Zagg skyrockets

Zagg adjusted their 2010 guidance to 70% growth from 30%. It now trades around $7.30. They have been adding distribution channels and it is only a matter of time before they are in Verizon and Wal-mart. They are now in Target. The potential in the stock is astounding. Management is leveraging their brand name to branch into higher-end electronic accessories. I realize that invisibleSHIELD drives the lion share of their success and therefore depends in large part on the success of smart phones and tablets, but who would bet against protecting those? Maybe if the makers start to create already scratch resistant models, then Zagg could suffer. I would not except this kind of growth forever, it will probably ebb and flow with the flow of products, mainly apple products, but in a way that is good because with new designs, new protection is required because they are different shapes. Apple's model of self-cannibalisation will help Zagg.

RQI

RQI - a closed-end fund, which is currently trading at a +14% discount to NAV will now be paying a .18 dividend. The yield will now be more than 9%. I have had this since it was at $2.96, even though I have had more than a 170% return I think it still has upside because it is clearly managed well as its largest holding is in SPG, which was recently added to Goldman Sachs' conviction buy list. This is a leveraged fund and borrowing is cheap!

ZAGG

Check out their traffic!  Website accounts for 23% of sales, but what is even better is that AT&T now sells their product in their stores!  If the click through rate stays the same, then sales are staying high.  Q3 will most likely be better than Q2, given that much of the revenue from AT&T will come in Q3.

Alex.com - Zagg website

Inefficiencies in the small cap market

Large cap stocks that are part of the DOW or the S&P 500 are widely followed by analysts.  Analysts' estimates of earnings are often very close to actual earnings, etc.  The ability of analysts to be accurate is understandable when you consider the availability of data.  CNBC just interviewed a CEO of a company that analyzes cars in parking lots from satellite images (they only analyze for very large companies like McDonalds).  However, the availability of data and the number of analysts on a stock diminutions as the cap size drops.  Small cap stocks have a smaller market (trading volume is often a lot less).  A smaller market makes for inefficiencies - a major opportunity for multi-baggers.  The price of a stock will eventually follow the movement of earnings, but for small cap stocks it can take longer - giving investors the opportunity to exploit the inefficiencies.  I believe the major reason for the inefficiencies is the lack of institutional investor involvement.  Institutional investors have their hands tied, they can't and don't invest in anything they want (they don't invest in penny stocks - stock under $5).  Because analysts cover the large cap stocks, why should you?  Why not cover the small cap stocks and exploit the inefficiencies? I believe the only way an investor can consistently beat any benchmark index (Dow of S&P 500) is by weighting to smaller cap stocks where more inefficiencies exist.  This is one of the reasons I like ZAGG.  Although ZAGG now has a couple of analysts following it, the stock price does not move to match what the analysts expect - a sign of an inefficient market.

Prosper

Prosper.com and other similar peer-to-peer lending sites give those with excellent credit the opportunity to become bankers. Prosper rates members as AA, A, B, C, D, E, HR. Those with a rating of AA can borrow at a lower rate and lend the proceeds to other borrowers with a lower rating, getting a higher interest rate. Prosper gives members the opportunity to diversify. Members can lend as little as $25 to fund a loan. Borrowers can borrow between $1,000 - 25,000. Of course, it is not really exactly like being a banker because they charge a 1% servicing fee, but that makes sense considering they facilitate all the loan originating. However, the lender/borrower can decide their own risk/reward scale and there are no banking regulations, no capital reserve requirements!

Contrarian

To be an exceptional investor, one must be a contrarian on occasion. Warren Buffet is an example of this. While many investors are running to treasuries, Warren Buffet has started to rotate out of them.

Zagg

Assuming management is right and profit margin does improve from Q2 and the 30% rev growth guidance holds true then ZAGG’s should be at least $4.00. Here is why:

Discount the stream of income starting with .13 and increase that by just 25% for the next year and then 12% growth every year after that. The 12% comes from looking at other comparable retailers and their 5 year estimated growth rate. 12% is on the low end, especially because Zagg is only in a sliver of the market and has a potential much greater than other retailers with estimated growth rates of 12% or higher. The NPV of that stream of income is $4.01 if you use a discount rate of 9.8% (which is derived from the risk-free rate plus the beta of .76 times the difference between an assumed 12% market premium and the risk free rate – the 10 year treasury).


http://www.zagg.com


http://www.alexa.com/siteinfo/zagg.com