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Taking Stock Of This Fallen Angel

Our search for stocks under $10 often reveals some familiar but forgotten names, and one that a reader asked us to take a closer look at is CMGI (CMGI). This supply-chain management company captured investors' imaginations in the late 1990s when it aggressively invested venture capital money in Internet companies, catapulting its market value to around $30 billion. But it's been a long fall from grace for valuations in this space, and the once $163 stock now changes hands at just $2.24.

We aren't adding CMGI to the Stocks Under $10 model portfolio because we want to keep the number of stocks in the portfolio at around 16 -- where it is now -- but we believe investors with discretionary money would do well to research this stock for some hidden value.

CMGI boasts three attributes we like to see in a stock in our universe. It has a legitimate revenue stream that, thanks to a recent acquisition, should cross over the $1 billion plateau during the next 12 months. Analysts are ignoring its recent operating improvements, as not one firm has picked up coverage just yet. And finally, the company's venture capital business, while not as highly touted as it once was, could still produce some solid investment returns with market valuations improving.

The company generates most of its sales these days through its SalesLink segment. SalesLink allows companies to better manage their inventory and supply-chain functions, including order management, warehousing, returns processing and logistics optimization. In addition, SalesLink provides marketing technology and advice that enables corporations to fulfill informational requests for customers and prospects quickly and cheaply in order to maximize profit and customer satisfaction.

Its results for the fiscal first quarter, ended in October, are a strong indication that CMGI is on its way to legitimizing itself as a bubble survivor. The company reported sales of $257 million for the period, up 171% from the prior year. The top-line growth was primarily a function of CMGI's acquisition of privately held supply-chain solutions provider Modus Media, which closed in August. Management said when this deal closed that the addition of Modus would turn the company into a $1 billion annual sales company.
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