This is a teaser that many of you have already figured it out, but I’m still seeing it in heavy rotation so I thought I’d share … it’s from an ad for Karim Rahemtulla’s Xcelerated Profits Report, I don’t think we’ve looked at his stuff since their fabulous ad for “Dark Equities” a few months back.

Two main reasons he says to buy this one: The head of the company is continuing to pour money in, and they just became profitable. He adds some business-related and fundamental reasons, too, but the core argument is that these indicators (big insider buy, turn to profitability) are nearly infallible.

“But “pitiful-to-profitable” just about always means BIG money.”

“You already know about the huge insider buying… the massive recent Wall Street interest…

“And you know the CEO of this small company has a track record that includes running his last company from $5 to $170.

“No wonder this legend probably didn’t have a difficult time recruiting some powerful friends to sit on his company’s board of directors.

“And you’re right.

“Because, among the elite Americans who sit on this small company’s board are a former Director of the Central Intelligence Agency – the man who sat at the right hand of presidents – the former Deputy Secretary of Homeland Security and the former Secretary of the Transportation Security Administration. “

Fundamentally, this company is about security — identification, border control technology, and stuff like that. The letter puts a lot of stock in the fact that they’re doing business with Turkey:

“of all the systems in the world, Turkey just called for this small company’s breakthrough equipment that’s designed for rugged field use.

Plans are to put the system in place across the border, to thwart illegal immigration and criminal movement into, and through, this gateway country.

If it works in the busiest trade and escape gateway in the world, chances are very good it’ll work even better in the wide-open, highly visible U.S. borders.”

There’s also a little snippet about the deals they have with various government agencies in the U.S.:

“On top of all that, this little company you’ve probably never heard of now supplies 70% of the instant “livescan” fingerprint identification equipment police and security agencies, including the U.S. Department of Homeland Security, are using at our borders and checkpoints.”

Other deals they note are with the State Department and others for security, identification, and surveillance equipment — the most specific clue is for this deal with the Defense Department:

“It has delivered the first fully-integrated multi-modal, Automated Biometric Identification System (ABIS) for the Department of Defense (via Northrop Grumman team). It is expected to support up to 2.4 million finger, face, palm and iris records, and a lesser number of unsolved latent prints.”

We last saw this company teased by Steve Lord at Trend Investor, back when he was calling this the “Rockefeller Crucible” almost exactly a year ago. And in case you weren’t on board with the mighty Gumshoe way back when, you can read that Rockefeller Crucible article here (he was hawking his special report: The Age of Terror: How One Company Is Changing the Face of Homeland Defense) …

Or you can just read the next paragraph to find out that this company is …

L-1 Identity Solutions (ID)

This is an interesting company — a roll-up of several different identification and security firms, done by an old expert in the government-contracting roll-up. The big components were Viisage and Identix, companies you might have heard of in past years as “hot” plays on terrorism fears. The company became L-1 in the Summer of 2006, and since then has generally traded in the mid-teens — it spiked higher last summer to over $20, but has since been much weaker, with a dip down to about $11 just last month. It’s at $13 and change today.

And it’s true that they do now have earnings for the past year — the trailing PE is in the 50s, so they’re not cheap but are finally profitable. Analysts see some earnings growth, and have the forward PE pegged at about 37. Still, far from being cheap.

The “L” here is Robert LaPenta, one of the L’s behind L-3 Communications (the most prominent one was the late Frank Lanza, I don’t remember the name of the third L), a much larger defense contractor that has been a very fast grower over the last decade since it went public.

Part of the teaser is that LaPenta is a brilliant horse trader … literally, he’s a big time player on the thoroughbred racing scene, which I guess is as good a way as any to blow your millions (to be fair, he’s been very successful). He is an active buyer and seller of young horses, and he has a lot of horses in Nick Zito’s stable and many runners at the Belmont and Breeders Cup races, though no big winners, I don’t think. I also don’t think it’s particularly relevant to his likelihood of success with L-1.

LaPenta did buy about 100,000 shares last Summer at an average price of about $15, but most of his substantial holdings have been in his pocket for longer — he bought shares in February last year, too, but more than half of his position goes back to the merger. The tease says he bought about $4.5 million in shares at about $15 a share in the past year, and that’s an accurate assessment of his 2007 purchases (last year, not last 12 months). He notes that it traded at $11 on 3/17, which is the all-time low.

So … is L-1 worth buying? It all depends on how you think their growth will be — you certainly wouldn’t buy them at this valuation if they weren’t going to do a LOT of growing in the next few years. Analysts are generally quite tepid on the company (maybe that’s a contrarian indicator for you to buy, maybe not), with an average “hold” recommendation and a target of $15-17 or so. L-1 and L-3 both tracked more or less similarly as defense and security-related companies for the first year of L-1’s life, but since then — since last Summer — L-3, which is much broader with focus on communications consulting, aerospace, and surveillance for security and defense markets, has been pantsing L-1.

Is the next wave of big spending going to be on biometric security, national or smart ID cards, or an expansion of fingerprinting? If so, then you might be happy with L-1 since they have leadership positions in many relevant businesses. They do sound appealling in some respects — the fact that they’re just coming into profitability means you’ll see some ridiculous numbers associated with them, like 1,200% earnings growth in the past quarter, and they do report a book value that’s a bit over the current share price (don’t know how they figure the book value, I assume much of it is not tangible or easily liquidated, given the big merger).

On the other side, as of last month there’s a big short ratio — which can be good if it causes a short squeeze, but it’s also an indicator that lots of smart people are betting against this company at this price. And I’m sure they’ve researched it much more closely than I have. Some of those shorts may have come off in the past month, perhaps even at the $11 low if they were lucky, but the short ratio was over 20 so I’m sure there’s still a large number of shares sold short. (Short ratio is the number of days at typical volume to clear a short position — 20 days of trading would have been required to cover all the shorts at average volume, and volume has actually been below average lately).

Personally, I’m not terribly interested in this one — I would want to learn a lot more about how much proprietary technology they bring to the table, and how well they compete against other big players in similar businesses (many of the big defense contractors like Lockheed Martin, as well as other technology contractors for the government, are at least partly involved with identity and biometrics work, too). LaPenta certainly has lots of government connections, but in this business that doesn’t make him stand out all that much. The valuation doesn’t call to me at the moment, but it’s possible that I’m glossing over their growth potential.

So that begs the question for you, are three Ls better than one?