In 2021, I bought a company for our individual stock portfolios that came from an idea sourced on Twitter. The source’s name was professional investor Tim Eriksen, who had previously gone from investor, to board member, and ultimately to running the company. It was (is) a nanocap stock, so no Wall Street analyst covered it, I can’t imagine any bank had written anything about it. Despite this, here we are with a nice multi-bagger over the last few years. 

WHAT THEY DO

Solitron makes power semiconductors for the military. These are custom parts, built to U.S. military specification and certified through a qualification process that can take years. You might have read that Skunk Works book, where we learn that U-2 spy planes from the ‘50s are still in use today. Here, with Solitron Devices, as is the case with several Lockheed Martin ‘Skunk Works’ projects, once a part is designed into a missile, it tends to stay there for the life of the program. The company was incorporated in 1959 and operates out of West Palm Beach, Florida.

WHY WE OWN IT

• Lindy. In 1970 NASA hired Solitron to develop power semiconductors that could survive heavy radiation at anything from extremely cold temperatures to extremely hot. The company solves a similar problem with their products even today.
• The moat is paperwork/bureaucracy. It is pretty hard to swap a commercial part for a qualified one without going through the certification and the testing all over again, (which nobody wants to do). It is a Heico-like (portfolio holding) story but much, much smaller.
• The West is rebuilding the munitions it has spent. Solitron has parts in two of the programs that are part of this, these are: AMRAAM, (air-to-air missiles carried by fighter jets), and HIMARS, (the truck-mounted rocket launcher). It is also developing silicon carbide parts at the same time as the legacy stuff.

WHERE IT FITS

This is a ‘compounder,’ owned most of all for the moat rather than for anything. Flattery Wealth started buying in March of 2021 under $8 a share, and have added since as it’s gone up. Your cost basis will differ depending on when you came aboard and added funds, etc. One note of caution: as a very small company, almost no large institutions trade the shares on a given day. This has worked for our clients at their respective portfolio sizes, but still comes with a few drawbacks.

WHAT HAS TO BE TRUE

• The programs have to keep running. The two I mentioned mostly carry the business, so the orders are lumpy even in good years.
• The board is exploring a sale. As much as I would like these writeups to be evergreen, a sale would end the position on someone else's timing and price.
• Eriksen and his team have to stay on. 

BOTTOM LINE

The smallest company we own by a lot, found because a guy on the internet put his work out in the open. That is not how it’s taught, but I have to say it would be worth doing again if the opportunity presented itself.

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