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Each week when I go through the current edition of Value Line's newsletter, I look over the list of stocks that the investment research service says have the highest three-to-five-year annual returns. While these stocks are not all classic deep-value candidates, this collection of long shots and turnarounds uncovers some fantastic opportunities.
I dedicate a small portion of my portfolio to these picks, but if I were a younger man, I would concentrate much more of my attention on these special-situation stocks. While everyone else was waiting for new Fed Chair Janet Yellen this morning, I thought it would be more productive to take a longer look at some candidates that could give us returns measured in multiples rather than percentages.
Fairway Group Holdings (FWM) is a delightfully broken IPO. The company came public last April at $13 a share. Naturally, the market loved the idea of upscale grocery stores in the New York City market, and the stock jumped up as high as $29. It has been pretty much downhill since then, as results have disappointed, and the CEO who drove much of the success at Fairway stepped down. The company currently has 15 stores and plans to open three to four stores a year.
Although Fairway may face competition from Whole Foods (WFM), I believe the New York City market is big enough for both of them. The next few quarters will probably be weak, but if Fairway enjoys any sort of long-term success at growing the store base, this stock could easily gain 100% or more over the next few years. It is definitely a long-shot stock but one that would seem to have enormous payoff potential.