When I signed on as a SeekingAlpha contributor over three years ago, my mission was to present investors with ideas that represented relatively low risk and relatively high return. Last year, I narrowed that focus to zero in on stocks that I believe have the potential to triple.
Both strategies have proven very successful. In this article, I'll provide an update, along with my first picks for 2012. Let start by closing out the 2011 portfolio:
All data as Jan 31, 2012
As you can see, it was a very good year for the Stocks to Triple portfolio. We laid a couple eggs in the back-half, but the average peak return was still 109% versus a peak return of 19% for the NASDAQ. Interestingly, this average was actually dragged down by the five companies that were acquired (these picks represented 28% of our portfolio). If we exclude those companies (and STX -- a recent pick), the average jumps to 138%.
In addition to the five acquired names, four more of our picks tripled (giving us a triple-or-get-acquired hit rate of 50%). Most recently, Broadvision (BVSN) tripled in a three week span. Adding to the hit parade, our Jan 24th article got investors out just in time. Two days later, the company reported disappointing results for its December quarter. See Jive IPOs, Broadvision Triples: Who's Next? for more.
Overall, our winners provided plenty of cushion for the losers. This validated our strategy of buying a diversified basket of companies that appear poised to triple.
So, who appears poised to triple in 2012?
Personally, I believe it's a bad time to ask. Based on our work at Pipeline Data, we see a weak purchasing environment unfolding before our eyes. Now that Q4 earnings season is winding down, we expect investors to turn their attention to the future. When they do, we expect that they'll see what we see -- a sluggish start to 2012.
That being said, we have identified a handful of companies that are well-positioned to flourish whether the environment remains strong or weakens:
All data as Jan 31, 2012
Our first entry is Majesco Entertainment (COOL). COOL owns the hit video games, Zumba and Zumba 2. These titles have been on fire, scoring the rare distinction of having an original AND a sequel selling among the top 10 selling games for the Wii platform. Soon, COOL will attempt the same feat on Xbox Kinect. In just two weeks it will release Zumba Rush, powered by a newly-signed strategic relationship with Microsoft. This partnership has the potential to add fuel to the already-streaking franchise.
In additon to this near-term catalyst, COOL just completed its January quarter. We expect the company to comfortably top analysts' expectations. Looking further out, if the economy keeps rolling, customers will have plenty of spare cash to keep buying COOL's hit titles. However, if GDP grinds to a halt, we expect consumers to cut back on costly Zumba lessons and buy Majesco's Zumba games to save money. Either way, COOL wins. You can find more details on COOL by reading, "Shares Of Majesco May Be Getting Ready For Another 300% Move."
A similar situation exists for Zhone Technolgies (ZHNE) and Calix (CALX). After numerous delays, including the disastrous tsunami in Japan, the U.S. Broadband Stimulus package is finally gaining traction. The timing couldn't be better. If the economy begins to stall, we can expect the U.S. Government to push this initiative into overdrive. If U.S. growth continues to chug along, we can expect spending on ZHNE and CALX to do fine on its own. It all comes down to a simple reversal of the factors that drove these stocks lower in 2011.
CALX is the larger play on this dynamic ($350M market cap). After gobbling up Occam Networks (one of our former picks), CALX now stands to collect the majority of stimulus spending on networking equipment.
This will leave ZHNE with a smaller share, but relative to its size, ZHNE's piece of the pie should make it the more explosive pick. For the latest on ZHNE, see, "Zhone Technologies Achieves Profitability Ahead Of A Pivotal 2012."
For Attunity (ATTUF.OB), the company and its shares appears poised for another year of meteoric growth. The company recently reported revenue of $5.7M, up 121% year over year. This was driven by its flourishing strategic relationships with Microsoft, IBM and Oracle.
Based on discussions with the Gartner Group, it's clear that Attunity possesses unique strengths in the red-hot data integration space. Indeed, Attunity's technology is in an integral piece of Micosoft's (MSFT) latest version of SQL Server. Thus, one of Attunity's partners might want to acquire the company to gain a competitive advantage. This gives the company two avenues for appreciation -- growth and/or acquisition. You can learn more by reading, "Software Earning: Attunity Reports 100% Growth; Broadvision Looms."
For investors seeking a large cap port in the storm, Seagate (STX) might fit the bill. Following last year's devastating floods in Thailand, STX took over as the industry's #1 maker of hard disk drives. See, "Shares Of Seagate Technology Could Triple In The Wake Of Thailand Floods," for more on this.
Last night, STX reported blowout results and guided well above consensus estimates. With HDD supplies set to remain constrained through 2012, STX is among the most likely tech names to continue meeting (or beating) expectations this year … even if the economy turns south.
For those seeking a hedge, Ariba (ARBA) is a company to consider shorting. The company recently disappointed investors with its guidance forecast, sending the shares lower by $2. Even if the economy presses onward, ARBA faces an onslaught of strengthening competition. IBM and privately-held companies like Coupa and Verian have been growing fast. We strongly believe this has been at ARBA's expense and the trend is just getting underway. You can find more on this by reading, "Competitors Converge Around Ariba."