These small caps have big moves ahead.
There’s a reason I am a big fan of small cap stocks, and of small cap value stocks, in particular. They have the greatest chance to return multiples on your investment.
That’s not to say large-cap stocks are losers. You can get nice steady returns from them, and some of those can even double or triple or offer even greater returns. But when it comes to those ten-baggers that Peter Lynch talks about, small caps are the place to be.
I can’t say if these next three stocks are going to be ten-baggers or not, but I can say with a lot of confidence that I expect them to double within the next two years. Each of them is either oversold, in the midst of a turnaround, or is executing on its growth plan.
Here are 3 Small Caps Aimed for 100% Returns.
Small Cap No. 1: EZCorp (NASDAQ:EZPW)
EZCorp (NASDAQ:EZPW) is a stock I’ve followed, and owned on and off, for many year. It is exactly the kind of Peter Lynch stock that deals in an area that some might find distasteful, but that’s because they’re being judgmental, and there’s no place for judgment in business.
EZCORP owns more than 1,000 pawn and payday loan stores in the U.S., Mexico and Canada. The company made a big mistake in bringing on a management team that made all kinds of non-core acquisitions, and paid way more for them than they should have.
The good news is the ones related to Mexico, which include a firm that lends directly to employees and reaches into their payroll check for repayment, is starting to pay off.
That management team has been thrown out, and replaced by a completely new set of folks with impressive credentials. EZ is looking to return to its core business of pawnshops, while growing the new initiatives. With the stock at $9.80, and the ability to grow, this stock should hit $20 in two years or less.
Small Cap No. 2: Akorn, Inc. (NASDAQ:AKRX)
Akorn, Inc. (NASDAQ:AKRX) engages in the manufacture and marketing of diagnostic and therapeutic pharmaceutical products, hospital drugs and injectable pharmaceuticals. Akorn is a highly specialized company and has 22 drug applications sitting with the FDA, looking to capture a $3 billion market.
Analysts see 25% annualized growth over the next five years, and on FY15 earnings of $1.51, it suggests fair value of around $37. The stock is at $36 now, and I believe we will see compounded growth even higher than that.
The company sits on $45 million in cash and only $111 million in debt. Unlike many pharmaceutical companies, Akorn isn’t burning cash. In fact, it has positive free cash flow of almost $46 million in FY13.
Small Cap No. 3: 8×8 Inc. (NASDAQ:EGHT)
8×8 Inc. (NASDAQ:EGHT) develops and markets telecommunications services for Internet protocol (IP), telephony and video applications. The company offers 8×8 Virtual Office Business Telephone Service, an alternative to traditional private branch exchange systems that offers automated attendants to assist callers. This story is all about the company’s products, and they are being adapted by a lot of businesses.
The company’s churn is extremely low, suggesting that customers stick with the company’s products. The company’s earnings are set to increase 18% annually for the next five years. What I like is that EGHT has no debt, but $171 million in cash, which is almost $2 per share.
That gives it an effective stock price of only $5.97. I think the company’s services have earned enough loyalty that earnings will rise more quickly than anticipated, and the stock will be at $16 within two years.
Lawrence Meyers owns shares of EZPW.
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