Ad Gains: Digital Generation

01/02/2004 12:00 am EST

Focus:

Jamie Dlugosch

Editor, The Rational Investor

Jamie Dlugosch launched his newsletter, The Rational Investor, at the start of last year. His top pick for 2003 was Metris, a credit card marketer. The stock has risen 81%. This year he again takes a contrary play, on an advertising firm, Digital Generation.

"Digital Generation Systems (DGIT NASDAQ) serves the advertising market with digital/audio distribution services. Dogged by the three-year recession in advertising, DGIT shares fell out of favor with investors. Reacting to the difficult operating environment, the company controlled costs in the face of minimal revenue growth and has been generating small profits over the last few quarters. The combination of a strengthening economy along with an election year should bode well for future revenue growth at DGIT."

"Shares of DGIT trade for 1 times sales and 1.7 times book value. The company has a pristine balance sheet with zero debt while analysts expect the company to make $.15 in 2004. We think DGIT represents incredible value with the potential to significantly grow revenues and profits in the near term. We would buy DGIT up to $2.50 per share and our target price is $5."

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