In Search of That Google-Like Glimmer

And although the firm won't say which other stocks are in its sights, a stock screen can help unearth some good candidates: Disk-drive maker Western Digital(WDC Quote) trades at 0.84 times sales despite a 40% stock rise this year. Not only did the firm recently raise guidance, but it upped its cash flow from operations to $461 million in its most recent quarter from $190 million in the previous quarter.

Another longtime Internet name is Earthlink(ELNK Quote), which has a steady customer base even after years of consolidation in the ISP market. Earthlink has seen steady growth in its cash flow from operations while trading at 1.15 times sales.

It's a little trickier for a buyout firm to capitalize on such opportunities. Earlier this year, when Register.com was trading just above $6, Vector approached the company about a buyout. Register.com passed, but after RCM Acquisition, which had tried to buy Register.com two years earlier for $4.95 a share, made a $7.10-a-share bid, Register.com went back to Vector.

Vector made an $8.10-a-share bid but lowered it to $7.81 after it received an important reminder of why undervalued stocks can be undervalued: Not only were there credit card penalties that Register.com was responsible for because of "high rates of refunds to customers," but Visa and MasterCard cracked down on the company because it didn't adhere to data-security standards. There was also an "employment-related lawsuit" filed in 2005 that Register.com hinted at in its filings with the Securities and Exchange Commission without offering details.

Not exactly the stuff of glamour. But in a volatile tech market, where glamour can fade quickly and take a good chunk of market value with it, there's wisdom in running with underdogs whose potential to surprise is on the upside.

"All stocks regress to the mean over time -- it's a very powerful investment thesis," says Slusky. "If everyone's expecting 100% growth rates from you and competitors are lining up you're more likely to regress down to the mean. I'd rather find companies below the mean so that they'll regress up."