The following companies each present a legitimate opportunity to see large gains in the future. Level 3 Communications (LVLT) is a company that should benefit greatly from the acquisition of Global Crossing (GLBC). Both Zagg Inc (ZAGG) and Jazz Pharmaceuticals (JAZZ) are trading near 52-week highs after experiencing unbelievable growth during the last year. I believe additional gains are in the future, and that each of these stocks will experience a great deal of growth with the potential to double their current positions.
Level 3 is a speculative stock that has lost more than 30% since July 7, when it was trading at 52-week highs. The stock has traded down with the market, but has stabilized during the last week. I believe that this stock presents an opportunity to see large gains, perhaps double, within the next year.
I believe that its potential to double is due to a low stock price with a strong demand within its industry, along with optimism among investors. The company provides a range of integrated communication services, which include data and internet services along with voice and video. However, the services are not why I believe that LVLT presents the possibility to double in stock price over the next year. The company's stock is speculative, and has seen large yearly gains of 70% because of an optimistic future rather than fundamental improvements.
When I see a stock that has gained 70% in one year, I expect to look at the company's financials and see significant year-over-year improvements. However, with LVLT there are little to no improvements with the company's income statement or balance sheet. The company's revenue and assets have decreased each of the last three years, along with increasing debt to assets percentage during the same time period. The company's quarterly performance has shown revenue growth along with better operating margins compared to last year results.
The company is on pace to post higher full-year revenue and expects low-double-digit consolidated EBITDA growth compared to 2010. However, I do not believe that revenue and EBITDA is responsible for the company's large gains over the last year. Investors have been optimistic regarding the company's future for quite some time especially since the company announced its intention to acquire Global Crossing.
Shareholders have approved the Level 3-Global Crossing merger, which is expected to take place in the coming months. This merger has investors excited because of its likely benefits for company growth. With the acquisition LVLT will expand its network in emerging markets like Latin America, along with potentially strengthening its balance sheet by cutting the overall cost. Both companies have among the largest networks, and with a merger the two could control much of the global market.
Level 3 and Global Crossing have both come back from near bankruptcy and have significantly improved operations. I believe this acquisition has all the makings of dominance within the market, and will be viewed as highly successful. I believe the acquisition, which is filled with optimism, will be enough to send the stock over $3.00 within 3 months of it taking place. However, the acquisition has a deeper meaning of long-term growth that could validate the large gains that LVLT has experienced over the last year. I expect for LVLT to continue seeing gains over the next 5 years as income statements and balance sheets improve, with lower costs and a higher market share, which will give investors a reason to be optimistic regarding the company's future.
Zagg Inc has built a good company that benefits from the success of other innovating companies. I believe this company has among the greatest platforms in business with very little competition. Many of the largest technology companies within the market are manufacturers or developers of handset devices or smart phones. Zagg benefits from the success of other companies, such as Apple (AAPL), HTC (HTC), Research in Motion (RIMM), and Motorola (MMI) by providing accessories for their products. ZAGG sells and distributes shields, skins, cases, and other products for communication devices such as smart phones and tablets. Sales continue to increase for the tablet and smart phone industry, and I believe it speaks volume for the kind of long-term success ZAGG could experience over the next several years.
The chart above shows financial information for Zagg Inc over the last 5 years. During this time period revenue, net income, and EPS all increased year-over-year. Along with ZAGG improving its income statement the company also has a flawless balance sheet.
The balance sheet reflects the company's debt and assets, which show no debt and assets that have increased each of the last 5 years.
The company is on pace to post record full-year earnings in 2011. The company acquired iFrogz, which makes similar products including a large selection of audio accessories. I believe this acquisition will prove to be valuable, as it will limit the competition for ZAGG and allow it to control the market. ZAGG is currently trading at $14.75 which is $2.35 lower than its 52-week high. I believe it is possible the company reaches $25 to $35 over the next 12 months because of its explosive growth, lack of competition, and appealing products.
ZAGG is a company that benefits from a competitive industry that is constantly creating new devices. It's clientele includes customers who all want the next transcendent product in communication devices. With new iPhones set to arrive in the coming months, Research in Motion's new products, Google now having its own handset manufacturer, and Microsoft unveiling its new smart phone, there is no doubt consumers will continue to upgrade and will want accessories to protect their new devices.
Jazz Pharmaceuticals has posted gains of more than 360% during the last year, with the company beating earning expectations each of the last 4 quarters. The company continues to surprise analysts and investors with earnings and revenue growth that are near impossible to predict. The company's success is a direct result of the success of Xyrem, its best-selling drug, which increased 67% during the most recent quarter in comparison to last year. The company's other FDA-approved drug, Luvox, experienced gains of 26% during the same period.
The above chart illustrates the company's financial performance over the last 5 years. The last two years have shown significant improvements as the company's drug Xyrem created revenue in a way that no one expected. The company is now on pace to outperform 2010 by a significant margin as sales continue to rise. I believe the company is setting itself up for long term growth by paying off its debt, increasing assets, and having 3 additional drugs in its pipeline.
The company has made significant changes to its debt to assets on a quarterly basis. JAZZ continues to increase its assets for long-term growth while paying off its debt for long-term security. The assets should create additional revenue options for the company, and by lowering debt, the company will be able to better withstand any period of recession.
I believe that JAZZ will continue to see gains, and potentially double over the next year. Most stocks that see gains in excess of 300% trade with a particularly high price-to-earnings ratio. JAZZ trades with a P/E of only 19, which is not low, but I would not consider it high for a fast-growing biotechnology company. The stock is trading at $39.20, which is $4.40 from its 52-week high. I believe the stock will continue to grow and post record numbers, and potentially create new all-time highs within the next two weeks as the market recovers from its month of excessive losses.