Covisint: Small Company, Big Opportunity

 | May 13, 2015 | 5:00 PM EDT
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It's incredibly difficult to attain an edge in investing. With hundreds of thousands of investors out there, one has to assume most are working just as hard and are just as smart. While that might not always be the case, the reality is that markets are generally efficient.

Despite this, those who supply investors with information -- analysts, journalists, publications -- are obviously out to attract the largest possible audience and therefore maximize their profits. As a result, you have dozens of analysts covering names such as Apple (AAPL), Exxon Mobil (XOM), Coca-Cola (KO), and other behemoths because that is what is desired by pension funds, endowments, and mutual funds, which account for over 95% of investment capital in the market. But because that 95% is after the same thing, market-matching performance is almost a given.

Small, ignored, or unfollowed companies on Wall Street have little exposure, so the opportunities for above-average gains are very real. With some work and diligence, nice gains can be achieved investing in micro-cap stocks. While the standard caution that micro-caps can be riskier endeavors is a given, they need be no riskier than blue chips if a disciplined value approach is applied. Over the past year, shares of online travel site Travelzoo (TZOO) are up over 50%. Last month, Dover Saddlery (DOVR), an upscale provider of equestrian riding products, was presented with a 100% premium buyout offer.

Today, Covisint Corporation (COVS) is a $75 million company, with a share price of $1.97 compared with over $7 a year ago. The company's balance sheet is debt free and cash rich with $1.10 per share in cash. An abandoned spinoff with $65 million in recurring revenues, Covisint was actually started by the Big Three automakers to create a cloud platform for the automotive industry.

The company's technology is highly regarded and its customer base is loaded with blue chips such as Cisco (CSCO), General Motors (GM), and Ford (F). With its market cap below $100 million and a share price under $5, institutional funds that owned this stock at $10 when it was spun off now want nothing to do with the business.

Covisint is precisely the type of opportunity that needs to be exploited by investors today. Look at small packages for big returns.

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