Editor's Note: This is a bonus story from James Altucher, whose commentary usually appears only on RealMoney . We're offering it today to TheStreet.com readers. This column originally published on RealMoney at 2 p.m. EST Tuesday. To read Altucher's commentary regularly, please click here for information about a free trial to RealMoney. I'm a fan of Mark Cuban's blog , and a recent post in which he discussed his current long and short stock positions led me to take a closer look at the names he mentioned. First off, it should be noted that while Cuban doesn't receive great plaudits for his stock-picking, his sense of timing during the dot-com days was uncanny. He started his company, Broadcast.com, in 1995, brought it public in 1997 and sold to Yahoo! ( YHOO) at the near peak in July 1999. Then, from all reports, he hedged or sold his $3 billion worth of Yahoo! at its top. Be it luck or skill, I wish I had had as much of either in my own dot-com experience. Among his long picks, Cuban likes Lion's Gate ( LGF), Rentrak ( RENT), Insight ( NSIT), Sigma Designs ( SIGM), GuruNet ( GRU) and some other small-cap names. His shorts include Interoil ( IOC) and the small-cap Imergent ( IIG). I am in general nervous about shorting, even in a bear market, so I won't comment on these two shorts. However, I will note the statistic that even in the down year of 2001, the CSFB Dedicated Short Bias Index was negative on the year. It's difficult to short, unless you have deep pockets to withstand the pain that comes from volatility. As noted above, Cuban has those pockets. I wanted to like Lion's Gate, particularly in light of Cuban's comment: "The only indie film library available, willing to leverage new media for revenue." Sounds appealing and also Lion's Gate is certainly a potential acquisition target for its library. That said, the movie industry just seems too volatile and too hit-driven to me, and although it might be a good pick, I don't think there's the same level of margin of safety that he has in his other picks. The two longs that I like are Insight and Rentrak. Insight operates in the IT services space, which I've written about before . The basis for my bullish view on IT services is simple: From 2000-02 we didn't just have a recession, we had an IT depression. In Manhattan alone, there were more than 150,000 jobs lost in the IT industry. Heck, all my favorite coffee shops went out of business in the Flatiron district because of all the jobs lost. So a company that survived that, built up its business, and preserved its balance sheet will survive just about everything. And this is important because companies do not want to outsource their IT to service providers they believe will go out of business in the next downturn.
The company has increased revenue every year since 2000, and earnings last year were up more than 100%. That included a $25 million sale of its investment in PlusNet, but even without that, earnings were still up about 50%. Additionally, the board has announced this month that it plans to buy back about $25 million worth of shares. Most analysts expect the company to earn $1.57 per share in 2006, giving its current stock price in the $18's a multiple of just 11. Rentrak seems like a home run. The company has two businesses and the seeds of a third are in bloom. First, the company leases video games, DVDs and videos to specialty retailers (a mom-and-pop home-video store, for instance) and then participates in their rental transactions by taking fees. The company also provides business intelligence information by, in a sense, serving as the Nielsen's of video and DVD rentals. More recently, the company has been involved in packaging information on video-on-demand usage, through a partnership with Comcast ( CMCSA). Being able to track video-on-demand usage is critical for both advertisers and the distributors of video on demand. In this business, it has no competition, and the deal with Cablevision ( CVC) will probably lead to further deals with cable companies such as Time Warner ( TWX). The company has a $100 million market cap, with $18 million in cash, and $9 million in cash generated from operations last year, giving it a multiple of enterprise value over cash generated of less than 10. Revenue is up 40% year over year and income swung from a loss to $4 million net income. My guess is that this company gets scooped up over the next year (if it were even looking for an offer, which I doubt) for double what it costs now. Please note that due to factors including low market capitalization and/or insufficient public float, we consider Imergent, GuruNet, Rentrak and Sigma Designs to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.