It’s all well and good to say a stock posting improving earnings is a good buy with upside potential. But how much upside? The truth is that picking stocks capable of dramatic gains — potentially as much as doubling your money — is much harder. That’s because charts don’t offer much support for big moves like this, and efficient market theory argues against such short-term performance.But finding doublers, while difficult, is not impossible. One good place to start is screening book value analysis or cash analysis to find a deal, or to find potential acquisition targets. Also, while a turnaround typically takes more than a year to come to real fruition, there are still success stories — such as Chipotle Mexican Grill (NYSE: CMG), which was trading around $60 in October 2009 and is now up to around $168 per share as of this writing to top even its 2007 highs.Here’s a look at six stocks that could deliver 100% returns in the next 12 months if things play out. All of these stocks are actively traded, with an average volume of over 1 million shares daily, and they all have at least some stock options tied to them to reach that profit goal.
Brocade Communications Systems, Inc. (NASDAQ: BRCD) hasn’t headed in the right direction so far in 2010. Brocade is currently just a bit above the bottom of its 52-week range ($4.64 to $9.84). But in the world of technology consolidation, the Cisco (NASDAQ: CSCO) datacenter initiative is driving tech giants like Dell (NASDAQ: DELL), Hewlett-Packard (NYSE: HPQ) and others to acquire smaller companies to feed the cloud-computing future of data and networking. After Brocade and Foundry merged, the company is now nearly a complete “poor man’s Cisco” that’s a great buyout target.Brocade is a low-cost provider in many aspects, and its turnaround hasn’t really turned around — yet. Outside of any buyout hopes, Brocade trades at less than 10 times 2010 and 2011 earnings. However, it carries higher debt ratios than many tech peers and may need new management to gain market share. If it competes on price, capturing even 1% more of total market share, that would be a major coup and that would generate massive returns for holders and could spark a 100% run-up from the bottom in the next year or so.
Citigroup, Inc. (NYSE: C), one of the “too big to fail” banks, is slowly and sloppily getting out from underneath the government. What’s more, bank pressure under Fin-Reg is hurting the stock. It’s not too far from the bottom of its 52-week range ($3.11-$5.07) — a far cry from its +$50 valuation as recently as 2007.There is undoubtedly a long way to go, and Citi may never get back to that lofty share price. CEO Vikram Pandit is probably not even half way to getting to a core Citi after divesting assets, so who knows what the smaller bank ahead could be worth on a per-share basis. But Bill Ackman’s Pershing Square disclosed he’s put a few hundred million dollars into Citigroup on the theory that it trades at about 3 or 4 times what the future company’s core earnings will tally. That kind of value coupled with a current share price that’s about the price of a Big Mac makes a doubler a very real possibility.
Energy Conversion Devices, Inc. (NASDAQ: ENER) has been one of the solar players that has not fared out well in 2010 — though it’s hardly the lone loser in the sector. Shares are now at the worst levels in recent memory, around $4.66 as of this writing (52-week range of $3.76-$14.21) but shares peaked north of $60 back during the energy bubble of 2008. The company is said to need cash soon by some, but its cash position rose to $205 million. And just this week, ENER posted an above-estimate report and solar sales rose +25% sequentially and +77% year over year; net revenues rose +19% sequentially and +68% from a year earlier. While it grew shipments, cut inventory and raised cash flows, it is targeting sales growth and margin expansion — all signs of big growth potential despite the fact that ENER is still losing money. That potential better had be realized, however, if investors will see a double in this stock. Energy Conversion Devices has fallen hard over the last few years, and any takeover bid would have to be exorbitant to win shareholder approval.
PDL Inc. (NASDAQ: PDLI) is a biotech-exposed company that will ultimately be a big winner or a big loser. It has a solid history of patent royalties that will either boom or bust. Its commercial partner is Roche/Genentech, and now PDL is suing over patent infringement with a goal of Roche royalties over oncology agents as Avastin and Herceptin. If PDL wins, it’s a cash cow. If not, look out below.Roche claimed in mid-August that Roche’s products do not infringe on PDL’s patents, and PDL stock fell to $5.18 from $6.20. Shares now sit in the mid-$5 range, a bit above the 52-week range ($4.97-$9.22) but dramatically lower than its 2006 peak of $30 a share. PDL gave guidance recently of $86 million in Q3 royalty revenues — but Roche represents about 30% of its royalty payments, so there is a large risk here. At this time, analysts are calling for $0.96 EPS for 2010 and $1.30 EPS for 2011, so shares are cheap on a mere earnings basis. As long as you heed the royalty antics, of course.
THQ Inc. (NASDAQ: THQI) traded north of $30 in 2007. Now its skirting a new 52-week low ($3.33-$8.29 range). In the video game sector, THQ is a turnaround that never really turned back around even considering its larger peers continue to suffer. But if more consolidation comes to the video game sector, THQ is one of the top picks as a target. On its own, the value lies in its WWE wrestling titles, WarHammer fantasy games, and a suite of other educational and family-friendly video games tied to Disney or Nickelodeon characters. But now it has a potentially major win on its hand with uDraw, a drawing tablet game device for the Nintendo’s Wii. Why Nintendo did not have its own hardware along these lines is a mystery, but if THQ does no marketing, it could easily sell a million of these, and it is going to hit shelves for this holiday season. Its $240 million market cap is tiny, it trades at an implied discount to book value — only 1.3-times tangible book value, and it has close to $3 million in cash (investments included) per share before debt.
Western Digital Corp. (NYSE: WDC) is a tech value stock if there ever was one after the share price drop. At around $26 a pop, it is bottoming out on its 52-week range ($23.06-$47.44). A double wouldn’t even have to stray far outside this current 12-month range.The problem it faces is declining margins and product price compression. It is a beneficiary from Apple Inc. (NASDAQ: AAPL) as the largest storage device product in Apple stores, and there is still the argument of endless storage demand. Shares just recently hit a low of $23.06 and the high of the year is $47.44. A double would take it back to the 52-week highs. Seagate (NASDAQ: STX) and Hitachi (NYSE: HIT) are tough competitors, but at six times June 2011 earnings and 5.25 times June 2012 earnings, mixed with a valuation of 1.25 times net tangible book value, the forward estimates leave a very cheap stock. Of course, for Western Digital to double, consumer electronics sales growth cannot continue to slide for much longer.
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