Location Based Technologies Inc. (OTC-BB: LBAS) is one micro-cap company that may be worth watching. The manufacturer of personal GPS tracking gear and software’s industry is expected to grow at an annual compounded rate of 104% through 2012, according to a research report by RNCOS. This equates to substantial increases in sales over the next few years along with a higher valuation for companies like Location Based Technologies.

Revenues are expected to jump from $63 million in 2009 to $1.1 billion in 2013 as the market for personal GPS locators is embraced by concerned parents, cautious pet owners, and prudent employers. Meanwhile, earnings before interest in taxes could increase from $1 million in 2009 to $198 million in 2013. Assuming a discount rate of 5% and a 0% terminal growth rate, this means the cash flow in today’s dollars would be about $648.5 million, or $7.30 per share.

The $7.30 valuation represents a steep discount to the current $1.01 share price if the assumptions prove to be correct. Most investors will likely wait until the firm receives some necessary approvals and begins making sales in order to take a position. However, those investors willing to take the additional risk and purchase the stock ahead of time could benefit from a sharp increase in share price over the next few years.

Location Based Technologies expects to begin selling its products in the first quarter of 2009. The Oreo-sized GPS devices can be placed almost anywhere and tracked via phone or internet. A strong network of distributors and tight cost controls should help drive value in this company over the next five years. Meanwhile, a strong patent portfolio continues to build value in its technology. For an in-depth research report on this company, including financial projections, click here.

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Western Asset Variable Rate Strategic Fund (NYSE: GFY) shares may see a dramatic rise in value if an activist hedge fund gets its way. Karpus Management, which owns a 9.37% stake, inteds to present a proposal aimed at eliminating the investment management agreement between the fund and Legg Masion Partners Fund Advisor.

The reason was stated in the supporting statement:

In 2005, our Fund's investment manager asked for and received approval of a new management agreement and new sub-advisory agreement in conjunction with the transfer of Citigroup's asset management business. At that point in time, shareholders trusted the Fund and allowed for the transfer of management of a fund just over 1 year old.

Since the announcement of the approval of the new agreements (12/19/2005-07/31/2008) the Fund has traded at an average daily discount to net asset value of -11.01%. The discount on GFY has consistently been among the widest of all taxable closed-end bond funds. Indeed, the discount for comparable closed-end taxable bond funds for this time period was only -5.0%, placing our Fund's discount significantly wider than the average during this time period.

The market tends to place a fair price on an asset-in this case a share of a closed-end fund. Perhaps the explanation for why GFY has traded at such a persistently wide discount is that its NAV performance has been disappointing for a long period of time. From its inception (10/27/2004) through 7/31/2008, the NAV total return on our fund was 6.81%, which places the fund squarely in the bottom quartile as compared to other taxable closed end bond funds for this time period. (as categorized by Thomas J. Herzfeld Advisors Inc). Based on market price, an investor who purchased GFY at the IPO would have experienced a loss of 6.71% through July 31, 2008. Furthermore, the fund has significantly underperformed its benchmarks as stated in its 3/31 filing. Since its inception, the Merrill Lynch Constant Maturity 3-Month LIBOR Index ("ML Benchmark") and the Lehman Brothers US Aggregate Index ("Lehman Benchmark") have returned 17.46% and 15.9%, respectively, through July 31, 2008. It seems clear that the poor performance of the Fund is directly responsible for the persistently wide discount.

In addition to historically poor performance, on a year-to-date basis, the Fund's recent net asset value and price performance have been especially poor. Specifically, GFY's total net asset value return was -7.99% through July 31, whereas the stated ML and Lehman benchmarks returned 2.25% and 1.04%, respectively. This most recent poor performance appears highly attributable to the Fund's holdings in mortgage related securities and provides further indications to us that the Fund's investment manager and sub-adviser must be terminated.

As closed-end fund shareholders, poor NAV performance combined with a wide discount to net asset value is the most harmful combination possible. To address these issues, we believe that a change to a new investment advisor and new sub-advisor is needed.

Meanwhile, a fellow shareholder made a similar recommendation to convert the fund to an open-ended fund or liquidate it. This would force the assets that are now undervalued to come to value. Meanwhile, if Legg Mason were fired, then the fund's expenses could be greatly reduced.

Here's the other investor's letter submitted to the board:

We recently received Western Asset Variable Rate Strategic Fund's ("GFY" or the "Fund") proxy statement via UPS Next Day Air. According to the UPS website, it cost roughly $21 to mail each such package. To just our firm, the Fund sent five packages totaling approximately $105. Because we do not know how many Next Day Air packages were sent to other fellow shareholders, we cannot accurately estimate how much money management has thus far wasted on mailings. Nevertheless, as shareholders, we strongly urge management to stop bleeding assets from the Fund through expensive and unnecessary steps to ensure its own objectives. It appears to us that Fund management is more concerned with retaining assets and entrenching current management than actually doing something about the poor performance of the Fund.

Before the Fund unnecessarily spends more shareholder money, it ought to also consider the sheer fact that three separate shareholders submitted proposals on their own accord. This should indicate to the Fund that something is wrong. Why is the Fund's response to these critical shareholder concerns to spend more money rather than confront and address the significant and perpetual net asset value underperformance of the Fund? If three separate shareholders have submitted proposals to ask the Fund to address performance concerns, how many other shareholders have the same concerns? Why is the Fund fighting these concerns rather than talking to all shareholders and telling them how they plan on addressing this critical issue? Moreover, why didn't they talk to shareholders prior to issuing their proxy statement, as is allowable under Rule 14a-12?

We are tired of management not doing something about the poor net asset value performance and the persistently wide discount of the Fund and now are appalled at the use of Fund (shareholder) money to dodge shareholder concerns. Should the Board continue to frivolously spend shareholder dollars to fight its owners, we intend to seek reimbursement from management. We believe that the Fund's recent actions only further indicate that a new independent manager and subadvisor are needed. The Fund management must stop spending money as if it were Dennis Kozlowski in Sardinia and do the right thing for shareholders. In our opinion, the Board is using GFY like a piggy bank in order to entrench the economic interests of Legg Mason Partners Fund Advisor, LLC and Western Asset Management Company.

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The Global Positioning System has grown in popularity among consumers, especially for navigational purposes. In fact, Garmin (NDAQ: GRMN) is a $3.4 billion public company with millions of subscribers. However, a new breed of devices is quickly revolutionizing the market – personal locators. These devices can help consumers track their children, pets and other objects worldwide using GPS systems.  So, how can investors get involved in this new trend?

Location Based Technology (OTC-BB: LBAS) a leading producer of these devices via its PocketFinder® line of products. The market for these products is expected to grow at a compounded annual growth rate of more than 104% through 2012, according to RNCOS. Meanwhile, the firm also produces software designed to take advantage of smartphone GPS systems. In fact, its iPhone application was downloaded more than 10,000 times within weeks of its release.

Location Based Technologies expects to begin selling its products in the first quarter of 2009. The Oreo-sized GPS devices can be placed almost anywhere and tracked via phone or internet. A strong network of distributors and tight cost controls should help drive value in this company over the next five years. Meanwhile, a strong patent portfolio continues to build value in its technology. For an in-depth research report on this company, including financial projections, click here.

Related Companies
Garmin Ltd. (GRMN)
KVH Industries, Inc. (KVHI)
Trimble Navigation Limited (TRMB)