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Trading 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.

The company 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."

Approximately 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.

Cross Media has 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).

Cross Media is 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:
 

Recent Developments

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 for 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 Cross 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. 

Many clever investors chose to sell the holdings in Cross Media and buy shares of Lifeminders as there was an arbitrage play which made owning Lifeminders more attractive.

Shares of Cross Media have pulled back to a level where this arbitrage play is no longer valid, making shares of Cross Media more attractive at these levels.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."
 

Insiders Are Buying

Our Trading 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.

The OTC 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.
 

Trading Alert Details

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.
• Numerous Senior Management and Board Members are buying for their own accounts.
• The arbitrage 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.

The OTC Journal intends to publish follow-up editions on this company. This stock has the potential to be a huge winner.

This newsletter 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 clicking here.

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