5 Stocks That Could Double In Value

|
 |  Includes: ARIA, BIIB, CLRO, MNK, NABI, NVS, PZZA, RAVE, SPPI
by: Investment Underground

By Matthew Smith

In times of increasingly volatile stock markets and economic uncertainty, investors are constantly seeking new and different investment opportunities that allow them to maximize investment returns while minimizing risk. Essentially, these investors are seeking to maximize alpha. Thus, despite the increased market volatility, many investors are seeing this as a buying opportunity due to the market reacting to negative economic reports and indicators, thus undervaluing particular stocks or sectors. In this article, I will analyze 5 stocks that have the highest weighted Alpha for the year to date to determine whether they are ‘value’ investment picks and if the stocks fundamentals indicate they will double in value.

Brekford Corp (OTCQX:BFDI)

Brekford Corp has a market cap of $26.82 million and a price to earnings ratio of 34.74. Its 52 week trading range is $0.09 to $0.67. At the time of writing, it is trading at around 65 cents. It reported second quarter earnings 2011 of $5.33 million, an increase from second quarter earnings of $4.86 million. Third quarter net income was $494,000, an increase from second quarter net income of $332,000. It has quarterly revenue growth of 38.10%, a return on equity of 16.81% and doesn’t pay a dividend.

One of Brekford’s closest competitors is ClearOne Communications Inc (NASDAQ:CLRO). ClearOne is trading at around $4.50 and has a market cap of $41.21 million. It has a price to earnings ratio of 10.29, quarterly revenue growth of 19.70%, a return on equity of 12.21% and doesn’t pay a dividend. Based on these key performance indicators, it is being outperformed by Brekford.

Brekford’s third quarter 2011 balance sheet showed cash of $2.24 million, an increase from second quarter cash of $1.82 million. It has quarterly revenue growth of 38.10%, versus an industry average of 13.60%, and a return on equity of 16.81%, versus an industry average of 10.00%. This indicates that it is outperforming many of its competitors.

The earnings outlook for the Communication Equipment industry is quite positive primarily, as it is seen as a major infrastructure product for both developed and developing countries, and this makes it a key driver in the overall global economic recovery. Accordingly, as the global economy improves, there will be a significant uplift in earnings for the Communications Equipment industry.

When this positive outlook is considered in conjunction with Brekford’s increased net income, cash holdings and strong performance indicators, it is an appealing investment opportunity. However, the majority of Brekford’s contracts are with law enforcement and the US Military, and this makes it quite susceptible to decreased earnings if the Federal, State and Local governments are forced to decrease spending due to budgetary constraints, which is possible if there is another significant downturn in the US economy. Overall, I rate Brekford as a buy. This stock could really double due to its valuation.

Questor Pharmaceuticals (QCOR)

Questor has a market cap of $2.58 billion and a price to earnings ratio of 50.09. It is currently trading at around $41. The company reported third quarter earnings for 2011 as $59.82 million, an increase from second quarter earnings of $45.98 million. Third quarter net income was $22.85 million, a substantial increase from first quarter net income of $13.87 million. It has quarterly revenue growth of 91.30%, a return on equity of 47.39% and doesn’t pay a dividend.

One of Questor’s closest competitors is Novartis AG (NYSE:NVS). Novartis currently trades at around $55 and has a market cap of $132.30 billion. It has quarterly revenue growth of 17.30%, a return on equity of 15.56% and pays a dividend with a yield of 3.50%. Based on these performance indicators it is being outperformed by Questor.

Questor’s cash position has improved, its third quarter 2011 balance sheet showed $165.71 million in cash, an increase from $129.13 million in the second quarter. Its quarterly revenue growth of 91.30% is greater than the industry average of 19.10%, and its return on equity of 47.39% is greater than the industry average of 8.70%. These indicators show that Questor is outperforming many of its competitors.

The current outlook for the Biotechnology industry is difficult to predict, while the overall outlook for the drug manufacturing and biotechnology industry is gloomy, it is far more upbeat for small to medium cap biotech companies despite tight credit markets and the poor economic outlook. In addition, a devalued US dollar makes US exports more competitive in global markets.

When considering the positive industry outlook in conjunction with Questor’s strong performance indicators, significant increase in net income, in what is a very difficult operating environment, and increased cash holdings, it presents as a solid investment opportunity with considerable growth ahead. Accordingly I rate Questor as a buy. Questor could double due to its growth.

Spectrum Pharmaceuticals Inc (NASDAQ:SPPI)

Spectrum has a market cap of $701.72 million and has a price to earnings ratio of 15.43. For a 52 week period, its trading range has been $4.42 to $12.88. It is currently trading at around $12. The company reported third quarter earnings 2011 as $51.02 million, an increase from second quarter earnings of $45.36 million. Third quarter net income was $20.26 million, a substantial increase from second quarter net income of $7.20 million. The company is achieving quarterly revenue growth of 204.90%, a return on equity of 37.51%, and it doesn’t pay a dividend.

