It's been just about seven years since the peak of the Nasdaq, and I'm sure we all have our horror stories of the two to three years that followed.In February 2000, I was at a meeting of CMGI portfolio companies at the Shutters on the Beach Hotel in Santa Monica, Calif. CEO and billionaire (at the time) David Wetherell gave a talk in which he announced that CMGI, at $185 a share, was the "top-performing stock of the prior decade," and everyone there began to cheer. The next day, CMGI invested $5 million in a company I had started called Vaultus (which, fortunately, still exists). I had the dubious honor a month or so later of speaking at a CMGI analyst meeting about CMGI's prospects in wireless, which is the same space Vaultus focused on. The woman in charge of investor relations at CMGI was so happy with my talk that she gave me a hug immediately afterward. The rest is history: CMGI, like many other companies, went from $180 to below $1. On Stockpickr, we have a portfolio called " Whatever Happened To," which is made up of former highfliers that came crashing down. Wall Street shuns these companies, afraid to get burned again. But seven years is a long time, and many of these companies have completely new management and even new business models. These names are now worth a look because they can soar from where they are now. CMGI, actually, is interesting right here. At one time, it was an "Internet incubator," funding startup companies that it would, in some cases, sell for billions. Lycos and Geocities were among the companies it invested in successfully. Another company it invested in (actually, the same day it invested in Vaultus) was Half.com, which got sold to eBay ( EBAY) shortly thereafter for hundreds of millions. But most of CMGI's investments fell flat, and eventually CMGI evolved into an information technology services company. Its revenue and earnings have become steady, and the CMGI balance sheet is now pristine. The company had $47 million in operating cash flow last year and has almost $200 million in net cash in the bank. With an enterprise value of just $421 million, CMGI trades for just nine times cash flow, putting it in buyout territory. And I'm not the only one who thinks so. Perhaps the best hedge fund in the world, Renaissance Technologies, owns shares of CMGI. I believe Renaissance is pursuing a strategy of buying companies with enormous amounts of cash that are profitable. The idea is that these companies will have a hard time going out of business, and will eventually find a business model to drive their shares up. Check out Renaissance's top holdings.
| CMGI (CMGI) |