VirnetX Shares Slumped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of patent pursuer VirnetX (NYSE: VHC  ) once again fell more than 10% in early trading when fears over continued economic weakness in Europe led to a marketwide sell-off. The stock has since recovered to being down about 7%.

So what: A full recovery could prove inevitable. VirnetX is an asset play with its principal asset being a portfolio of 48 U.S. and international patents. Last year, the company received $200 million from Microsoft (Nasdaq: MSFT  ) for licenses to four its patents. Applying this same valuation across the entire portfolio would result in $2.4 billion in revenue. VirnetX commands $1.07 billion in market value as of this writing.

Now what: Patent fishing isn't exactly a reliable means for generating income, or returns, but what VirnetX proposes is interesting. The company says in SEC filings that its patents for creating communications links between secure domain names -- i.e., URLs that tend to start with "https" rather than the historically typical "http" -- could fetch big settlements with those betting on cloud computing or real-time communications over 4G networks. Recent lawsuits have targeted Apple (Nasdaq: AAPL  ) , Cisco (Nasdaq: CSCO  ) , Mitel (Nasdaq: MITL  ) , and NEC, among others. It's a speculative gamble but one that could pay off big over time.

Interested in more info on VirnetX? Add it to your watchlist.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Apple and Microsoft. The Fool has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Microsoft, Cisco Systems, and Apple. Motley Fool newsletter services have recommended creating a diagonal call position in Microsoft and a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy is at least 10% better than other disclosure policies.


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