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TheStreet Open House

A Penny Stock to Bank On

Stocks in this article: EKCS.OB

CLIFTON, N.J. ( TheStreet) -- I had sworn off penny stock investing, but after enjoying some success with this market segement in 2009, I now find myself knee-deep in stocks trading for less than $1.00.

My addiction to risk keeps me coming back for more. Throughout 2010, I will continue to devote a portion of my portfolio to penny stocks while avoiding the pump-and-dump schemes that are all too common in this stock universe.

Following the same theme I did in 2009, I will attempt to identify penny stocks of companies that are rectifying liquidity issues or re-energizing their business models. Electronic Control Security (EKCS.OB)

I first purchased shares of this Clifton, N.J.-based company after it was selected as a primary contractor for the U.S. Air Force IBDSS project and after it became a subcontractor for Lockheed Martin (LMT - Get Report) in an antiterrorism initiative for U.S. naval bases around the world.

Although the Lockheed contract is still going strong, the IBDSS contract did not pan out as the company had hoped. Consequently, my investment failed to yield any return.

Consequently, I recently asked the company's CEO, Arthur Barchenko, why the contract did not meet expectations. He explained that the problem originated from the company's earlier business model where it acted as a primary contractor for government projects.

Aside from the challenges of having to compete against much larger competitors, dealing directly with the government meant unpredictable order patterns and the risk of mispricing bids, which can quickly erode margins.

Furthermore, the original IBDSS contract, which has expired, was originally slated to address 34 Air Force bases, but in the end it only addressed five.

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