"Secure" Stocks

11/18/2005 12:00 am EST

Focus:

John Buckingham

Editor, The Prudent Speculator

"We are always on the lookout for companies that are unduly punished by analysts and investors," says John Buckingham, editor of the top performing Prudent Speculator and the equally highly rated Al Frank Funds. Here, he looks at a pair of plays on "security".

"RSA Security (RSAS NASDAQ) specializes in security user identification, authentication, and secure remote access to enterprise networks. Not at all a small player in this segment, the company secures more than 15 million user identities, safeguards trillions of business transactions annually, and has 19,000 customers worldwide. Security continues to be a timely topic and a high growth segment within technology, which is part of the reason why we continue to like the company.

"This is a perfect example of a stock that has been unfairly punished. Just a couple of weeks ago, the company announced preliminary third quarter results that were mysteriously not well received and the shares fell almost 8% on the news. D own more than 50% from its 52-week high, RSA has no long-term debt and more than $4.00 in cash per share. Although the present price to sales ratio of 2.5 and trailing-12-month P/E ratio of 22 are not cheap on an absolute basis, the net-of-cash valuation is very attractive and the multiples are at a discount to historic averages. We view this latest price drop as a buying opportunity and secure shares up to $12.14."

"Symantec (SYMC NASDAQ) took a large hit after the company said it had produced ‘solid’ earnings but investors found the outlook anything but. The quarter suffered from a late introduction of consumer-oriented Norton PC security products, little high-profile virus threat activity, and competitive pressures. Symantec says it won't compete on price in the consumer space. That's good, because we believe the company's brand power will go a long way toward fending off potential competition from new competitor Microsoft and existing foe McAfee.

"No doubt, Symantec faces a minefield of competitive threats going forward, but is entering the fight battle-ready. With what we believe are top-notch data protection, storage management, and security productsall of which should synergistically begin to sell each other in many ways Symantec has a product portfolio many likely envy. Plus, the balance sheet contains about $3.78 per share in cash and equivalents, after which the stock trades at 15 times trailing earnings. So despite the near-term turmoil, we look for continued growth. We are buyers up to $20.06."

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