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Alert: Cross Media Marketing (AMEX: XMM)
If there is
such a thing as a growth/value investment in a micro cap stock, Cross
Media is it. We believe Cross Media is significantly undervalued
at $1.30. Our short term target is $2. One Wall Street analyst
projects $5.25 (up 320%) over the next 18 to 24 months.
describes itself as "a technology- driven cross media marketing company
integrating its sophisticated direct marketing skills with cutting-edge
technologies, including interactive voice response and web-based systems,
resulting in a multi-dimensional marketing platform for the international
exploitation of products and services."
75% of their revenues come from the sale of magazine subscriptions. Additional
product lines are being added. The company has mastered the art of customer
profiling and targeting the consumer based on the demographic probability
of a purchase.
exploded in growth of both sales and earnings over the past year, nearly
all generated internally. In 2000 Cross Media achieved $61.9
million in sales and lost $44.7 million (all non cash one time
charges related to acquisitions- fuzzy math).
on track to have a blockbuster year in 2001. Management estimates September
quarterly earnings to come in at about $.08 per share, and December
quarterly numbers at about $.10 per share. Here is management's
forecast for 2001 which appeared in a recent press release:
|The Company expects to report
revenues for 2001 of between $98 and $111 million and net income of
$9.2 million to $10.6 million, or $0.22 to $0.25 per share,
excluding the effect that the acquisition of LifeMinders may have. This
will represent a revenue increase of 77% to 100% over fiscal 2000.
A quick look
at the chart reveals the stock traded beautifully from late April until
the end of July. The stock appreciated from about $.90 to $2.00
a 120% gain which correctly reflected the growth of their business.
In the third week of July the stock sold off abruptly in conjunction with
a merger announcement.
On July 19th
Media announced it tendered an offer to purchase Lifeminders (NASDAQ:
LFMN) in a deal valued at $68.1 million. The terms were extremely complex
offering several alternatives to Lifeminder's shareholders.
investors chose to sell the holdings in Cross Media and buy shares
of Lifeminders as there was an arbitrage play which made owning
Shares of Cross
Media have pulled back to a level where this arbitrage play is no longer
valid, making shares of Cross Media more attractive at these levels.
If the transaction
is approved, Cross Media will end up with an additional $25 million
in cash and a database of 20 million consumers. In return, Cross
Media will give up 25 million shares.
On August 30th,
2001, Weatherly Securities, a Wall Street boutique firm issued a speculative
buy recommendation on the stock. Analyst Raymond Moore notes in
his research report: "At $1.30 a share, the stock trades 83% below
its 1999 high of $8.00 per share and only 5.9 times estimated 2001 earnings."
"If XMM were afforded a price earnings multiple of the conservative Dow
Jones Industrials (21.7 time 2001 earnings based on Barron's consensus
August 27, 2001) the stock price would be $5.40 per share, or some 300%
above current levels."
Alert was triggered by today's SEC filings. Investors who follow insider
activity know Insider Selling in not necessarily bad, but Insider
Buying is always a positive sign.
Journal is the first to pick up on today's SEC filings which indicate
that senior management is buying. Ron Altbach (Chairman), Chet Borgida
(CFO), Richard Kaufman (COO), Andy Nelson (Senior VP of Sales), Dick Prochnow,
and Bill Morrisey have all purchased shares in the open market since August
27th for their own accounts.
It is a very
positive sign to see insiders buying, but when the entire senior management
team and board members are all buying stock for their own accounts you
can be certain they believe in the future of their company.
Here are our
thoughts on this Trading Alert on Cross Media Marketing (AMEX: XMM).
As depicted in
this chart, Cross Media has given up most of its April through July
gains. However, technicians would agree that both the MACD and Stochastic
indicators show the stock is poised to begin its rebound phase.
According to the
company, earnings for 2001 will come in at about $.22 per share.
At $1.30 this makes the stock ridiculously undervalued.
Management and Board Members are buying for their own accounts.
play which made Lifeminders more attractive than Cross Media
is gone at these levels.
The first analyst
report on the company was issued August 30th, projecting $5.40 in 18
to 24 months.
Buy up to $1.50
which gives you room to make money if the stock trades in our favor. If
you can get in around $1.30 it would be ideal. Very low risk entry level.
Set your Stop
Loss at $1.00 to give you some room for a short term pullback or what ever
your risk tolerance is.
If the stock
can get through $1.50 in the next couple of days it should go higher it
could find its way to nearly $1.75 to $2 short term.
their growth and profitability you can comfortably put this one in your
long term speculative portfolio.
Journal intends to publish follow-up editions on this company. This
stock has the potential to be a huge winner.
is our opinion only, and not a solicitation to buy this stock. Make up
your own mind. If you are looking for a short term trade limit your loss
if the stock goes against you. As always, we remind you before making any
investment decisions please review the section on our home page on Trading
Alerts. Read our section on Successful
Microcap Investing, paying particular attention to the Trading
Strategies Section. The track record on our previous alerts can
be obtained by
the interest of full disclosure we inform you that one of our editors owns
7500 shares of Cross Media in his own account with an average cost basis
of $1.98. Our editor may buy and sell the shares at any time at his own
discretion. This should be viewed as a potential conflict of interest.
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