Monday, December 27, 2010

" Some year-end wisdom and a little talk about Internet Security as a business in 2011"

Dow Jones Industrial Average  11,573    (Up) Week ending  12-24-2010

 As we approach the end of the year 2010, I think it is a good idea to remember Hal Holbrook and his words as Lou Mannheim the sage to the younger Bud Fox (Charlie Sheen) in the original Wall Street movie.

 "The main thing about money, Bud, is that it makes you do things you don't want to do." –Lou Mannheim (Hal Holbrook) .

Holbrook, who also doles out common sense advice when he portrays Mark Twain, reminds us that sometimes people end up in situations with money where they can find no way out and are forced into criminal behavior to keep the whole thing going. Bernie Madoff, I'm sure initially had good intentions to make all his customers money. Any company no matter how small or large can get in trouble with money.  Note General Motor's bankruptcy, Lehman Brothers, Bear Stearns, A&P Stores, currently Fannie Mae and Freddie Mac, and the old Pennsylvania Railroad company.  

So if you are a small business on the brink, because the conditions of your business have diminished, or are a homeowner facing foreclosure on your home and are in desperation, seek help - before you do anything crazy in regards to money.  With regards to stocks and investments, understand that there are different levels of risk with different types of investments. With the market going up in 2010 we all may have drifted into investments with higher levels of risk without even realizing it. You may be actually speculating when you think you are investing. Be careful! Invest like it is your first $100.  Enough said.

On to WikiLeaks! (and it's impact in 2011 on stocks in the Internet security business). Of course, the government is in full force with the WikiLeaks Task Force or WTF, which in SMS language is "What the  ___bleep?".   On the corporate front, there are companies of all sizes in the business of internet security. My chosen mission is to find you a few stocks that you can make money with. 

 The first obvious choice is Cisco Systems (Symbol CSCO, $19.84),
 It's all about the network and the "Cloud" and Cisco is totally involved along the whole path. The company does billions in sales and earns billions in revenue and has billions in cash on the balance sheet to buy up other high technology companies. It has sales growth of between 8-9 % a year and net profit margins of 18.90%. What's not to like? The internet security business should just add to these tremendous numbers.

If you want a little more high octane in your Christmas punch then Radware (Symbol RDWR, $38.84) should fit the bill for you. 2010 earnings per share of 66 cents and 2011 projected earnings of $1.00 per share. This company's stock is up 155% in the last 3 years. This small cap company should continue to grow nicely.

 Another small-cap name for you is SOURCEFIRE (Symbol FIRE, $24.74), with a 5 year sales growth of 33%. This company has a 3 year total return of 133%.  Just understand that these high growth stocks can hit speed bumps and you should be prepared for 25-30% downswings if they hit a slippery quarter. You need to buy into these types of stocks taking positions over time, maybe over 3 months to a year. As I mentioned in the beginning of the article, do not go in and bet the farm on one purchase or leverage and load up on one of these guys by buying on margin!  If you buy options, you often will lose all or some of your money.

If you are looking for a medium sized , well established company , you might want to look at Check Point Software Technologies Ltd. (symbol CHKP, $45.98).  Some nice internet security profits here with 40.4% net margins. This stock has a 108% total return over the last three years.

So watch what you say on Facebook and Twitter and always be cautious when exploring the web and even the email you receive.

Have a Happy, healthy and prosperous New Year, 2011.


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