Take a Pass on Applied Digital

Editor's Note: This column was originally sent to subscribers of TheStreet.com's Stocks Under $10 on Thursday, Dec. 9 at 8:17 a.m. EST.

There are a lot of great stock plays in the Under $10 space that we examine every day, and we are always on the look out for new names that bring value to our model portfolio. But from time to time, our search for the next big winner uncovers a stock that could destroy your performance, and bring you a lot of heartache along with it.

We have found one of these potential disaster stocks in Applied Digital Solutions (ADSX Quote), and we would be sellers of the stock here at $6.88 a share, near its 52-week high.

Applied Digital, through its basket of acquired subsidiaries, which includes publicly traded Digital Angel (DOC Quote), markets advanced security products that use radio-frequency identification, or RFID, and global positioning satellite systems, or GPS. Many of Applied Digital's products are used to store and deliver information that is used to monitor and protect wildlife and our food supply, among other applications. In addition, its voice, video and data networks are used to provide secure communications between government offices.

The company, though, recently gained notoriety for one of its newer business ventures. In October the Food and Drug Administration approved the company's implantable radio- frequency identification microchip for human use. The device, called VeriChip, was acquired through a licensing agreement with Digital Angel that runs through 2013. Only the size of a grain of rice, VeriChip is implanted under your skin and contains an ID number that is used to access your medical history, including possible drug interactions, diseases or anything that could determine the way a doctor treats unconscious patients who are unable to provide any of their own information.

VeriChip is cutting-edge technology that has the potential to save lives and decrease the critical time needed for doctors to determine a course of treatment in life- threatening situations.