I had a feeling PaperTrader knew what he was talking about when he (or she) re-picked VirnetX (VHC) last Thursday. I recommended – or actually passed the recommendation on – to you guys on Friday morning, and the stock just happened to jump 8.0% to $38.89 (and rallied another 1.0% to $39.60 in after-hours trading). And, if you want to get technical about it, your actual gain with VirnetX would have been based on the opening price of $35.07 on Friday…. closer to an 11.0% move.

I’ll take it. More important, given that we’re off to a great start with one of PaperTrader’s latest picks, I’m ready to go out there with another one today – Elephant Talk Communications (ETAK).

Elephant Talk Communications, in simplest terms, provides a variety of telecom services for B2B (business to business) customers, meaning it’s the middleman that actually does all the work, but it’s not the face/name of the service you use. It’s got its hand in wireless, landline, web content management, streaming media, etc…. sort of a ‘white label’ telecom company. It also owns security software company ValidSoft, which is quickly becoming the focal point for the company.

The part investors care about – it looks like this company is starting to hit its critical mass in terms of growth, inking more deals in the past few weeks than it has in the prior several months. Check it out:

• June 29th: Saudi Arabia’s newcomer mobile telecom name ‘Zain’ will be using Elephant Talk as its backbone.
• June 16th: Belgium-based IT service provider Sogeti BeLux taps ValidSoft to offer security solutions for its growing cloud computing business.
• June 15th: ValidSoft and Elephant Talk detail plans to make so-called ‘mobile wallets’ secure – an alarmingly-needed feature – after hinting at such a service a couple of times in the weeks before that.
• Though now a little dated, the November 2010 deal with Visa Europe is starting to show real promise now that the testing phase is winding down and an operational status is approaching. Other deals have been signed in the meantime too.

Don’t think for a minute that the market doesn’t see all these new agreements as a big boost for company’s top and bottom line. Since late May when ValidSoft’s technology was (1) given accolades from Frost and Sullivan, (2) chosen as the security solution by a European government agency, and (3) highlighted numerous times by the media and commentators, ETAK shares have only rallied from $2.19 to $3.94… a mere 80% gain.

Despite the big jump (I usually hate chasing stocks), I still think there’s more immediate upside on the way. Here’s why.

I know you’re aware of VirnetX. You’re likely to know that Apple (AAPL) is working on the so-called “iWallet”, and that Google (GOOG) is working on a similar “Google Wallet”. eBay (EBAY) recently paid $240 million for Zong, which is a service that allows people to use their mobile phones to purchase virtual goods inside online games.

The common element among these ventures [each has the same destination, but all are on slightly different paths], of course, is a functional but secure way to pay for things without cash or credit cards. It’s becoming a red-hot area.

There are some forecasters that believe annual mobile payments will exceed $1 trillion by 2014. Given that Google and Apple are both diving into it, I don’t doubt the scope. Maybe it will be more, or maybe less, but you get the idea ….we’re reasonably talking about hundreds of millions per year at least. The service providers collect monthly fees and/or a per-transaction charge, which would be much less than the trillion. But, Google and Apple aren’t likely to fool with anything that wasn’t going to be huge, you know?

That said, I gotta’ be honest…. it’s not so much the math of the end-goal (it’s still just an educated guess at this point, in my opinion) as it is the growing hype of mobile payment and mobile security that’s getting me hooked on names like VHC and ETAK.

See, we’ve seen this before. This whole snowball is starting to roll a whole lot like cloud computing did in 2008. It started small (largely fueled by the proven viability of Google Docs and Salesforce.com), and then got bigger, and attracted more investors, and then more companies came into the space, and then more infrastructure became available, and those companies started to generate recurring revenue, and more investors came to the table… you get the idea. Cloud computing investments may have become a self-fulfilling prophecy, BUT THEY STILL MADE GOOD MONEY FOR TRADERS. And, they still are, as recurring revenue continues to roll in.

I see a similar trend just starting to unfold with mobile security, and for Elephant Talk in particular.

Its security platform via ValidSoft and its telecom platform via the parent company not only work hand in hand, but fill a void with a much-needed service that investors are just starting to understand. I think ETAK could get weeks – if not months – of mileage out of this new mania even if it never even added a penny of new revenue. Good news though… it is slated to add a lot of new revenue in the foreseeable future.

Now, all that’s the official stuff you could read on your own if you really wanted to do the digging yourself. Fortunately, I did a bunch of it for you. I think it’s the ‘off the record’, unofficial, and rumored stuff that could really push ETAK higher though.

I don’t want to become part of the rumor mill problem, but here are a couple of the more legitimate whispers about Elephant Talk that may well come to fruition…

• An upgraded exchange: It’s currently an OTC stock, but with a $400 million market cap and $36 million in trailing revenue, an AMEX or NASDAQ listing isn’t out of the question.
• Testing with Visa U.S.: This is admittedly a very shaky idea, but one that could be huge if it’s real. Why ValidSoft would publicize the deal with Visa Europe but deliberately conceal any deal with Visa U.S. is tough to explain. The only logical explanation is that either or both companies are trying to stay as far ahead of the competition as possible. [We do know for sure that Visa U.S. is working on a near-field communications system like ValidSoft’s… it’s just not clear how or where Visa got it.] It’s nothing to count on for ETAK owners, but something worth keeping your eyes open for.

We’ll see.

Ok, I’ve probably said more than enough, but I do have one more piece of business to take care of with Elephant Talk though… one of the managing partners of the SmallCap Network (but not me) owns 3,000 shares of ETAK at a cost basis of $3.93. It could be viewed as a conflict of interest on the surface, but in my view it actually puts some of us on the same side of the table with you guys. [Would you rather us pick stocks and have no vested interest, or pick stocks and eat our own cooking, so to speak?]

So, that’s it – ETAK is our pick of the day for all the reasons listed above. This mobile payments thing isn’t going to go away, nor are the security needs behind them. The market’s just starting to go nuts over it too. We may as well ride the rally from a stock that’s well-positioned to make mobile payments work the right way.