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Recession Multiplies Small Cap Allure

Recession Multiplies Small Cap Allure

Despite Putrid Economy, Investors Increasingly Rolling the Dice on Speculative Small- Cap Stocks

“Economic hardships prompt people to justify small-stakes gambles even as they cut back on nonessential goods and services.”

Did you know that lottery sales continue to rise in nearly 1/2 of all U.S. states despite a putrid economic environment? Mounting financial fears are driving American consumers to roll the dice on $1 to $5 daily drawings and scratch tickets in hopes of striking it rich.

In today’s edition, let’s look at how this relates to the world of small-cap stocks and also take a look at a company poised to benefit from increased investor focus on speculative stocks.

It’s All About The Payday!

With the markets in complete and utter disarray, many large-cap stocks are now light years away from trading on their fundamentals.

This is creating a very interesting dynamic similar to that of the lottery where many investors would rather spin the wheel on low-priced speculative securities than the more secure, higher-priced stocks of established companies.

It’s all about the big payday and the relatively small amount of capital needed to play.

While S&P stocks like Boeing (NYSE: BA) could net you annual profits of 10% on good year, a $10,000 investment at the beginning of 2008 would have left you with roughly half of your money by the beginning of 2009. In January of ’08, $1,000 would have bought you less than 12 shares of BA stock.

On the other hand, that same $10,000 investment into the right small/micro-cap at the right time could have become $20k, $30k, $50k even $100,000 in the same period of time. The odds of a $10 stock going to $100 are quite slim, but the odds of a 1o cent stock hitting a dollar is not out of the question. The risk-reward ratio is very sexy.

LBAS Issues Big App Software News

Location Based Technologies Inc. (OTCBB: LBAS) shares gained more than 4% Friday on news that in response to a warm reception on behalf of Apple (NASDAQ: AAPL) iPhone users, the company’s personal location software is now available on all smart-phones utilizing the PocketFinder Windows 6.0 operating system.

Things cooled off a bit on Tuesday, as the stock gave back 2%, although news of the software’s availability on BlackBerry smartphones is quite promising given the massive popularity of the devices.

Smart Product/Smart Planning

As I’ve mentioned in previous editions,the company’s product/service offering helps families stay connected in today’s fast-paced, mobile society.

PocketFinder is the world’s smallest known single-board GSM/GPS device and LBAS is ingeniously building brand recognition by making its application software available for a fee to the billions of smart-phone users around the world.

Things are starting to look up for LBAS. The PocketFinder device was recently awarded the distinction of “Gear of The Year” by PC World Magazine; a highly esteemed award received by a select few products each year. Furthermore, the company’s app software has been a smashing success thus far and was been downloaded more than 10,000 times during its first 2 months of availability and continues to become available on an increasing number of smart-phone models and mobile operating systems.

Somebody Did Their Homework!

According to the company, a great deal of research precluded the initial development of the PocketFinder hardware offering. While many competitors, some of them immensely successful, employ the strategy of repackaging existing technology and find applications for it, LBAS claims to have built their offering from the ground up to meet the specific requirement of their target market. This market is comprised of:

Children & Teens – Their are more than 80 million (U.S. and EU) in the company’s sweet spot. The target market ranges from 5 year olds going off to school for the first time with parents that yearn for the piece of mind associated with knowing that they are safe at all times to teenage drivers with parents that can now monitor them even when the cell phone is turned off and even track the speed at which they are driving.

Dependent Senior Citizens – 12 to 15 million in Europe and the U.S. that are dependent on their adult children in some capacity. I recently read a story about an 85 year old women in the Northeast that froze to death in her own driveway after slipping and falling on a frigid evening. With the PocketFinder, adult children sleep a bit easier at night and “keep an eye” on their folks, even if they live too far away to check up in person frequently.

Pets – Nearly 70 million pets (U.S. and Europe) that the company’s PetFinder, a variation of the PocketFinder can be used to locate in real-time. Another cool capability of the product is that the user can manually set “safety zones” for their pet to stay within and receive alerts via cell phone, email, or telephone when they travel outside of the boundaries. It won’t prevent your dog from getting out of the yard, but will let you know when he does.

Valuable Assets/Luggage – There is a virtually limitless number of inadamite objects that could be tracked with the PocketFinder. Luggage is the first thing that comes to mind with me. While airlines appear to be improving a bit, approximately 5% of travelers have their luggage lost or misplaced. Conveniently enough – for the airlines that is – airlines limit their liability for any stowed away luggage to a few hundred dollars.

So, for the avid golfer or snowboarder for whom losing their equipment spells the end of vacation, or even worse a bride to be on the way to her wedding, a $130 device that provides a real-time location of their high value assets is a no-brainer.

In Closing:

The profit potential of the application software business really intrigues me and should not be overlooked by investors analyzing LBAS.

Once the software is designed and modified for a specific platform, it’s money in the bank. And, at $10 a pop and with 30 to 40 million smartphones hitting market each quarter, there’s an enormous amount of opportunity out there for good apps.