Mad Cow Rules the Fate of Digital Angel

The outbreak of bovine spongiform encephalopathy, or mad cow disease, has been bad for the beef industry but good for Digital Angel (DOC Quote), which makes tracking devices that are implanted into animals.

Shares of the St. Paul, Minn.-based company have nearly doubled since the U.S. Department of Agriculture's Dec. 23 announcement that the first case of mad cow disease had been discovered in the U.S. While mad cow-related worries were the catalyst for investor interest, Digital Angel has been also stoking the fire by touting its radio frequency identification, or RFID, devices in a pair of press releases in response to media inquiries.

"The proprietary technology here is that they have the only [Food & Drug Administration] and USDA-approved implantable microchip in livestock, which is the size of a grain of rice and injected under the skin with a syringe," said David Talbot, managing director of Melhado, Flynn & Associates, a brokerage firm, and an investor in the company. "This enables you to track the animal and take their body temperature remotely, from a distance of 20 feet away."

Such technology could be extremely beneficial to the USDA, which said it was contemplating an electronic-tracking system for livestock to help avoid the difficulties it now faces in investigating the mad cow outbreak in the U.S.

Despite the fact the company trades on the American Stock Exchange and has 29.5 million shares outstanding, investor interest in the company has been extremely high since the outbreak. On Monday, shares hit $4.99, a penny shy of a 52-week high, before the stock reversed direction and fell 7 cents, or 1.8%, to $3.88, on 5 million shares, 50-times its usual daily volume.

Indeed, as Monday's intraday volatility illustrates, investors hoping to capitalize on the company's unique position should be cautious about buying shares, since the company is not covered by Wall Street analysts, has no price-to-earnings multiple and is still losing money.

But the company, which recently changed its upper management and has been in the animal-tracking business since 1945, does appear promising and has government connections.