This article is part of our Rising Stars Portfolio series.

Shares of Blue Coat Systems (Nasdaq: BCSI) look cheap, and I've got my eye on them. I suspect the company's upcoming earnings release will be lackluster, but if a few things fall into line, I'd still likely purchase shares for the Un Portfolio. Here's my game plan for Blue Coat.

The backstory
Blue Coat competes in two business lines: web security and network optimization. In simple terms, it takes a business's network, protects it from threats, and improves traffic flow to make it faster.

In its niche of the security business, Blue Coat dominates the large enterprise market with more than 80% market share. In the optimization space, the company has improved the technical capabilities of its products, raking in rave reviews from industry watchdogs. Even so, company sales have been stuck in the mud since 2009, prompting the hiring of a new CEO and chief product officer in August 2010 to get growth back on track.

What I'm watching for
When Blue Coat released its fiscal 2011 results in May, it didn't leave investors feeling confident about its turnaround. But another uninspiring quarter numerically could send shares into bargain-basement territory. Rather than focusing strictly on the numbers, here's what I'll be looking at when first-quarter results come out:

  1. Sales force and distribution ramp up. To resume growth, Blue Coat must fix its sales and marketing. Even though it dominates the secure web gateway market among large enterprises, it lacks Websense's (Nasdaq: WBSN) presence with smaller businesses. While Blue Coat's product is competitive, it hasn't done a good job closing sales with smaller businesses; Websense has protected its turf well. I'll be looking for word on the company's efforts to train its distributors and sales force.
  2. Customer acceptance. Even though Blue Coat's optimization products have received great reviews, that really only matters if customers buy them. Right now, the company considerably trails market leader Riverbed Technology (Nasdaq: RVBD). Riverbed recently announced a quarterly product sales increase of 38%. I want Blue Coat to show signs of keeping pace.
  3. Continued cash buildup. Blue Coat has $298 million in net cash (that's nearly a third of its market cap) and it generated more than $100 million in free cash flow last year. The company has continued to control expenses, invest in research and development, and generate impressive cash flow. These characteristics may make Blue Coat an attractive takeover candidate for larger, well-heeled competitors looking to bolster their presence in Blue Coat's two growing end markets. Both Cisco Systems (Nasdaq: CSCO) and Juniper Networks (NYSE: JNPR) have an acquisitive history and ample cash to make an offer. Aside from a buyout offer, continued cash generation will ensure that Blue Coat has the financial flexibility to continue to fund its turnaround.

The Foolish bottom line
Riverbed shares dropped 23% after it announced its impressive results last week -- all thanks to sales that landed a mere 1.4% below what analysts were expecting. Instead of getting caught up in something so silly, I'll be watching the more general business developments at Blue Coat. These achievements will fuel its turnaround for the coming years, and support its share price in the near term. If its shares tumble, but I'm satisfied with its progress relative to the factors listed above, I'll likely buy shares for the Un Portfolio.

This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money free stock picks. See all of our Rising Star analysts (and their portfolios).