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Readers pick 7 stocks with double potential
I got hundreds of suggestions after offering my own list. These are worth a mention -- though I don't necessarily agree.
By Jon D. Markman
The speculation gene is alive and mutating in Supermodels readers this summer, as I received hundreds of responses to my request for suggestions on stocks that could double over the next 12 months.
In a country that loves lotteries, racetracks and slot machines, there's little wonder that more than 90% of the ideas were the sort of very small companies that the investment world calls microcaps -- and more than half of those were the very iffy companies that trade in the netherworld of the notorious Pink Sheets, or on the Bulletin Board.
Blame me for making the criteria so open-ended. I required only a price over $1, market capitalization over $50 million and daily trading volume of 25,000. And my own nine suggestions weren't exactly contenders for heavyweight crowns. The pick that I offered that has risen the most since -- fulfilling its one-year target in two weeks with a 117% gain -- was New Dragon Asia (NWD, news, msgs), a small but mighty maker of instant noodles in northern China.
So in the spirit of those who like their free lunch fast and hot -- and with a caveat that they could easily spill and burn -- here are some readers' proposals for stocks that could double in the next year. (Because I'm a penny-stock prude and to provide a modicum of sobriety, I have removed all of the Pink Sheet and Bulletin Board ideas from this soup.)
An educated guess
Most picks were in the technology world, but let's start with Learning Care Group (LCGI, news, msgs), which is essentially a franchisor of preschool programs for tots as well as after-school programs for older children. Its schools are marketed under the Childtime and Tutor Time brand names across the country, and serve a highly fragmented industry.
The stock fulfills a number of my requirements for potential doublers: It has traded as much as three times higher in better times and for less than $1 in worse times. It has a new management team that has developed a fresh approach to franchising and expanding a core concept. Its chief executive has been buying shares in the open market, and those shares are cheap in relation to its industry peers, with a price-to-sales multiple of 0.5. Institutional owners include the smart folks at DDJ Capital Management, a specialist in distressed companies, and the value hounds at Heartland Advisors. And there has been solid but not outrageous recent technical momentum. A double would only take the market capitalization of Learning Care to $220 million, which is reasonable for a company with $212 million in trailing 12-month sales.
Related news and commentary on MSN Money
There weren't many suggestions for down-and-out names in the S&P 500 ($INX, news, msgs), but one proposed by several readers was Symbol Technologies (SBL, news, msgs), the battered leader in electronic-capture devices. At their 2000 peak, Symbol shares traded as high as $45, and early this year they fetched $19. Now going for the low, low price of $8.36, Symbol has sunk to a multiyear-low valuation due to a number of product-planning missteps, executive exits, lawsuits and accounting delays.
Still, this is a company whose products are increasingly ubiquitous. Cash flow has been robust, insiders were buying shares at least as recently as mid-May, and value- or vulture-oriented funds like Columbia Wanger and Tudor Investment have been buyers.
Says reader Robert Ladd: "Unless this company has a closet like Imelda Marcos, all the shoes have fallen -- including the resignation of its recently hired chief executive to go run NCR (NCR, news, msgs). Despite the accounting problems, the SEC investigations and the management turnover, Symbol still has a virtually debt-free balance sheet and a resilient business in bar codes and RFID devices. Revenues are running at an annualized rate of $1.8 billion. At normalized level of profitability, earnings per share should be $0.75 to $1. More likely, is that the board throws in the towel and explores alternatives. My estimate of private market value is $15 per share."
No two-baggers here
Before going on to more picks, let me explain some of the ideas that I won't go for. Reader Henry Clampitt, along with many others, believes the prospects for OmniVision Technologies (OVTI, news, msgs) -- a leading manufacturer of low-power CMOS sensors for digital cameras and cell phones -- are very bright.
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