100% Returns in the Next 12 Months
Investors have been taken on a wild ride in 2010: QE2, the European debt crisis (part I and II), Korea, and the almost schizophrenic debate over where the economy is headed in 2011. The volatility we’ve experienced can create situations in which share prices and fundamentals do not match up. In our search for money-doubling stocks, we’re on the lookout for solid companies that are undervalued, as well as troubled companies that are likely to be acquired.
We first brought you this list in September, and some stocks are being revisited. The six stocks on this list could deliver 100% returns in the next 12 months, and even bigger ones much faster if you use call options instead of purchasing the stock.
Brocade Communications (BRCD)
Brocade Communications Systems, Inc. (NASDAQ: BRCD) hit the skids after reporting earnings and revenues that beat expectations, but disappointing with guidance. The stock sold off 10%, and is now trading around $5.10. Its 52-week range is $4.64 – $8.05. At less than 10 times forward earnings, assuming those estimates are attainable, the stock is a good value.
Brocade is considered the “poor man’s Cisco,” but more importantly, it is one of the low-cost providers in communications equipment. A double from here would put the stock at levels not seen in more than five years, but if the company can capture just 1% of market share, owning the stock should be a home run.
A takeover is also possible. Any tech giant looking to protect their turf against Cisco Systems, Inc. (NASDAQ: CSCO) could pony up for BRCD. Among the potential buyers would be Hewlett-Packard Company (NYSE: HPQ), Dell Inc. (NASDAQ: DELL), EMC Corporation (NYSE: EMC) and International Business Machines Corp. (NYSE: IBM).
Oh, how the mighty fall. North of $50 in its heyday, battered money-center bank Citigroup, Inc. (NYSE: C) is now barely $4. But it is the “core Citi” that can drive gains here.
Uncle Sam is on its way out the door, and CEO Vikram Pandit will pare down the size and scope of this financial behemoth. The future Citi will be a smaller bank, and sales and/or spin-offs of units and operations will contribute to gains. Bill Ackman of Pershing Square noted that the core Citi trades between 3 times and 4 times future core earnings. At $4.15, and with a 52-week range of $3.11 – $5.07, even today, this is a turnaround stock with upside that only trades at about 10 times earnings.
Duoyuan Global Water (DGW)
Duoyuan Global Water Inc. (NYSE: DGW) is a Hail Mary pass in the China game, and the riskiest of today’s picks. The Beijing-based company manufactures and sells water treatment equipment. The stock rose from the mid-$20s to about $40 before things fell apart in early 2010. In the most recent blow, accounting concerns caused the stock to drop to almost $10 before a recent recovery. Currently at $12.25, its 52-week range is $10.38 – $44.
The low analyst estimate is still under 10 times this year’s and next year’s earnings estimates. Profits recently rose 23% and revenue grew, and the company signed two new supply pacts. Betting on a turnaround in China is risky, but the opportunity in water treatment in the country is so huge that it’s certainly possible for this little company with a market cap of a mere $298 million to double.
PDL BioPharma (PDLI)
As is the case with many other biotech companies, PDL BioPharma, Inc. (NASDAQ: PDLI) is a wild card — it could be a big winner or a huge loser. The company relies heavily on patent royalties, and the royalty game is often one of chance. Patent cases against Roche and Novartis have kept the company in court and the stock in the mid-$5 range versus a 52-week range of $4.97 to $8.39 — a far cry from the $30 mark it saw less than five years ago.
Even with its legal problems, analysts see $1.25 in earnings power per share in 2011, so anything that is even remotely “less bad” than many expectations would send shares rifling higher in valuation. Finally, PDL recently did a debt maturity extension, raised some additional cash, and made yet another special dividend payment.
THQ Inc. (THQI)
We first pegged THQI Inc. (NASDAQ: THQI) as a stock to double when shares were close to a low of $3.33. Now at around $5, we think the stock is still at a dirt-cheap valuation. Getting another double might be ambitious, but there is room to run here.
This video game maker’s lineup includes WWE SmackDown vs. Raw, Warhammer fantasy games, and a suite of educational and family friendly video games tied to Disney and Nickelodeon characters. And the company is hoping its uDraw GameTablet for the Nintendo Wii will be a hit this holiday season.
THQ’s market cap is up $100 million since the summer when it was at $334 million. Its total equity is about $259 million, and net tangible assets are listed at $110 million. THQ is not the steal it was when it was under book value, but markets quickly correct imbalances, and there is still upside here.
Western Digital Corp. (WDC)
Data storage provider Western Digital Corp. (NYSE: WDC) is another tech stock that has performed very well since we first alerted you to its money-doubling potential when the stock was around $26. Shares are now close to $34 versus a 52-week range of $23.06 to $47.44.
While declining margins and competition remain an issue, there is an ever increasing demand for storage. And WDC is a big beneficiary of Apple Inc.’s (NASDAQ: AAPL) popularity, as it is the largest storage device product in Apple stores.
While a double from current prices may be a bit of a stretch, a double from the stock’s low around $23 would still mean considerable upside. At 11 times a forward earnings blend, a $2.85 billion cash pile, a $7.5 billion market cap against $4.7 billion tangible net assets and $4.9 billion in equity, we like WDC’s odds.
Disclaimer: Jon Ogg holds no shares nor has any financial interest in any of the stocks mentioned in this article.