Mark Twain's character Pudd'nhead Wilson once noted that, "January is a particularly dangerous month to speculate in stocks. The others are February, March, April, May, June ..." Notwithstanding this tongue in cheek view, most investors like to have some small part of their portfolio dedicated to investments in companies with some realistic chance to go up greatly in price. That said, let's take a look at six stocks that research indicates could triple in value within the next few years.
Brightpoint, Inc. (CELL), $10.76. Brightpoint provides a wide variety of services to the wireless technology industry, including networks, resellers, and equipment manufacturers. Services include logistics, inventory management, distribution channel management, and software services for clients such as Apple (AAPL), Nokia (NOK), Kyocera (KYO), HTC (GM:HTCXF) and Motorola (MSI). Revenue for the most recent 12 months was $4.8 billion with Net Income of $48.3 million. Return on equity was 19.1%. With a forward P/E of 9.2, CELL trades at just 6.8x EBITDA. Within the last five years the high for the stock was $18.14 in November 2007. With future EPS expected of $2.10 or more, at a P/E closer to its normal range of 17 the stock could trade at $35.70 or more (+331%).
Whirlpool Corp. (WHR), $47.45. Whirlpool is the well-known manufacturer of home appliances, and acquired Maytag in 2006. With estimated 2011 revenue of $19.3 billion and Net Income of just under $1 billion, WHR trades at a forward P/E of just 7.8 and is valued at a very low 4.1x EBITDA. WHR was down 47% in 2011, and from an all-time high of $118 on 2010 as the soft global economy weighed on it, and the uncertainty of U.S. tax credit renewals created uncertainty. WHR has good free cash flow and a solid balance sheet, and we believe the stock price can reach $142 with a stronger P/E and EPS as forecast. The dividend was raised nicely in June - indicated a positive attitude by the Board for the future - and the stock yields 4.2%.
eBay Inc. (EBAY) $30.33 While virtually everyone knows eBay's online auction services - eBay had 94 million users in 2010 - eBay also has another important aspect to its business to handle online payments - PayPal. Paypal is the no. 1 global leader in online payments. Despite the press regarding the change in eBay's leadership, eBay in 2011 achieved its highest return on equity in its history. The company has a very strong balance sheet with $90 of equity for every $10 in debt and over $4 billion in cash. Historically eBay has traded at about 2x the stock market multiple and with EPS expected to reach approximately $3.50 within 2-3 years the stock should command a price of $105 or more in time.
AllianceBernstein Holding LP (AB) $13.08 A major investment management and research firm, AB is 60% owned by AXA, a $731 billion "A" rated French insurance and financial services company. In 2011 AB is expected to report Net Income of $365 million on revenue of $2.8 billion. However, assets under management have declined from $800 billion in 2007 to $430 billion currently due to both subpar performance and difficult markets. AB has taken steps to stop this trend, better control costs, and acquire and grow assets in the future. As an LP, AB has a high level of cash distributions - 60% of which go back to AXA - estimated to be $1.40 in 2012. Despite difficult conditions, with solid positive cash flow and little debt, AB appears capable of maintaining and in time increasing the dividend. At $2.80 EPS and a market multiple of 15 AB would trade at $42.
Daimler AG (OTCPK:DDAIF) $43.86 Daimler is best known for its iconic Mercedes-Benz cars but the company is also the biggest manufacturer of commercial trucks, vans, and buses in the world, as well as an aerospace business and a finance company. Headquartered in Germany, the stock peaked above $111 in late 2007 then slumped to $21 in the depths of 2009; since then it came back to just under $80 in mid-2010 but then dropped substantially to the current $43.86, in part a result of the ongoing Euro crisis. The P/E ratio presently is a low 7.2, but at a modest 11.5 multiple on expected EPS of $11.50 within a few years, DDAIF would trade at $132. In addition the company pays an annual dividend of approximately 6% during the June 30 quarter.
Bank of New York Mellon (BK) $19.91 Tracing its heritage back to Alexander Hamilton and the late 1700s, BK is one of the leading wholesale banks in the world. BK now operates in 36 countries and has more than $350 billion of assets. After incurring a loss during 2009, BK is again nicely profitable. However, between the market's perception of banks in general and BK's own issues surrounding a major civil suit alleging they intentionally overcharged institutional clients, BK's stock has remained down. In 2007 it reached $50, then fell to $15 in 2009. At the current price under $20 it's about 2/3 of book value, and the P/E is 8.3 on forward earnings. Historically BK trades at a P/E 20% higher than the market. Within a few years, with a P/E of 17-18 and EPS expected to be $3.25 and the lawsuit behind it, the stock should be in the range of $57. The dividend in 2012 should be 3.4%, with further increases that would bring it eventually to 5%.
|Recent Price||Potential Price|
|AllianceBernstein Holding LP||$13.08||$42.00|
|Bank of NY Mellon||$19.91||$57.00|
Once a preliminary list of possible "home runs" like the ones above is identified, the next step is to delve deeply into the company so that you can make a really informed decision. This is particularly important with companies like these as they're likely to have some "ups and downs" over time, and unless you really understand the business you'll be tempted to sell too soon before your investment thesis has time to ripen. Such further analysis should include reading the annual report, studying the financials, reading available research from S&P, brokerage firms, Value Line and other sources, and looking at competitors. Stocks that have a realistic possibility to triple almost by nature have some aggressive aspects to them and are therefore more speculative that the standard blue chip company. But within reason, having a small portion of a portfolio devoted to such more aggressive investments has appeal, and some potentially great rewards.