Buy Nuance? Ask Siri

This column is being dictated directly into my computer. I'm spared the drudgery of typing thanks to a company called Nuance Communications (NUAN).

Nuance is well known for its Dragon software, which has become the dominant speech recognition program for consumers. Less well known is that Nuance powers Siri for Apple, the often frustrating but steadily improving voice-recognition program embedded in every iPhone.

Nuance holds more than 4,000 patents and patent applications; its software supports 50 languages and the company has more than 6,000 employees worldwide with sales representation in more than 70 countries.

I find that I'm using speech recognition more often, not only on the iPhone but also talking to the navigation system in my car and dictating to my computer as I am doing now.

There are more than 70 million cars and over 50 million portable navigation systems that are powered by Nuance technology.

Audi, BMW, Ford, and Mercedes, are only a few of the manufacturers that rely on Nuance for their voice recognition systems. Additionally, portable navigation manufacturers like Tom Tom and Mio use Nuance.

Another big segment for the company is in healthcare. Nuance provides customer service solutions as well as document control and security systems and compliance and forms processing vital to the healthcare industry, particularly with Obama care around the corner.

They also use speech recognition software to capture patient data when building the files that will ultimately aid in treatment going forward.

Another strong segment is in the legal profession. The company assists law firms and courts to manage and share information pursuant to case records, thereby improving client service and lowering administrative costs.

In the Telco segment, the company is a big part of the call center solutions that telecommunications companies use for themselves and also offer as a reseller to their corporate customers.

There is an increasingly popular new application, a voice to text service wherein voice-mails are converted to text and printed out in email and text form.

The company recently added a new product called Nuance Voice Ads that are built for mobile devices. Advertisers can have two-way conversations with their customers and increase engagement. If this new technology takes hold it could be a significant revenue driver for the company.

Financially, the company is in good shape. Revenue in 2012 grew by 21.7% to nearly $1.7 billion with net income of $207.1 million ($0.65 per share, fully diluted, figures in U.S. dollars). That compared to net income of $30.2 million ($0.12 per share) in fiscal 2011.

So the company is exhibiting strong growth and has lots of cash on the balance sheet, which will enable it to continually invest in research, development, and marketing.

One more reason I like this stock is that billionaire activist investor Carl Icahn does too. He recently disclosed a 9.27% passive stake in the company, giving him a holding of 29.3 million shares.

Mr. Icahn is a legendary investor and has been on a tear lately taking significant positions in Transocean, CVR Energy, Netflix, and a large stake in Herbalife, taking the long side against another well-known investor, Bill Ackman, who has famously taken the short side.

My money is on Mr. Icahn who has been spectacularly successful recently and even at the ripe old age of 77 he does not seem to be slowing down.

Although he often takes an adversarial position against underperforming firms, it appears he is not after management in this case. Rather, he sees Nuance as a good investment, as do I.

Siri, what should I do now? Buy at $21.61. The stock currently trades more than $4 below its 52-week high of $25.89. I see this as a buying opportunity; our upside target is $30.