Casino Capitalism

This section lists all our initial stock picks with complete write-ups. Please take note of the date and price of the intial stock recommendation. If a particular stock has appreciated significantly since our recommendation, the risk/reward may no longer be favorable and it does not pay to "chase" the stock. It´s better to keep your money in cash than to buy an overvalued stock. For updates on any of our picks, please read our Stock Updates section.

Furthermore, all ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

I believe that Stratos International (STLW) is an excellent low risk investment "gamble" at its current price of about $6.80, with potentially good odds of providing investors with an above average market return over the next year or two.

Before reading on, please note that STLW is extremely thinly traded, so if you plan to invest in this company, you should use limits. Also, as always, please read the disclaimer at the end of this post.

Technology turnarounds, particularly in the software sector, can sometimes make for profitable investments. The reason is that assuming the "broken" company has a strong balance sheet and a decent product portfolio, with time, a good management team can reignite high-margin license sales yielding substantial and sustainable free cash-flow growth for quite a few years. At the same time, the downside for the business and investment is protected by recurring, albeit low-margin, service/maintenance revenue, assuming that the software is being used by customers.

Furthermore, investors generally ignore the fact that the enterprise software business is very lumpy and as such they get too optimistic when sales (on the license end) are booming and conversely become too pessimistic when sales slow. The whole business is quite cyclical, though. Therefore, assuming the stock of such a "broken" software company is trading at a low multiple to service revenue and at a value which implies zero growth in new licenses, the stock usually offers a good investment "gamble" on a potential license or product "cycle" upturn.

If you have followed this blog for some time, you know that I´ve been quite bullish on the seismic sector since late last year. As my two seismic picks, PGS and SELA.ob, have continued to soar  based on  industry consolidation, greater than expected cash-flow growth at each company, and still relatively reasonable valuations, I´ve been searching diligently for another investment in the seismic sector. Well after alot of digging around, I think I have found a decent "gamble" in Pulse Data (Toronto: PSD.TO or PLSDF.PK) at C$3.10.

As the rest of this post will explain, Pulse Data appears to have little downside risk at current prices and potentially offers 50% upside price appreciation  in 2006, should the company follow in the footsteps of competitors SELA.ob and PGS by reporting outstanding financial results and guidance in the coming months. Importantly, Pulse also pays a yearly dividend of $0.15 per share providing investors with the safety of a nearly 5% dividend yield on top of any share price increases.

Investment Summary:
We believe that ActivIdentity (Nasdaq: ACTI), at its current price of about $4.37, represents a low-risk investment, with substantial upside price potential in the next two to three years, as the company capitalizes on new growth opportunities in the digital identity assurance market, under the guidance of the new CEO, Jason Hart.

Investment Summary:
I believe that Pacific Internet (Nasdaq: PCNTF), at its current price of about $7.60, represents a low-risk Internet investment, with substantial upside price potential in the next year, as the company capitalizes on new growth opportunities, under the guidance of a new CEO. In addition, with the recent unsolicited buyout offer of PCNTF, the stock could see more upside if the company gets into play as an acquisition candidate. 

Investment Summary:
I believe that Network Engines (Nasdaq: NENG), at its current price of $1.88, represents a low-risk investment, with substantial upside price potential in the next several years, should NENG’s newly appointed, and highly experienced Chief Executive Officer, execute on some key business initiatives and position the company successfully in the high-growth network server appliance industry.

Many large cap natural gas stocks jumped today on news that ConocoPhillips (NYSE:COP - News) is in talks to buy independent natural gas producer Burlington Resources Inc. (NYSE:BR - News) for more than $30 billion. I´ve struggled to find good small cap natural gas stocks because all the stocks are way up or are simply too speculative. However, if you are so inclined to play the natural gas game, here is one natural gas pick I´ve bought and think still represents a decent gamble.

I´ve been thinking about new investment themes for quite some time. One that I have followed for a good part of this year (see this earlier post) and I think will play out even more strongly in 2006, is seismic exploration and data service companies.   

In keeping with my Internet infrastructure theme (i.e. RBAK, INLD), I believe that Internap Network Services (IIP) represents a good investment "gamble" at it´s current price of about $0.40 (yes, you read that right 40 cents, but don´t be scared away just yet). The company has low downside risk and significant upside as investor sentiment continues to improve towards Internet infrastructure plays.

I believe that Planar Systems (PLNR) represents a good investment "gamble" at it´s current price of about $9.50. The company has low downside risk and significant upside should growth resume in the coming year or two.