Top Picks 2007: TechValue indentifies security ID play

Posted Dec 26th 2006 8:30AM by Steven Halpern
Filed under: Newsletters, ETF Investing

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Cogent Inc. (NASDAQ: COGT) is a top speculative idea from Mark Mowrey, editor of the Prudent Speculator TechValue Report. He explains, "Cogent's identification technology emphasizes the uniqueness of the human fingerprint as the best method for identifying its owner.

"Other potentially more reliable technologies exist, such as retinal, facial, voice, and vascular identification, but none has proved as long-term successful in the field as fingerprint matching. Applications include the obvious, like law enforcement and access restriction, and the not so obvious, such as laptop security and fingerprint-based payment systems.

"Revenue peaked in 2005, the bulk coming from two primary customers: the U.S. Department of Homeland Security and the National Electoral Council of Venezuela. Work continues with both agencies, but orders have become less predictable.

"Cogent has thus begun a more concerted effort to grow its customer base. Added to the mix were the Royal Canadian Mounted Police and the governments of Morocco and the United Kingdom.

"The latest quarter still suffered from a revenue timing-based shortfall, and the stock took another big hit. "We have to believe the company's cash store, technological edge, and broader-market targets will at some point conspire to reignite growth. At around 30 times trailing earnings, COGT shares aren't cheap.

"Even adjusting for the $4.27 per share in cash leaves the trailing revenue multiple at seven times. But we continue to believe the larger market for non-obvious (laptop access, for example) AFIS usage remains mostly untapped, while growth in the governmental business has just gotten started. Eyes firmly on the balance sheet, we'll hold the shares in expectation of Cogent's tapping that potential."

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