The speculation gene is alive and mutating in Supermodels readers this summer, as I received hundreds of responses to my request for suggestions on stocks that could double over the next 12 months.

In a country that loves lotteries, race tracks and slot machines, there's little wonder that more than 90% of the ideas were the sort of very small companies that the investment world calls microcaps -- and more than half of those were the very iffy companies that trade in the netherworld of the notorious Pink Sheets or on the Bulletin Board.

Blame me for making the criteria so open-ended. I required only a price over $1, market capitalization over $50 million and daily trading volume of 25,000. And my own nine suggestions weren't exactly contenders for heavyweight crowns. The pick that I offered that has risen the most since -- fulfilling its one-year target in two weeks with a 117% gain -- was New Dragon Asia ( NWD), a small but mighty maker of instant noodles in northern China.

So in the spirit of those who like their free lunch fast and hot -- and with a caveat that they could easily spill and burn -- here are some readers' proposals for stocks that could double in the next year. (Because I'm a penny-stock prude, and to provide a modicum of sobriety, I have removed all of the Pink-Sheet and Bulletin Board ideas from this soup.)

An Educated Guess

Most picks were in the technology world, but let's start with Learning Care Group ( LCGI), which is essentially a franchisor of preschool programs for tots as well as after-school programs for older children. Its schools are marketed under the Childtime and Tutor Time brand names across the country, and they serve a highly fragmented industry.

The stock fulfills a number of my requirements for potential doublers: It has traded as much as three times higher in better times and for less than $1 in worse times. It has a new management team that has developed a fresh approach to franchising and expanding a core concept.

Its chief executive has been buying shares in the open market, and its shares are cheap in relation to those of its industry peers, with a price-to-sales multiple of 0.5. Institutional owners include the smart folks at DDJ Capital Management, a specialist in distressed companies, and the value hounds at Heartland Advisors. And there has been solid but not outrageous recent technical momentum. A double would only take the market capitalization of Learning Care to $220 million, which is reasonable for a company with $212 million in trailing 12-month sales.

There weren't many suggestions for down-and-out names in the S&P 500, but one proposed by several readers was Symbol Technologies ( SBL), the battered leader in electronic-capture devices. At their 2000 peak, Symbol shares traded as high as $45, and early this year they fetched $19. Now going for the low, low price of $8.36, Symbol has sunk to a multiyear-low valuation because of a number of product-planning missteps, executive exits, lawsuits and accounting delays.

Still, this is a company whose products are becoming ubiquitous. Cash flow has been robust, insiders were buying shares at least as recently as mid-May, and value- or vulture-oriented funds such as Columbia Wanger and Tudor Investment have been buyers.

Says reader Robert Ladd: "Unless this company has a closet like Imelda Marcos, all the shoes have fallen -- including the resignation of its recently hired chief executive to go run NCR ( NCR). Despite the accounting problems, the Securities and Exchange Commission investigations and the management turnover, Symbol still has a virtually debt-free balance sheet and a resilient business in bar codes and RFID devices. Revenue is running at an annualized rate of $1.8 billion. At normalized level of profitability, earnings per share should be 75 cents to $1. More likely is that the board throws in the towel and explores alternatives. My estimate of private market value is $15 per share."

No Two-Baggers Here

Before going on to more picks, let me explain some of the ideas that I won't go for. Reader Henry Clampitt, along with many others, believes the prospects for OmniVision Technologies ( OVTI) -- a leading manufacturer of low-power CMOS sensors for digital cameras and cell phones -- are very bright.

The company has announced a lot of design wins, cash flow appears solid, and shares have certainly traded down from a much higher level. But the market has pushed the stock down, largely because investors believe this is going to be a highly price-sensitive commodity-chip business even for a technology leader.

Industry giant Micron Technology ( MU) has moved into these sensors in a big way, because CMOS products -- that's short for complementary metal oxide semiconductor -- are made on lines similar to those that produce its trademark memory chips. Because of its enviable role in the industry, OmniVision may see its shares rebound 50% or more on a buyout, if a larger entity wants fast entree into the segment. But I don't think they're shooting back to the $26 area for a double in the next year.

Other supposedly sure things that many readers call out are biotechs. These are so very enticing -- every single one of them has an amazing story. They cure cancer, they resurrect libidos, they banish eczema, they -- well, you get the picture. There is not one mammalian ailment for which there is not a tiny, low-priced public biotech company in the hunt for a solution with a protein, a molecule, a compound or a cream.

It seems that one of these hits the jackpot with clinical trials or a successful conference presentation every few weeks, but very few of these cures ever get approved by the Food and Drug Administration. And it seems that you don't hear so much about the many, many losers. In fact, there are so many fewer winners than losers in biotech that I personally find it too close to call. Since I am a sucker for every hard-luck story that these drugs solve, I find it necessary to just stay away.

For those of you who are gamblers, scientists or biology students who have more experience at winning the biotech lottery than I, here are two names proposed by readers:

  • CollaGenex Pharmaceuticals ( CGPI), with a candidate for the oral treatment of rosacea, now trades at $7.88, down from $16.80 two years ago and $31 in 2000.

  • BioCryst Pharmaceuticals ( BCRX) now at $7.20, was formerly as high as $34 and as low as 60 cents. Its key product is Fodosine, which is said to be a potent purine nucleoside phosphorylase inhibitor progressing through clinical trials to treat refractory T-cell acute lymphoblastic leukemia.

    Double or Nothing

    Several reader ideas comprise what some analysts call bimodal stocks: There's an event on the horizon that will, when resolved, either make them go up 300% or 400%, or down more than 50%. Reader Kevin Ashworth suggests consideration of Boston Communications Group ( BCGI), a service provider for wireless carriers. It has lost the first phase of a patent-infringement lawsuit and has seen its shares plunge from $22 in 2003 to as low as $1.28 a month ago. They're now fetching $1.82.

    Ashworth says that a judge is poised to rule on whether to enforce the lawsuit judgment, which would send the company into bankruptcy, or to nudge the parties into a settlement, for which carrier Cingular would be partially responsible.

    Mediation could bring the parties to settle for a licensing agreement that would allow Boston to pay its bill over time rather than through a trustee. If that happens, shares could certainly double to the $3.50 area or beyond. But don't forget that mediation could also fail, in which case Boston's shares would undoubtedly sink to pennies.

    Transmeta ( TMTA) is my final highlight among reader ideas, and one of the most popular. This maker of semiconductors for notebook computers was at one time the most ballyhooed initial public offering of 2001, but it plunged from those heady days near $50 to a low of 58 cents in late June as it became increasingly clear that its business plan was in ruins.

    Or was it? Shares have tripled in the past two months after an earnings report in early August showed results that stunned the market; Transmeta posted its first profitable quarter, and gross margins hit 67%, levitated by licensing and a sale of inventory that had previously been written down.

    Analysts now expect that some other major companies, such as Toshiba, may license its LongRun-2 technology by the end of the year. If this traction takes hold, a return to the high $3 range over the next 12 months may be unlikely but not impossible.

    Please note that due to factors including low market capitalization and/or insufficient public float, we consider NWD, LCGI, CGPI, BCRX, BCGI and TMTA to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that columns such as this one can have an effect on their stock prices.
    Jon Markman, writer of TheStreet.com Value Investor, is the senior investment strategist and portfolio manager at Greenbook Investment Management, a division of Greenbook Financial Services. Separately, he is publisher of StockTactics Advisor, an independent weekly investment research service. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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