The Home Run Hunt

 | May 21, 2013 | 1:30 PM EDT
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This commentary originally appeared at 11:00 a.m. EDT on May 21 on Real Money Pro -- for access to all of legendary hedge fund manager Doug Kass's strategies and commentaries, click here.

"Clear the lines of lint in your head, one at a time, and the king will be left standing alone, like a guy on a street corner. Here, I'll make it easier for you."

-- Bruce Pandolfini (Ben Kingsley), Searching for Bobby Fischer

There are plenty of strategies to game Mr. Market and to deliver grandmaster investment returns.

Some on Real Money Pro, such as Tim "Not Judy or Phil" Collins often favor setup trading into earnings calls. Others, such as Rev Shark and "Beam Me Up" Scotty Redler, prefer to use a stock's price trend as their friend, sticking with uptrends and avoiding downtrends.

Some, including my friend/buddy/pal "Fast Money's" Steve Cortes depend on (historical) mean reversion in prices. Others, such as The Divine Ms. M., utilize sentiment, levels and common sense.

Other contributors, favoring fundamentals, look for short-term earnings beats and surprises and intermediate- to long-term consistency in upside profit beats. Still some others, most notably Jim "El Capitan" Cramer, effectively combine both price/technicals and fundamentals.

My investment ideas tend to be tilled from the fundamental fields.

Most large hedge fund investors I know that are very successful (e.g. SAC, Omega Advisors, Greenlight Capital) employ a longer-term fundamental strategy of constructing a portfolio of stocks that have strong franchises, a solid business profit model and consistently execute. Their time frames are lengthy; they often hold positions for years. Some, such as Warren Buffett hold "forever."

So, whether you are a trader or investor, there are clearly many ways (tactically and stylistically) to beat Mr. Market.

Yesterday's $1.1 billion Tumblr acquisition by Yahoo! (YHOO) got me back to thinking about my search for home run stocks. After all, Tumblr founder David Karp's alchemy was a virtual grand slam for him and his early investors.

MLB Hall of Famer Hank Aaron only achieved a home run in every 16.4 at bats. Investors can't possibly come close to Aaron's ratio of success! Nevertheless, finding an investment home run can be a portfolio- and life-changing experience -- if you have the foresight and gumption to weight the investment heavily in your portfolio.

In their incipient stages, investment home runs are not household names, usually not covered by Wall Street analysts, they often are illiquid securities that trade by appointment (and usually never on the NYSE) and typically have no profits/sales or balance sheet to speak of.

In other words, home runs are risky, and they require imagination -- and the shares are often hard to accumulate.

Empirically, most investment home runs require foresight (a long view) and are typically found in the technology arena, where disruptive innovation changes an industry's landscape. But I have, over the past three years, found two on the pages of my diary, both in real estate.

I had the good fortune of discovering Ocwen Financial (OCN) spinoff Altisource Portfolio Solutions (ASPS) in late 2009, at which time I referred to it as my stock of the decade. Altisource Portfolio Solutions was distributed at about $15 a share less than four years ago and now trades for over $130 a share -- adjusted for its two spinouts, Altisource Asset Management (AAMC) and Altisource Residential (RESI).

In late 2012, I identified another potential investment home run (again in real estate) and christened Altisource Asset Management my single best stock idea for 2013 in my surprise list. As most know by now, Altisource Asset Management was spun out of Altisource Portfolio Solutions nine months ago at about $20 a share -- so it was all in the (Bill Erbey) family -- Altisource Asset Management now trades at $300 a share! (It started 2013 at approximately $75-$80 a share.)

Over the past year, I have been searching for my next home run investments. It is hard work and frustrating. I would say 99% of the time it is an unsuccessful, but it does sometimes result in finding some great-performing, albeit not home run, investments.

It is my view that Monitise (MONI.L) might be my next investment home run.

Monitise trades on the London Stock Exchange, where aout 13 million shares trade daily. Visa (V)/Visa Europe owns nearly 20% of the outstanding shares. The company is currently operating at a loss, which will likely continue over the 2013-2014 period.

Over the next few weeks, I will elaborate more expansively on this investment idea, including a discussion of what appears to be the company's competitive advantages in this crowded sector that is revolutionizing payments and cash flow management of smaller businesses.

Monitise has a global reach with many irons in the fire, and I'll be looking for any updates on how recent launches in India and Indonesia are going. The recent mPOS (mobile point-of-sale) launch seems to position Monitise as an undiscovered competitor to Square, and I'm hoping to hear of customer traction that would validate another leg of the story.

In summary, Monitise is a disruptive innovator (working with the financial institutions) in the massive ($1 trillion-plus) and rapidly changing mobile payments and solutions industry.

Monitise has recently announced a new white-labeled mobile payment service intended to assist banks, mobile operators and acquirers to offer their business customers the ability to accept payments on mobile devices and to manage their sales on the move from one secure location. The company's product is secure and real-time and seamlessly accepts payments and works with all major smartphones and tablets.

I want to start giving subscribers exposure to this name by first familiarizing you all with the company's core product. Please watch this video to learn about Monitise's product opportunity

While mobile is changing the payments market, mPOS is a fast-growing area within the payments ecosystem and financial institutions are ideally placed to capitalise on it. In order to do this they must build upon existing revenues and relationships and offer a competitive proposition to merchants, which can be scaled easily to meet future business and consumer needs....

Monitise mPOS is a complete solution that stretches beyond basic card acceptance, which is, whilst a vital part of an mPOS offering, only one piece of the puzzle. Monitise mPOS is a gateway to a fundamental shift in how merchants can service their customers. Our road map for merchants goes so far beyond just mPOS, incorporating value-added features to address different business needs such as proximity payments, geo-location services, mobile quotes and invoicing, offers and loyalty, till and stock management, person-to-person payments and more.

-- Monitise Chief Commercial Officer Lee Cameron's comments made on the new product launch

I look forward to presenting my analysis in the weeks ahead.

Bottom line: If the company executes and emerges as a key player in the mobile payment systems, the shares could advance several-fold or more over the next few years.



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