Chris Fernandez: Possible Portfolio Additions

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 |  Includes: AIR, AUTH, EJ, GEOY, PRO, RBCN, SDBT, UWKI, VDSI
by: Chris Fernandez

The recent market turmoil has given us a wonderful opportunity to nab stocks on the cheap.

Today I wanted to give you a heads up on some of the stocks that I was watching for possible inclusion into the PeakStocks.com portfolio, specifically ones that are high on my list, and most likely to be added as formal recommendations in the weeks to come as they reach desirable price points, and present wonderful opportunities for long term investors.

Note that these aren’t yet formal recommendations, I have more due diligence that I have to perform on them, but they are compelling enough with the research that I have done to be at the absolute top of my list.

Let’s Start With What We Know

Before we get into the new names that are on my list, let’s first take a look at the names already on the list, and how I feel about them:

AAR LogoAAR Corp. (NYSE: AIR): The pain continues for PeakStocks.com portfolio recommendation AAR Corp., which provides products and services to the aviation, aerospace, and defense industries, as the company plunges to new 52-week lows virtually every day.

I wrote a recent update on AAR and what has been happening with the stock.

Needles to say, even in today’s environment in the Defense and Aerospace industry, AAR’s valuation is extremely attractive.

In fact, AAR is approaching its book value of about $14.60 per share!

I’ve already recommended purchases in AAR’s stock 4 different times over the last 8 months from prices ranging from $26-$34 per share, so needless to say, I am already down significantly in this one.

The question that we need answered is, are the recent troubles in the airline industry going to hurt AAR as much as the market thinks it will? Or is the mere perception of that potential business shortfall pulling the stock down unnecessarily?

If everything checks out with AAR, another purchase of shares is in order, in fact, backing up the truck is in order.

But until I know that for sure I cannot re-recommend shares to those who already own the stock.

For new buyers however, this is an excellent opportunity to start a position, as the risk/reward favors you tremendously.

With earnings coming out in about 3 week’s time and some scheduled discussions with management, I’ll know soon enough how the AAR story is playing out, and what impact if any, they are having as a result of the downfall in the airline industry.

In the mean time, I’m holding off on recommending any further purchase to those who already own the stock, until I speak with management and see what the earnings picture looks like.

Read the full explanation of what has caused AAR’s stock to fall, and my take on it here.

New to the AAR story?

  • Read my last company update and buy recommendation here.

or you can:


uWink logo

uWink Inc. (Nasdaq: UWKI.OB): uWink, Inc. is an entertainment and hospitality software development company that develops casual, interactive, social games, in addition to licensing the rights to those games and their proprietary touch-screen ordering and gaming interface to restaurants, entertainment venues and the hospitality industry.

uWink also owns and operates several restaurants under the uWink brand name that utilize this technology.

The company’s CEO is Nolan Bushnell, the founder of Atari Inc. (OTC: ATAR.PK) and Chuck E. Cheese (NYSE: CEC), and what uWink is doing with their proprietary software should lead them to a huge market in a few year’s time.

I think uWink, while a risky stock, is a great investment for new money, or for additional money if you already own shares.

New to the uWink story?

  • Start: with my initial buy recommendation and company overview here,
  • OR: read how uWink is licensing their software platform to other businesses here.
Click to enlarge

GeoEye LogoGeoEye Inc. (Nasdaq: GEOY): GeoEye is a leading provider of global space-based and aerial imagery and geospatial information.

GeoEye’s imagery is used in a broad array of applications that include: government monitoring and surveillance, intelligence gathering, construction planning, scientific research such as environmental monitoring, and the online mapping industry via Google (Nasdaq: GOOG) and other partners.

I think that GeoEye represents one of our best opportunities for capital appreciation due to the recent downturn in the stock, as well as market overreaction to their latest earnings announcement.

If you’ve got new money to invest, GeoEye is the place to put it before any other stock.

New to the GeoEye story?

 

  • Start: with my initial buy recommendation and company overview here,
  • OR: read my latest update on the company here,
  • OR: read my take on the company’s latest management conference call and earnings release here.
Click to enlarge

 

SoundBite LogoSoundBite Communications (Nasdaq: SDBT): SoundBite Communications is a leading provider of on-demand customer contact solutions that include Automated Voice Messaging, and other customer contact solutions used by 1st parties and 3rd parties such as debt collection agencies, to stay in touch with customers and save costs on agent-driven interaction.

SoundBite severely disappointed last quarter when they announced their Q1/2008 earnings.

You can read all about that here.

Needless to say, SoundBite has a lot to prove to me, and has a lot of ground to make up from where it was originally recommended as a buy on multiple occasions.

If you are a speculative investor, then SoundBite is right for you, as it is just barely above its cash value ($2.50 per share), and has already reflected the downside risk and pessimism on Wall Street.

For those who own shares, hold on to them, and we’ll give SoundBite one more quarter to see how the business trends are playing out and if the problems demonstrated last quarter were short term in nature.

New to the SoundBite story?

  • Read my last company update and buy recommendation here.

or you can:

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AuthenTec LogoAuthenTec (Nasdaq: AUTH): AuthenTec is the worlds leading provider of fingerprint sensors and solutions to the wireless, PC and Access Control Markets.

AuthenTec’s sensors are the only sensors in the world that are patented to read below the surface skin layer, to where your true fingerprint resides.

Shares of AuthenTec have rebounded nicely from their low a few months ago to sit at about $13.00 per share today.

While I’ve commented before that shares of AuthenTec will never look “cheap”, if you have a long term horizon, now is a great time to start a position, or add to one if you already own shares at a higher price point.

