Sohu.com (SOHU), one of China's leading Internet portals, has built an impressive array of gaming and leisure Web sites. According to Internet-tracking Web site Alexa, Sohu.com is the ninth most-visited site in China, six steps below rival Sina. The company has been able to grow revenue and earnings at a 30% clip over the past year, despite increasing competitive advertising pressures from the likes of Baidu (BIDU), Sina (SINA), Tencent and Alibaba. According to Bank of America Merrill Lynch research, shares of Sohu are worth $104 (30% upside), with the company's core portal business worth $56, and its 67% stake in gaming site Changyou (CYOU) worth an additional $48.
VMWare (VMW) is the undisputed king of virtualization services. In simple terms, virtualization allows companies to run more than one server on the same hardware. The company has been a huge benefactor of the move by IT departments to improve efficiency and cut costs. While revenue was up 40% over the past year, the stock seems to be priced for perfection, trading at nearly 44 times 2011 earnings estimates. JPMorgan analyst John DiFucci calls VMW a "compelling story," yet remains neutral on the stock due to valuation. DiFucci notes that "it's not difficult to ignore traditional valuation metrics when a company appears to have so much wind at its sails, but we'll wait this one out for now."
Portfolio Recovery Associates (PRAA) outsources receivables-management-related services. The company buys charged-off debt for pennies on the dollar and tries to collect from consumers. Revenue grew 33% in 2010 and is expected to increase by 25% this year.
Purchase prices on debt have increased compared to what was seen in 2008 to 2010, yet are still below peak levels. Managment has noted that there are still many attractive buying opportunities in regard to debt, and has bought nearly $200 million in charged-off debt during the first half of 2011. Even with a struggling consumer, the company was able to increase the collections from bankrupt accounts by 56% in the second quarter. Based on 2011 estimates, the stock is trading at just 12 times earnings, and with projections for 20% growth to continue, the stock looks attractive.Have any thoughts on this list? Feel free to comment here or message me on Twitter @bostoncfa >>To see these stocks in action, visit the 30 Top-Rated, Fast-Growth Stocks portfolio on Stockpickr.
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