Casino Capitalism

Proxymed (PILL)

I have been long Proxymed for a couple of months and still recommend going long this stock, despite the bath I have already taken (long at $6). I think the stock is a potential double or more in the next two years.

Proxymed´s Business:

Proxymed essentially is a third-party electronic clearinghouse for healthcare claims. As such, they act as somewhat of a middleman between payers (insurance companies, Medicare etc.) and healthcare providers (doctors, hospitals etc.) providing each with various transaction services to make healthcare payment processing more efficient and effective. The different types of services offered by Proxymed is not all that relevant to the analysis, the more important point is that healthcare is one of the most transaction-oriented industries in the country, (it generates over 35 billion financial and clinical transactions each year), and as the second largest independent medical claims clearinghouse in the industry, Proxymed has the experience and relationships to offer some very valuable and profitable services to the industry. Notwithstanding this fact, Proxymed is currently a complete mess, offering way too many services and lacking any real focused product position. In short, the company is in desperate need of some sort of strategic makeover.

Redback Networks (RBAK)

Bought a small position of RBAK at $10.05

The primary qualitative reasons why I bought this stock are that:

• RBAK is a play on the telecommunications sector, particulary for equipment that improves broadband Internet applications, i.e. enabling voice, video and data services over a common architecture. The telecom sector (and RBAK´s stock) was a huge favorite of investors during the bubble and it has performed miserably since then. However, the fact remains that the Internet continues to grow, and broadband applications are finally becoming mainstream. Investment in the real world is picking up again for telecommunications gear. RBAK will be a beneficiary of this predicted renewed, albeit much steadier, investment in telecommunications for broadband applications.
• RBAK is a post-bankruptcy play. During the bust phase of telecom, RBAK went bankrupt. It came out of bankruptcy in 2004. I have generally been successful with post-bankruptcy plays and these sometimes make for great stocks, primarily because the financials are still a bit confusing and there is a large potential shareholder base that can buy the stock as the story becomes more well-known. In other words, there is supply/demand imbalance for post-bankruptcy plays that favors the long side.
• RBAK has a new product, called SmartEdge, which is generating new contracts and leading to strong revenue growth. Because of SmartEdge there is potential for alot of good news coming out in the coming year.