Markets have been trending lower as the reality of numerous economic challenges around the world settle into the minds of more investors. The current pessimism is not unwarranted and the markets could easily be headed much lower. However, even on days when the major indexes are plunging, there are some stocks that are seeing huge gains. The same can be said even if the markets have a bad year. Investors can often find it hardest to buy stocks when stocks are down. It is so easy to stay in the comfort of cash, but staying in cash is not how investors like Warren Buffett got to be billionaires and the best buying opportunities are usually when investors are bearish and prices are low.
Since we don't know if the European debt crisis will spin out of control, of if the U.S. economy will go off the fiscal cliff, it makes sense to take smaller positions and average in over many months. It also makes sense to look for stocks with big upside potential and to keep in mind that there are stocks in this market that will double or even triple in value in the coming months and years. That's why investors should keep looking for opportunities, even when others are bearish. If you need encouragement, just look at the top ten gainers list which will show you stocks that are up 20, 50, or even 100% on some days, with companies that announce good news, a buyout, etc. I have been researching stocks that appear to be trading at bargain valuations and that also have significant upside and turnaround potential. While these stocks have seen short-term drops in value, analysts are bullish and have set longer-term price targets at much higher levels. Analysts usually set price targets for where they believe a stock will trade at in the next 12 months. Here are 3 stocks that analyst expect to roughly double in value in the next year or so:
MGIC Investment Corporation (MTG) shares have been very volatile which is not surprising since it trades well below $5 per share and because it is a leading mortgage insurance company. The housing market crash put extreme pressure on companies like this, because many claims surfaced for defaulted mortgages. However, recent data shows an improving trend for housing and the S&P/Case-Shiller Home Price Index, which is a national benchmark for U.S. home prices, showed that prices rose 1.3% in April. This company has also been reporting improving trends in the financial results. For the first quarter of 2012, it reported a net loss of $19.6 million, or 10 cents per share, but this is an improvement over losses of $33.7 million, or 17 cents per share for the same quarter last year. This stock is a higher-risk investment because the company has been, and is expected to continue reporting losses. However, if the company sees improved results the upside in the stock appears to be significant, especially in the long-term. Short-term traders can also find opportunity by buying the stock on pullbacks when the markets correct and then sell when the stock spikes on positive housing data, or when markets rally. This year, FBR Capital set a $5 price target and gave the shares an outperform rating.
Here are some key points for MTG:
- Current share price: $2.61
- The 52 week range is $1.51 to $6.60
- Earnings estimates for 2012: a loss of $1.64 per share
- Earnings estimates for 2013: a loss of 49 cents per share
- Annual dividend: None
MGM Resorts International (MGM) shares were trading around $14 in May, but have pulled back with the markets. This company could be a major beneficiary of lower gas prices because it owns several of the most popular hotels and casinos in Las Vegas. MGM's properties include Bellagio, New York-New York, Mandalay Bay, The Mirage, Monte Carlo, Aria, and others. When consumers have more money from lower fuel prices, they are more likely to spend on vacations. Lower gas prices also makes driving to Las Vegas less expensive, (which is what many residents of Los Angeles do each year). Analysts expect MGM to continue posting losses, however the trend is going in the right direction and some believe the company will post near break-even results in 2013. The company might be able to advance the move towards profitability by refinancing its rather large debt load at lower rates as it matures over the next couple of years. MGM has about $13.36 billion in debt and $1.77 billion in cash on the balance sheet, so a lower borrowing cost could bring very significant benefits to the bottom line. This company has top-quality hotel and casino properties and a management team that seems intent on restoring profits. At just about $10 per share, the stock looks cheap. Analysts at Stifel Nicolaus have given MGM shares a buy rating and set a $20 price target. This would give investors buying now, a near double.
Here are some key points for MGM:
- Current share price: $10.50
- The 52 week range is $7.40 to $16.05
- Earnings estimates for 2012: a loss of 50 cents per share
- Earnings estimates for 2013: a loss of 20 cents per share
- Annual dividend: none
Kronos Worldwide Inc., (KRO) shares were trading around $23 in May, and dropped sharply in the market correction to just about $14. Since this company is a leading maker of chemicals and coatings that are often used by various industries, it is highly tied to the global economy. However, the company has been posting better financial results and it has been solidly profitable. For the first quarter of 2012, Kronos earned $136.9 million, or $1.18 per diluted share, this compares favorably with $60.3 million, or 52 cents per diluted share, in the same quarter last year. The company has been planning to raise prices on certain products which could lead to even stronger financial results in the future. It also could benefit and see higher profit margins from the recent drop in commodity prices both directly and indirectly, since many of its customers are industrials. With the stock trading at about 4 times earnings, and with a solid dividend yield of nearly 4%, the shares look too cheap. In another sign that investors might be overly bearish on Kronos, multiple officers and directors have been buying shares throughout 2012. Earlier this year, Standpoint Research placed a buy rating and set a $32 price target for Kronos shares. With the shares trading down in recent weeks, this would give investors more than a double from current levels.
Here are some key points for KRO:
- Current share price: $14.32
- The 52 week range is $14.16 to $31.88
- Earnings estimates for 2012: $2.64 per share
- Earnings estimates for 2013: $2.66 per share
- Annual dividend: 60 cents per share which yields 3.8%
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.