A Unique Angle on Wireless

Editor's Note: This column was originally published as an alert to subscribers to Stocks Under $10 on Dec. 20. It subsequently rose 35% and was removed from the portfolio on Dec. 22.

Cell phones are everywhere. Global mobile media company Enpocket reports that 61% of Americans have cell phones, and the Street is expecting global handset sales will reach about 650 million units in 2005. Even so, making money in the space has never been more difficult for the passive investor, but we believe we've found an interesting angle.

Readers of Stocks Under $10 know that we made some pretty good money trading around Skyworks (SWKS)), which makes the "guts" of cell phones, earlier this year. But pricing pressure, seasonality and inventory cycles have made gaming the stocks of wireless component makers like Skyworks, Nokia (NOK) and Motorola (MOT) more difficult of late.

However, we believe we found an opportunity to capitalize on wireless trends when we discovered Canadian wireless software maker Zi (ZICA). A reader wrote in asking about the prospects for its technology, and after doing some research, we believe this is a company that is still in the early stages of its growth cycle and is not as prone to the cyclical nature of the business. We are going to buy an 800-share position in this Stealth Stock for the model portfolio here around $4.60, as we believe Zi can trade as much as 50% higher in 2005.

The company creates embedded software for cell-phone manufacturers that is designed to make using text messaging technology more convenient. The company has patented predictive technology that significantly cuts down on the time it takes to send a message, with its auto- fill function that fills in commonly used words. For example, a message of "I will call you later" takes 17 key strokes and a couple of mouse clicks on a PC. This same message sent via a cell phone requires 45 touches, give or take a couple of mistyped letters and some backspaces.