Nostalgia and profit

Article Excerpt

RuggedCom may sound vaguely familiar to longtime readers. Nearly a decade ago, we recommended a stock called DY 4 Systems, with a remarkably similar story. DY 4 made computers for harsh industrial and military environments — much like RuggedCom. The difference is that DY 4 focused on individual computers. RuggedCom has moved on to networking and the Internet. Like RuggedCom, DY 4 had annual revenue in the $60 million area, and was spending 11.8% of revenue on research. DY 4 seemed a dull selection to some in that Internet-crazed era, but it still moved up irregularly for us and was subsequently taken over for a 112.5% gain. It will cost you money if you choose investments simply because they remind you of earlier successes. But RuggedCom and DY 4 share qualities that add up to an attractive investment. These include a history of growth, sound finances, leadership in a small but growing niche, high research spending (which depresses current earnings but improves long-term prospects)…