Two Down-on-Their Luck Tech Turnarounds

04/20/2009 12:00 pm EST

Focus: STOCKS

Jon Markman

Editor, Trader's Advantage

Jon Markman, contributor to MSN Money, finds two once-prominent technology stocks that have sold off big, and he says they might make interesting speculations.

A lot of stocks have run hard already in anticipation of an epic amount of funds clearing the kinks in the credit system and actually hitting the economy, but there are still dozens of deserving organizations that have not yet been so blessed. If you're a hardy soul with nerves of steel, a lust for big payoffs and the good sense not to blame me if these don't work out, here are a couple of dollar stocks that could catch fire:

Quantum (NYSE: QTM) is a data storage technology company you may remember from the 1980s and 1990s as a maker of consumer disk-drive and enterprise tape-drive systems. It once traded above $25 and now, after a few changes in business plan, goes for [over $1.00] a share. Its market capitalization is $265 million but it has $51 million in cash, or 24 cents a share. It does $870 million per year in revenue, is cash-flow-positive and [can] earn as much as 30 cents a share in fiscal 2010.

[It has] a patent on one of the hottest storage technologies around: data deduplication. Storage industry giant EMC (NYSE: EMC) is a major buyer of Quantum's services, and successful billionaire vulture investor Joseph L. Harrosh recently bought an 8% stake. The market is worried about long-term debt repayment, but my sources say the company has that covered. If QTM does earn 30 cents this year after executing on cost controls and head-count reductions, and investors give the stock a relatively modest 15x price-to-earnings multiple, it would be worth $4.50, which would at least be a five bagger [from its recent lows].

Unisys (NYSE: UIS), the product of the merger of computer pioneers Sperry and Burroughs, has a $588-million market capitalization despite taking in $5.2 billion in revenue per year and being strongly cash-flow positive. Shares were smashed in the fall and again in March when two sets of hedge fund buyers were forced to liquidate due to heavy redemptions and margin calls.

My sources think Unisys has earnings power next year of up to a dollar, which means that at $1.59 Friday it's trading at a forward price-to-earnings multiple of [just above] one. If UIS earns only 50 cents in two years and a 10x PE multiple, it's worth $5, or more than three times the current price.

Stocks like QTM and UIS could actually work out even if the economy and broad market fail to recover, because very little has to go right because so much has already gone wrong. For the price of a pack of gum, you could own shares of two of the most respected names in tech history near multidecade lows. That's something to chew on.

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