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Off-Season Earnings Specials

Net2Phone (NTOP) has covered the full arc of the dot-com tech stock bubble and bust. Its shares rose above $80 in 1999, but now reside below $2 per share. But the time of voice-over Internet protocol (VoIP) is slowly, finally coming to be at hand.

On June 6, Net2Phone is expected to report a loss of 9 cents per share, wider than the loss of 4 cents a share in the year-ago period. Analysts expect little improvement in the bottom line over the next few quarters. But top-line revenue should continue to show double-digit growth, making this a prime candidate for a consolidation play.

With companies such as Cisco (CSCO) and Sun Microsystems (SUNW) clearly betting on the growth of Internet protocol for the transmission of all communication, Net2Phone could become a cheap and easy acquisition target. A perfect time to announce that it's looking at "strategic alternatives" would be next week's earnings release. If the $1.66 stock price is too rich, you can use the July $2.50 calls at a dime to make this a purely speculative play.

As one of the leading recruitment and job-placement firms, Korn-Ferry (KFY) is a proxy for the nation's employment picture. The stock has recently lifted off a 52-week low, gaining 18% to $16.40 over the last three weeks on the belief that job growth has hit a steady and sustainable, if unspectacular, pace.

On June 8, the company is expected to show earnings of 25 cents per share, a 21% improvement over the year-ago period. Korn-Ferry has surprised to the upside three out of the last four quarters, and I think this time could also see an increase in full-year guidance. The options are near their cheapest levels of the year with an implied volatility at the low-30% level. With shares trading at $16.40, the July $15 calls at $1.70 look like a good limited-risk way to gain some upside exposure. The option has $1.40 of intrinsic value, leaving it only 30 cents away from its break-even point, and with over 40 days remaining until expiration, time decay should not be a factor for another 20 days.

Some other names I'm looking at for later next week include H&R Block (HRB), National Semiconductor (NSM) and Signet (SIG).

Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.

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