Inside Wall Street: Four Stocks That Could Double Your Money
"Only buy stocks that are likely to hit the fences." That's what a number of seasoned stock pickers say -- and they make a bundle doing just that.
The hot-hand investors don't settle for a 15% or 25% return -- they aim for home runs. More specifically, they are in stock investing to double their money. True, these aren't your run-of-the-mill money managers, but such a feat can be achieved on a regular basis. These stock pickers are, however, rigidly disciplined about sticking to their own hard and fast rules.
Before I mention several stocks that might double your investment dollars, let's name some that actually did just that in about a year.
Stocks That Have Doubled
Novellus Systems (NVLS), TriQuint Semiconductor (TQNT), Holy Corp. (HOC), Mercer International (MERC), and Apple (AAPL) are some of the stocks that doubled within a year, although they represent only a small fraction of the 8,000 stocks that trade in the U.S. Some investors caught them at the right time and reaped 100% gains.
Robert C. Auer, senior portfolio manager at Auer Growth Fund (AUERX) and founder of SBAuer Funds, is one of the few investors who religiously adheres to a "double-your-money" strategy. SBAuer now manages some $235 million, having started with just $2 million in 1999.
"We canvass and screen all stocks trading in the U.S., and applying our dedicated investing principles, we have counted only 114 stocks, so far, that we believe would be capable of doubling in a year -- and we bought shares in all of them without exception," says Auer.
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Auer first purchased 165,100 shares of Novellus on Feb. 10, 2010, at $21 a share, and sold them in March 2011 at $42. It's now trading at $37. In the case of TriQuint, the doubling in price took just seven months. Auer bought shares at $6.57 each and sold them at $13.21 on Jan. 5, 2011. In the case of Holy, he bought at $26.29 in November 2010 and sold when the stock reached $52 on Feb. 2, 2011. With Mercer, it took only three and a half months for Auer to double his investment. He bought shares at $5.89 in December 2010 and sold them on Feb. 15, 2011 at $12.79.
Sticking to Your Investing Principles
Apple is the one stock that got away. Auer wished he had bought shares early on because the stock doubled on several occasions. Auer didn't buy into Apple, however tempting, because it didn't meet one of his three principles for buying stocks: a price-to-earnings ratio below 12. From the time investors caught on to the magic of Steve Jobs and Apple, the stock's price-to-earnings ratio ranged between 14 and 20.
Auer's two other seemingly simple, but tough investing principles are: A company's earnings growth in the most recent quarter should be at least 25% above the previous year, and revenue growth in the most recent quarter should be at least 20% higher than the year before.
"We don't bother to know or decipher what kind of companies they are because we don't want to be distracted by factors other than our three cardinal buying principles," says Auer. So what are some of the stocks that qualify?
Doubling Your Money
Here are four companies that aren't household names but meet Auer's stringent "double-your-money" buying principles:
Cliff Natural Resources (CLF), the largest supplier of iron ore pellets in the North American steel industry, currently trades at $98.25 a share. In its latest quarter, the company posted earnings growth of 98%, compared to a loss a year ago. Revenues jumped 50% during the quarter. Despite such impressive results, the stock is trading at a price-to-earnings ratio of just 11. Auer bought shares at $58.72 a share in August 2010. It's not too far from a double at this point.
Rubicon Technology (RBCN), now trading at $27.46 a share, makes mono-crystalline sapphire used for light-emitting diodes mainly for cell phones and video screens, as well in semiconductor manufacturing and laser imaging. Auer bought shares on Feb. 15, 2011 at $23, then trading with a 10 price-to-earnings multiple. What's impressive about Rubicon is it posted an unbelievable 100% jump in earnings in its most recent quarter, on revenues that leaped about 80%. The stock is now at $26 a share.
KLA-Tencor (KLAC), the world's leading maker of yield-monitoring and process control systems for semiconductor companies, is trading at $47.25 a share. It posted a stunning 393% earnings growth in its most recent quarter, on revenues that advanced 74%. Auer bought shares in early March at $45 a share, then trading with a price-to-earnings ratio of 10.5. Auer says the company expects sales to leap even more because of exploding demand for its products from makers of tablet computers, such as the Apple's iPad, and iPhones.
Cimarex Energy (XEC), an independent oil and gas exploration and production company with operations in the Midwest, Permian Basin, and the Gulf of Mexico, is trading at $115 a share. Its production is 61% natural gas and 39% oil. Auer accumulated shares between $70.46 and $79.82 in November 2010, when its price-to-earnings ratio stood at around 10. The stock is currently trading at $116.87. "It has been a fast-moving stock, and I am sure it's on its way to doubling in price," says Auer.
So far this year, there are only nine stocks that have doubled during the first quarter of 2011, based on Auer's investing guidelines. For investors seeking such huge returns, and who are impressed with Aeur's investing principles and track record, the four stocks among the 114 he has targeted look attractive, indeed.
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