7 Stocks at Bargain Prices

Fingerprint matcher

Cogent Systems is one of a handful of suppliers of automated systems that capture and analyze fingerprints and other physiological identifiers. Its technology can sift through six million fingerprints per second and find matches with a high degree of accuracy. That has made it a top supplier to the U.S. Department of Homeland Security and a leading candidate to update the FBI's database of 60 million fingerprints.

The market for such identification systems is expected to more than double, to $7.4 billion, by 2012 as governments tighten border security and law-enforcement outfits modernize dated systems. Businesses, too, are expected to adopt the technology for pay-by-touch retail systems, for example.

The company, based in South Pasadena, Cal., currently depends heavily on two customers: the U.S. and Venezuelan governments, which provided 25% of revenues last year. In fact, virtually all of its business comes from governments. That means Cogent's profits are not especially sensitive to the ups and downs of the economy.

But government contracts come with their own set of issues. The bidding process can be long and drawn out, funding is often delayed, and contracts can be abruptly canceled. As a result, Cogent's earnings can be erratic.

Profits in the third quarter of 2007 missed analysts' expectations by nearly half, even though sales and profits rose for the full year. These issues have weighed down Cogent's stock, which has lost 46% of its value since last fall.

Investors who take a longer-term view, however, will see a company that could post annual earnings gains of 20% over the next five years as advanced fingerprint ID systems win wider acceptance. And as Cogent adds new customers, recurring-maintenance revenues, now about 20% of the total, will rise, smoothing out its earnings.

At $9, the stock ( COGT) trades for 21 times expected 2008 earnings. Cogent has more than $3 a share in cash and has used some of it to buy back more than 1 million shares in last year's fourth quarter and another 1.8 million shares in January. "This company has solid technology and a solid customer base," says Morningstar analyst Rick Hanna, who pegs the shares' value at $16.

Bargain bling dealer

With so many people struggling with mortgage foreclosures, rising unemployment and record-high fuel prices, investors seem to want nothing to do with an online jeweler that collects more than $1,000, on average, in each transaction. Shares of Blue Nile traded in mid April at $50, less than half their $106 peak last fall.

But while economic headwinds will hold profits in check this year, they won't blow the Seattle-based retailer's low-cost business model off course. Through exclusive arrangements with its suppliers, Blue Nile ( NILE) offers a selection of more than 50,000 diamonds, although it holds virtually none in inventory. Customers pay for their orders and receive them in the mail long before Blue Nile has to pay its suppliers (45 to 60 days later). It can earn a return on the cash in the interim.

In addition, Blue Nile has no stores, only fulfillment centers in Seattle and Dublin, Ireland, and no commissioned salespeople. Scott Dewitt, an analyst for brokerage Stifel Nicolaus, estimates that Blue Nile's operating expenses are 11% of revenues, compared with nearly 50% for traditional jewelers.