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