Up Close and Personal with DivX

Volume 4, Issue 7 February 13, 2008 In This Issue...   Up Close and Personal with DivX Investing 101: Find the Diamond in the Rough Discover the 'Moat' Company that Saves Babies Up Close and Personal with DivX by Growth Report research staff John Bright, an Avondale Partners analyst was recently interviewed in the January issue of Growth Report, commenting on a previously featured investment idea, DIVX. (Nasdaq: DIVX). What strategies do you think DivX can implement to bolster near-term and long-term growth? "Near-term growth: increase licensing of their codec or increase adoption among different consumer electronics devices. Examples would be wireless handsets, digital cameras, set-top boxes and other multimedia devices. "Long-term strategy: leverage their headstart positions with their DivX codec to participate in the video on demand market when it materializes. By video on demand, I mean downloading videos from the Internet — I don't mean your older movies, I mean newer movies. "The last strategy will be the disposition of Stage6.com." Given DivX's newly formed strategic relationship with Qualcomm, do you eventually expect them to shift away from the DVD space and more into the mobile phone and devices space? "No. I anticipate that the relationship with Qualcomm will be additive to their existing DVD market leadership. So to the degree that DVD sales decrease or stay flat, layering on top of that additional handset model design wins, will be positive for DivX." What are your expectations for revenue and net income growth? "I see revenue growth in 2008 of approximately 25% to 30% and operating income mirroring that revenue growth." Which segment of DivX's business do you see as the major driver of revenue in 2008? "In the near term, the licensing business will be the primary driver of growth in 2008. "Long term, licensing their consumer electronic licensing business as well as their potential longer-term strategic relationship with/or video on demand will be growth drivers." What are some potential barriers to continued growth? "Adoption by Sony of the DivX codec in the domestic U.S. and adoption of additional wireless handsets of the codec globally. Today they have the LG Viewty, which will replace the Chocolate phone. They will look to leverage their Qualcomm relationship for additional handset models. So to the degree that adoption by the consumer doesn't take place, that could be a barrier to their future success." DivX was one of two small cap stock picks from a recent issue of Growth Report. Growth Report is a leading investment advisory focused on uncovering small-cap stocks with substantial growth potential. Growth Report aims to find small-cap companies before they are picked up by Wall Street's radar. To learn more about Growth Report, click here. Investing 101: Find the Diamond in the Rough by Growth Report research staff How does an investor find potential stocks that could turn out to be big winners? There are over 9,000 stocks trading on U.S. exchanges, making the screening and selection process an extensive and difficult chore for the average investor. In a perfect world, it would be nice to have a time machine, turn the dial to 1998 near the start of the technological boom in the stock markets, buy eBay at the IPO and watch the stock achieve a compound annual growth rate of nearly 60%. Unfortunately, the investment world is not perfect but it does offer excellent opportunities to make money for the astute investor armed with the knowledge and work ethic to find great stocks that will make great returns. While luck does play a large part, over time work ethic should prove to have more of an impact. Due diligence is imperative to uncovering the winners. During the research portion, mid to large cap stocks tend to be easier to find because of their more extensive coverage on Wall Street and the fact that these companies tend to be more established. But mid and large cap companies aren't going to be the ones to deliver the impressive returns that people brag about. This is why the small cap arena is so appealing and likely, why you're reading this piece as a Growth Report subscriber. But how do you know if the stock that you're looking at is a winning growth stock? Over time, we've come to realize that all winners share certain qualities: •  High expected revenue and net income growth building on impressive past performance - successive periods of revenue and net income growth. • Valuation indicates a stock is clearly undervalued relative to its peers on a number on metrics, often unique to the industry. • Companies operating in surging markets or with the benefit of a broad market driver are often propelled forward to superior returns. • Wall Street - funds, analysts, investment banks – with its immense sway and buying power firmly behind a stock can lead to outsized returns. • Innovation, efficiency, and a sustainable competitive advantage are often what separate the haves from the have-nots in today's global marketplace. If the company you're looking at has the aforementioned qualities, you may be sitting on a winner. It is important to remember that what we noted above is a starting point – from here you should do further due diligence. Get to know the firm by reading through its financial and press releases. Research the markets it operates in. Get a firm understanding of how the firm fits into the marketplace and how it's positioned against its competitors. While this may seem like quite a bit of work, ask yourself this, "How can I best profit?" The answer is by uncovering the few firms that will deliver outsized returns as opposed to several that will deliver average returns. You just enjoyed an Investing 101 feature article from a recent issue of Growth Report, a leading investment advisory service. Each month, Investing 101 brings Growth Report subscribers the knowledge they need to master today's challenging market. To learn more about Growth Report's valuable benefits, click here. Special Stock Research Report: Top 5 Small Cap Stocks for 2008 Fellow Investor,  Did you know that approximately three out of every 1,000 newborn babies are    under grave danger of permanent brain injury? This risk is due to an interruption of blood flow and oxygen supply during labor and delivery. Until recently, there was no easy way to treat this terrifying condition, known as hypoxic ischemic encephalopathy, or "HIE" for short. But I found a company that not only discovered a specialized technique to treat the condition; it also owns the only FDA-approved solution to HIE. I dream of finding companies with a "lock" on some sort of proprietary technique or device. That situation keeps competitors at bay for years, if not decades. In investment terms this is called the "moat": it allows a company to profit on proprietary technology while potential competitors are kept at bay. This tiny company is in that situation right now with its FDA-approved HIE controller. Thousands of parents and grandparents are deeply grateful to this company for saving and caring for their precious newborn babies. And I think investors in this company - if they take a healthy position in it right now - will also be very grateful in the next few months. I initiated coverage on this company and issued a 'buy' notice when it was trading at $15.93. I'm calling for it to reach $20.00 in the next several months, representing a quick +25% profit for early buyers. You can get your hands on the name of this company and comprehensive analysis on four more just like it in my recently-released stock research report, Top 5 Small Cap Stocks for 2008. This report was just recently released to my Growth Report readers as a subscribers-only special bonus report. It can be yours today when you accept my invitation for a complimentary 30 day "test-drive" membership to Growth Report. You'll enjoy 30 days to see just how Growth Report can help take a so-so portfolio and turn it into a profit making machine. There's no requirement to continue past your 30 days. Click here to activate your 30-day "test-drive" membership. Best regards,   Ian Wyatt Publisher Big Idea Investor P.S. Many experts are calling for 2008 to be a rough ride for individual investors. Why not smooth out your ride and get started on profits with my new report, Top 5 Small Cap Stocks for 2008? Click here to get your copy of the report.   The One Stock to Add to Your Portfolio Today  Getting in on great stocks ahead of Wall Street has consistently been the best way to enjoy market beating returns. And finding them in a down market has become tougher. But Ian Wyatt of Growth Report has just found one such stock in the medical device sector. One of this company's primary products saves newborns and children from a rare condition that can cause permanent brain injury. As this company holds the patents on the technology it has a "moat" to keep competitors at bay. It's enjoyed stellar run-up since initial coverage (despite the broader markets) and is poised for double-digit growth this year. You can't afford to miss out on this one.   Get comprehensive research and in-depth analysis on this company and 4 more just like it in his new report, Top 5 Small Cap Stocks for 2008. Click here for your free report.

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