Riley Buys Stake In Undervalued Stratos

Nov.22.06 | About: Stratos International (STLW)

Last evening we noticed that Riley Investment Management LLC) filed a 13G on Stratos International (STLW), reporting an over 8% stake in the company. As you may already now, Stratos remains our top turnaround pick in the fiber optic sector. Our investment case was spelled out some time ago in this post and updated here.

The stock still remains ridiculously undervalued, especially considering the recent rise in other larger, and yet paradoxically more "junky", fiber-related stocks.

So why is the Riley filing significant? Well quite simply, Riley has a track record of trying to buy out most of their companies at a significant premium. For a recent example of a Riley buyout saga, check out NetManage (NETM).

The unique thing about STLW, though, is that the company already has an offer on the table for $7.50 per share from Steel Partners. So could a buyout battle be looming between these two hedge funds? Or will they worth together to increase shareholder value? It will be interesting to see how this plays out.

In any case, it sure seems to us, that with the resurging popularity of fiber optic shares, and the new activist fund involvement, that STLW has several market forces working in its favor to drive the stock price significantly higher over the coming year.

Disclosure: We own shares in STLW

STLW 1-yr chart:

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