Seeking Alpha
Value, growth at reasonable price, special situations, contrarian
Profile| Send Message| ()  

Turmoil in Europe. A shaky recovery in the U.S. Reports of softening emerging economies. Many investors are hesitant buyers in light of the current macroeconomic environment - with good reason. To pile on, a lackluster earning season has done little to alleviate concerns regarding economic health.

The overall market has begun to sour. But individual, well-managed companies with solid business models will thrive, regardless of economic conditions. As many stocks sink, savvy investors are able to spot winners and reap profits.

Perhaps an example of one of these winners is magicJack VocalTec (CALL). MagicJack offers Voice over internet Protocol (VoIP) services, for example, enabling customers to bypass traditional phone service providers while saving on phone costs. I first brought up the revolutionary nature of magicJack's technology a few weeks back. The type of technologies magicJack offers are key for an investment, as they tend to be disruptive to the status quo, leading to a rapid redirection in where consumers are spending their dollars, all to the benefit of companies that deliver these solutions.

A new generation of communication companies is on the rise, as seen by the recent purchase of video chat company Skype by Microsoft (MSFT) for a whopping $8.5 billion. Consumers are quickly moving away from utilizing traditional phone network providers and instead are increasingly employing services from companies that cheaply route phone communication over the internet, known as VoIP. MagicJack is well positioned to benefit from this shift in demand. In fact, magicJack's services are largely considered the least expensive service for placing phone calls, even when compared to low-cost competitor Vonage (VG).

MagicJack's CEO, Dan Borislow, put it best: "We will continue to innovate and lead the pack. When the FCC wants VOIP for the country, they can count on us. We have saved our customers billions and are damn proud of it."

MagicJack is well positioned in this high growth niche in the technology sector. But even as many technology companies note a global slowdown, magicJack will continue to grow and profit. For example, by providing these low-cost phone services, the company's business models works, even when consumers are feeling squeezed. When many are looking for ways to cut monthly costs, magicJack saves users money while providing quality phone services. Thus, in many ways magicJack is more recession proof, as during these times, struggling households switch away from higher-priced competitors.

The recent strength on the company's financial front adds validity to this thesis.

In June, barely half way through the quarter, the company leaked that it had already surpassed analyst estimates for the entire 2nd quarter. At the time, management guided higher for 43 cents per share with revenues of at least $36 million. But on Tuesday, magicJack again upped estimates to 48 to 52 cents per share on revenues of $37.5 to $38.5 million in Q2. The full year outlook echoes this with 25% to 40% revenue growth expected. Such strong numbers indicate the company is weathering any economic slowdown. In fact, the bottom line continues to strengthen year over year, proving magicJack can retain its renewal customers over time as well as generating further growth at impressive rates.

TheStreet.com recently noted their rating of magicJack as a sell, which derives from what they view as the company's "…feeble growth in its earnings per share." However, magicJack has recently demonstrated quite the opposite. The acceleration of the company's earnings per share growth year over year should alleviate any of these concerns.

In addition to improving financials, there also continues to be positive developments throughout the company. Management recently announced that its share buyback will be ongoing "…as long as the stock remains undervalued". Total shares are expected to drop to about 18 million, from 24 million at the end of 2011. This represents a massive reduction of nearly a quarter of outstanding shares, all which will stabilize and boost future share prices.

For fueling future growth, magicJack continues innovate in increasingly cutting edge areas. For example, plans are in the works for a release of a Wi-Fi home phone by the end of the year. Such a product will open magicJack to a new and broader consumer base. Here again, magicJack is developing a product to replace costly services and outdated phones, with new, inexpensive, and dynamic Wi-Fi home phone services.

There isn't much not to like about magicJack these days. There is a clear and growing trend away from traditional phone service to cheaper VoIP services, all for the benefit of companies like magicJack. As the economy teeters, the value proposition for magicJack services actually increases. In many ways, the company shown it is insulated from the wider negative macro-economic developments by delivering cheaper alternative solutions and services for consumers. magicJack is well positioned financially and recent trends show clear accelerating growth. In addition, the company continues to push the frontier with exciting innovations to fuel growth.

Investors have already begun taking notice to magicJack. The stock has had quite the run in 2012. At one point the share price had doubled from the beginning of the year. However, magicJack is now selling about 40% off of its highs set in March. The difference now is that the company's valuation is actually more flattering, with earnings considerably higher than previously guided. As the global economy stalls and the broader market dips, investors looking to profit should take serious look at magicJack.

Source: MagicJack Will Make You Money In Any Economy