Dow Jones 10882.15 +2.00 1:10 pm PST, January 5, 2006  NASDAQ 2276.87 +13.41 For info, visit access.smallcapnetwork.com S & P 500 1273.48 +0.02 Change your subscription status here Russell 2000 692.15 +2.90 VOLUME 06: ISSUE 2  Feature: Informatica - In Play Or Played Out? Data integrator Informatica (NASDAQ: INFA) shares are trading at $13, Thursday, up 75 percent from our November 2004 Alert at $7.48. IS there more to come? Maybe. Let's chat about it and then put up some strategies depending on your risk tolerance. INFA provides enterprise-wide data integration software to simplify disparate information sources into one platform and is one of the last and probably best of its ilk in the burgeoning sector. The ultimate fate of the company as a takeover target has been the subject of varying degrees of speculation over the last few months. With similar company Micromuse (NASDAQ: MUSE) recently being bought for $10 cash a share by the acquisitive IBM (NYSE: IBM)--it has already scooped 11 smaller software companies over the last year, 40 over the last five-- the potential for perhaps IBM or another to mount an INFA takeout may be on the radar again, if investors use the recent robust trading as a guide. Since we brought INFA to the readership both here in the newsletter and on the SCBLOG we have acknowledged the takeout potential for the company but have always said investors should buy it mainly for its technical and fundamental prowess. If it gets taken out, that's merely a bonus. Of course, we have no knowledge as to if, as, when or by whom it may get snapped up. That said, it would be good to look at some strategies to lock in profits or take advantage of a further run--whether a take out or merely continued organic growth. First, the chart stuff: Here's the conundrum. The chart shows that the shares at $13 are likely around 50 cents -$1 from a significant resistance point. With no takeout, there is some natural upside left, but if something happens courtesy of IBM or another player, a premium to market would likely drive the shares nicely higher.  If not, around $13.50-$14 looks a fair price at least short-term. Daily volumes have been increasing and we are currently bouncing around the 52-week high. FYI, during the bubble, the shares traded up to around $60 post split. If one looks at the Micromuse deal, the shares went out at $7.21 pre-deal and IBM paid $10--roughly a 40 percent bump. If INFA got snagged at say a minimum 30 percent premium--given that the share price is already up 60 percent over 2005--that would yield a price of roughly $17. INFA is a much larger company--about twice the size of MUSE pre-IBM deal. Also, it has a higher market profile and has been named for two years in a row as the number one vendor of data integration solutions by the readers of the trade magazine DM Review. So INFA is anything but an also-ran. The company has been frequently profiled as the best in the sector. Why hasn't it been taken out yet? Beats me. As well, like Muse, INFA has nicely growing revenues, gobs o' cash--$256 million -- and no debt. What to do now? Depends. If you can't stand the heat or the temptation, and you got into INFA way lower, sell some. No one has ever gone broke selling at a profit. If you own the stock lower and want to hang on, a stop loss at the price of your choice would be prudent to protect a decent percentage of your profits in the event of a pullback.  Or, you could sell the shares and using a portion of your profits buy a call option to replace the shares and maintain equivalent share exposure. The March 2006 options are here: http://finance.yahoo.com/q/op?s=INFA&m=2006-03. As always, scroll across the top for the expiry date of choice.  If you want to really play guts ball and buy the shares here, a stop loss below the purchase price would be prudent--the level is really your call depending on your pain/loss threshold. Say $12-ish? Or buy a put to protect the downside. The call options seem a better deal for those aggressive investors who want to play a potential takeout, but remember, call purchases are to be made with risk capital that you can afford to lose. A purchase of the March 2006 12.50 calls at $1.40 a contract means that the shares need to exceed $13.90 by March 17th 2006 to get into a profit situation. For those savvy option traders, there are likely a myriad of straddles, spreads etc that might be neat. There aren't that many options available as the shares have been range bound for the last year, so proceed with caution. If you own the shares at lower prices, do something. If this were one of SmallCap's standard Trading Alert companies, we would likely be hitting the sell button--at least on a portion--based merely on return. My gut tells me that there may more to this story and IF the shares do get taken out, it will be way cool and at a good price.  No guarantees. Play it smart and limit your risk, especially if you own the shares lower down. Should the speculation cool, the downdraft could be annoying. The company reports Q4 results on the 26th.  As well, since December 13th three Wall Street analysts have initiated coverage of Informatica with a buy rating--one actually announced coverage this morning.  Better late than never, I guess.     We Value Your Feedback Got comments, questions or suggestions? 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