One of Spectrum’s closest competitors is Biogen Idec Inc (NASDAQ:BIIB). Biogen Idec is currently trading at around $110. It has a market cap of $26.63 billion and a price to earnings ratio of 22.83. It has quarterly revenue growth of 11.40%, a return on equity of 21.91%, and doesn’t pay a dividend. Based on these performance indicators, it is being outperformed by Spectrum.

Spectrum’s cash position has substantially increased, its third quarter 2011 balance sheet showed $110.29 million in cash, compared to $67.05 million in the second quarter. Spectrum’s quarterly revenue growth of 204.90%, versus the industry average of 19.80%, and a return on equity of 37.51%, versus an industry average of 8.70%, indicates it is outperforming many of its competitors.

As discussed earlier, the outlook for the Biotechnology industry is negative. It is more upbeat for small to medium size Biotechnology companies such as Spectrum. When this outlook is considered in conjunction with Spectrum’s strong performance indicators, substantial increase in net income and balance sheet cash, it shows a company that is well-positioned for further growth and uplift in the stock price. On this basis, I rate Spectrum as a buy. Spectrum could double in price from here.

ARIAD Pharmaceuticals Inc (NASDAQ:ARIA)

ARIAD Pharmaceuticals has a market cap of $1.35 billion and no price to earnings ratio. Its 52 week trading range has been $3.51 to $13.50. It is currently trading at around $10. It reported third quarter 2011 earnings of $25.01 million, a substantial increase from second quarter earnings of $0.07 million. Third quarter net income was $13.91 million, a substantial increase from second quarter net income of -$47.76 million. ARIAD Pharmaceuticals has quarterly revenue growth of 1,921.00%, no return on equity, and doesn’t pay a dividend.

One of ARIAD Pharmaceuticals closest competitors is Nabi Biopharmaceuticals (NASDAQ:NABI). Nabi Biopharmaceuticals currently trades at around $2 and has a market cap of $82.07 million. It doesn’t have a price to earnings ratio, quarterly revenue growth of -91.20%, a return on equity of -18.91 and doesn’t pay a dividend. Based on these performance indicators, it is being outperformed by ARIAD.

ARIAD Pharmaceuticals’ cash position has increased, the third quarter balance sheet showed $92.95 million in cash, compared to $86.62 million for the first quarter. ARIAD Pharmaceuticals quarterly revenue growth rate of 1,921.00% is greater than the industry average of 19.10%, and it doesn’t currently have a return on equity versus an industry average of 8.70%. This indicates that it is being outperformed by many of its competitors, despite its spectacularly high quarterly growth rate.

As discussed earlier in this article, the outlook for small cap stocks in the Biotechnology industry is relatively upbeat, and when this is considered in conjunction with ARIA’s increased net income and balance sheet cash, it is an attractive investment. On this basis, I rate ARIAD as a buy. ARIAD could double in price.

Pizza Inn Holdings Inc (PZZI)

Pizza Inn has a market cap of $41.25 million and a price to earnings ratio of 29.94. Its 52 week trading range is $1.85 to $5.56. It is currently trading at around $5. It reported second quarter earnings 2011 of $11.33 million, an increase from first quarter earnings of $10.72 million. Second quarter net income was $420,000, a decrease from first quarter net income of $440,000. Pizza Inn has quarterly revenue growth of 10.20%, a return on equity of27.76% and doesn’t pay a dividend.

One of Pizza Inn’s closest competitors is Papa John’s International Inc (NASDAQ:PZZA). Papa John’s currently trades at around $35 and has a market cap of $863.61 million. It has a price to earnings ratio of 16.94, quarterly revenue growth of 11.90% and a return on equity of 28.28%. It doesn’t pay a dividend. Based on these key performance indicators both companies are performing on par.

Pizza Inn’s second quarter 2011 balance sheet showed cash of $11.33 million, an increase from first quarter 2011 of $10.72 million. Pizza Inn’s quarterly revenue growth of 10.20%, versus an industry average of 8.90%, and a return on equity of 27.76%, versus an industry average of 29.60%, indicates that it is performing approximately on par with its competitors.

The earnings outlook for the Restaurant Industry remains positive despite the poor economic climate, high unemployment and negative consumer sentiment. The National Restaurant Association recently reported that restaurant operators have reported a net increase in traffic and positive same store sales growth.

When this is considered in conjunction with the company’s solid performance indicators, increased earnings and balance sheet cash, it is clear that the company is well-positioned for further growth when there is an uplift in the economy. On that basis I rate Pizza Inn as a buy. This small company could double in price.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.