ETC's share price has been knocked around over the last two...

ETC's share price has been knocked around over the last two trading days primary because of macro-economic events that have no bearing on ETC's business, but which have caused a sudden reversal in investors appetite for risk. This reappraisal of risk has put downward pressure on a wide basket of stocks, and ETC has simply been caught up in this downward momentum.

Ironically, the weaker macro-economic environment entails a weaker AUD, which will actually boost ETC's bottom line. Additionally, ETC's long term govt contracts are more or less immune from macro-economic variability.

If I had my choice of the perfect stock to buy and hold during periods of macro-economic uncertainty, it would be a company that is: (1) debt free, (2) has long term government contracts, (3) is growing strongly (has more large contracts in the pipeline), (4) is generating plenty of cash, and (5) is yet to be properly recognized by the wider market so is still trading on a tiny earnings multiple. ETC fits this bill.

ETC is still a relatively new and unknown stock, and uncertainty regarding its business and FY09 profit forecast remains. However, providing ETC hits its FY09 and future profit forecasts, and providing we get sufficient macro-economic stability, the market is eventually going to become comfortable with the ETC story, and re-rate the stock accordingly. In my experience, this re-rating often happens quite suddenly.

As of today, ETC is trading on a fully diluted FY09 earnings multiple of 3.7, and, according to the lodge partners forecast, a FY10 multiple of just 1.75. (The lodge partners forecasts must be taken seriously because Lodge are very close to ETC management, and these forecasts were, with the usual caveats, endorsed by ETC management during a recent fund manager presentation in Melbourne).

It might sound crazy to say this right now, but given ETC's incredibly low current earnings multiple, a return of 200-300% over the next 12 months is by no means out of the question.

I've been buying ETC since 22c and made another purchase today. In my view, ETC's upside potential far outweighs the risks.