One of the great things about being a patient value investor is when a great idea finally starts to play out and confirms one’s instincts.
Value investing isn’t easy. It isn’t sexy. It isn’t like watching the “FANG” stocks move 20 or 30 points in a day. But when you wake up one day and realize your pick has doubled or tripled, I think it’s more of a testament to investing savvy.
With that said, I’ve got my eye on several stocks that I think have potential to double over a reasonable period of time.
To me, that means about three years or less. Some of you momentum investors out there may roll your eyes, but investing is about patience; it’s about watching a story unfold. I don’t care for momentum stocks because there’s far too much risk. These stocks are low risk and have the potential to double in a relatively short amount of time.
High-Reward Stocks: Axon (AAXN)
Axon Enterprise, Inc. (NASDAQ:AAXN) is the company formerly known as Taser. Today, it not only makes Tasers but body cameras, in-car video systems, camera charging station, and allows for content to be storied in the cloud at Evidence.com. It also is developing software that is specifically designed for law enforcement to capture digital evidence from the field, watch livestreams, and photo analysis.
AAXN is increasing its product line as well as its customers. It isn’t just for law enforcement anymore, but for military contractors, private security, prisons, and consumers.
Revenue has been exploding, which is offset and partially the result of additional SG&A expense. I believe the SG&A expense will quiet down during after the big growth phase I believe Taser is heading into.
So I hate the idea of paying 65x EPS for AAXN stock, but this is a high barrier to entry arena as far as Tasers go. The rest of the equipment is about marketing and being a first-mover. If AAXN executes, the stock could easily double in three years.
High-Reward Stocks: Rite Aid (RAD)
We recently learned that Rite Aid Corporation (NYSE:RAD) sold off a bunch of stores, pocketed a ton of cash to pay down debt and … now what? There’s no turning RAD around. Management is in it to sell the company, and private equity shops like Cerberus are sniffing around.
Cereberus, like all PE shops, are about cash flow. They take over a company, and swoop in operationally, looking over everything to figure out how to wring out more cash flow and profit. Then they spin off their re-invented brand.
RAD is in this exact position. With reduced debt comes enhanced cash flow. RAD stock almost hit $7 during early merger talks. Now it’s floating around $2 per share. I think RAD at least doubles from here.
Rite Aid had well over $30 billion in sales in its last fiscal year, and Walgreens Boots Alliance (NYSE:WBA) trades near 0.73x sales. Valued at 0.18x revenues, RAD stock is worth well over $4.
High-Reward Stocks: Chesapeake Energy (CHK)
Finally, I’m of the opinion that, while risky, Chesapeake Energy Corporation (NYSE:CHK) has a shot to double over the next three years. The danger of bankruptcy in the near future seems to have passed, with no more debt due until 2020.
CHK has managed to produce almost a half billion dollars in operating income this past quarter, and it substantially reduced its debt load. Because it also has a natural gas division, it is more diversified than its shale-producing peers.
CHK isn’t quite pumping out the cash flow just yet, but it looks like it is now a stable company, which means it has a foothold and can get going along the right trajectory. It’s sitting on some three billion dollars in cash, hedges which will add to the pile, and almost four billion dollars in revolving debt is available.
At just over $4.25 per share, I think there’s more upside than downside to CHK going forward, and possibly a double.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He owns shares of CHK and RAD. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
