Nine Long-Shot Stocks That Could Double

Risk-taking investors a year ago were buying the stock around $1.25. Since then, the company moved to the American Stock Exchange and then back to the Nasdaq. Management has repeatedly raised earnings and revenue guidance, and trading volume has surged from 259,000 shares a day last year to 535,000 shares a day in the second quarter to 848,000 shares a day last month. Most shares are still held by independent money managers, with no major mutual funds listed as holders as of April 2005.

If the story holds up, the price will move higher as the Fidelities of the world come in. Another double in the next year seems unlikely, however, as its price/sales multiple is already more than 6.5 at a current market cap of $658 million.

Beaten Up, Bouncing Back

So, which companies might double in the next 12 months? I screened for stocks that are at least 50% lower than their five-year high but are up 25% from their lows, have seen increasing trading volume, trade at a low multiple of sales, have the right type of institutional owners and are in a sector on the upswing. One that looks promising is Danka Business Systems(DANKY), which leases and distributes business machines. It has a $150 million market cap and a price-to-sales multiple of 0.12, and it trades at $2.37.

It's down from a one-year high of $4.15, and its most recent earnings report, posted last week, showed that a recent restructuring had led to an improvement in margins and revenue growth and a reduction in expenses. The stock traded at $4.75 as recently as April 2004, and if the resurrection effort continues on its current path, along with a global economic recovery, Danka can get back there again.

I've been early and wrong on fiber-optics components makers for more than a year, so I have nothing to lose by making Bookham(BKHM) my top pick. Its earnings report last week suggested that business has stabilized and turned around. Revenue shows sequential and year-over-year increases of 22% and 57%, respectively. Gross margins improved by 19 points. Its liquidity position was enhanced by an asset sale, and pricing and demand among end users such as Nortel Networks(NT) are improving.

With a really cheap valuation -- its price/sales multiple is around 0.6, vs. the 1.1 average of its peers -- there are few reasons other than global recession why the stock can't get back to the $6.50-$7 area by the end of 2006.

Other companies that fit the profile
Company	Price	Market Cap	Avg Daily Volume	Industry
Bookham (BKHM, news, msgs)	$3.60	$121.7 million	159,700	Semiconductors
Beacon Power (BCON, news, msgs)	3.05	133.6 million	1.55 million	Electric utilities
Iomega (IOM, news, msgs)	3.00	154.8 million	319,300	Data storage
Tarrant Apparel Group (TAGS, news, msgs)	3.60	104.4 million	475,800	Textile -- apparel
Main Street Restaurant Group (MAIN, news, msgs)	4.43	75.17 million	120,200	Restaurants
Peerless Systems (PRLS, news, msgs)	3.72	61.06 million	60,900	Computers
Overhill Farms (OFI, news, msgs)	3.55	52.86 million	50,700	Processed & packaged goods
New Dragon Asia (NWD, news, msgs)	1.13	50.92 million	102,700	Processed & packaged goods

The likelihood of more than one of these ideas advancing more than 100% in the next 12 months is pretty small. If you'd like to propose a few of your own, send me an email and put "2X" in the subject field. Candidates must currently trade over $1, have a market capitalization of more than $50 million and trade more than 25,000 shares a day on average. Include the reason for your speculation, and I'll publish the most interesting ideas in a future column.

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