This company is growing fast, has met or beaten analysts earnings estimates every single quarter as a public company, and continues to execute at a high level.

New to the AuthenTec story?

Click to enlarge


The New Kids on the Block

The following stocks are not formal recommendations, but are the highest on my watch list right now.

They are listed in no particular order.

  • VASCO Data Security International, Inc. (Nasdaq: VDSI): VASCO Data Security engages in the design, development, marketing, and support of hardware and software security systems that manage and secure access to information assets worldwide.

VASCO offers patented products for e-business and e-commerce, which enable secure financial transactions to be made over private enterprise networks and public networks, such as the Internet.

VASCO’s product line includes Digipass and VACMAN.

Digipass provides various means of authenticating users to any network, including the Internet.

Digipass devices calculate dynamic signatures and passwords to authenticate users on a computer network and for a variety of other applications. The Digipass technology is also designed to operate on non-VASCO platforms, such as a desktop personal computers or laptops, personal digital assistants, mobile phones, and smart cards.

The company’s VACMAN product line, including VACMAN controller and VACMAN middleware, incorporates various authentication utilities and solutions that allow organizations to add Digipass authentication into their existing networks and applications.

In the world of network security, VASCO’s product lines are in high demand, and they are garnering market share across the world with their applications being utilized by a myriad of financial institutions as well as private company networks.

You may have already seen the little gizmos that VASCO provides that have a changing display that you enter as a temporary password on various websites or for banking purposes.

Why I Like the Company: Founder/CEO with a huge stake in the company (over 20%!); recent insider buying; low stock price/valuation; continued growth prospects in an expanding market; great market presence and technology.

  • E-House (China) Holdings Limited (NYSE: EJ): E-House (China) Holdings Limited provides real estate agency services, real estate brokerage services, and real estate consulting and information services in the People’s Republic of China.

E-House primarily offers real estate agency services to real estate developers of residential properties.

The company also provides real property brokerage services, and intends to provide listing and brokerage services, which include sales and rentals.

E-House focuses its secondary real estate brokerage services in three metropolitan areas within China, including Shanghai, Wuhan, and Hangzhou, as well as in Hong Kong and Macau.

Its real estate consulting services include land acquisition consulting and real estate development consulting; and other consulting services to investors interested in purchasing businesses with land or other real estate assets, as well as to banks, real estate trade associations, and governmental property and planning agencies.

The company’s real estate information services comprise the CRIC system, which supports its primary and secondary real estate services, and consulting and information services. The CRIC system consists of real estate sales data in China covering information on land, residential, office, and commercial spaces, as well as real estate related advertisements.

While the market has beaten up this stock as a result of the rise in interest rates in China and the perception that the housing market there will slow as a result, I believe that E-House looks attractive at these price levels, and pending further investigation on my part, is sufficiently buffered from these potential problems in the Chinese real estate market.

Why I Like the Company: Founder/CEO with a huge stake in the company; recent insider buying, low stock price/valuation; continued growth prospects in an expanding market despite possible “slowing” of Chinese economy; great market presence and amazing growth potential both on the top and bottom line.

  • Rubicon Technology, Inc. (Nasdaq: RBCN): Rubicon Technology, Inc. engages in developing, manufacturing, and selling monocrystalline sapphire and other innovative crystalline products for light-emitting diodes (LEDs), radio frequency integrated circuits (RFICs), blue laser diodes, optoelectronics, and other optical applications.

Rubicon fabricates its products from scratch in their own manufacturing facilities in order to protect their trade secrets and proprietary methods, and sells them in various categories, including core, as-cut, as-ground, and polished.

It also manufactures sapphire substrates and optical windows, such as two to four inch sapphire wafers for use in LEDs and blue laser diodes for solid state lighting and electronic applications, as well as products for military, aerospace, sensor, and other applications.

I know it sounds complicated, and if we delve deep into it, it could be, but think of Rubicon as a provider of the products that all these companies need to create other products that depend on the type of sapphire that Rubicon produces.

They have a patented and proprietary method that is at least 1 year ahead of any other company, and they are ramping up capacity very quickly as a result of the high demand for their specialized products.

Why I Like the Company: Cutting edge technology that is in high demand principally by the LED market, but also by other markets; while not cheap, current price point represents a near-IPO pricing level; high end manufacturing capacity allows Rubicon strict controls over its product and supply chain.

  • PROS Holdings, Inc. (NYSE: PRO): PROS Holdings, Inc. provides pricing and revenue optimization software worldwide.

PROS offers PROS Pricing Solution Suite, which is a set of integrated software products that enables enterprises to apply pricing science to determine, analyze, and execute optimal pricing strategies.

The company’s software products support pricing decisions through the aggregation and analysis of enterprise application data, transactional data, and market information.

PROS sells and markets its software products primarily through its direct sales force to customers in manufacturing, distribution, services, hotel and cruise, and airline industries.

Did you ever wonder how airlines and other industries can change prices on the fly so quickly to maximize profits and adjust to customer demand?

Well, PROS is one of companies that provides this service to many different industries across the world.

Why I Like the Company: Wonderful high margin/cash flow business; cutting edge and proven technology; great balance sheet and insider ownership, while not “cheap” valuation has gotten more attractive.

Bottom Line

While not a definitive and comprehensive list of every company that I watch and am interested in, these present the most compelling argument for inclusion sooner rather than later.

Of course, these are not formal recommendations, and after digging around, they may never become formal recommendations, but this will give you a heads up if you are looking for some interesting companies to get started researching on your own, or that you might be hearing about soon.