A Closer Look at Long Shots

 | Mar 25, 2013 | 3:00 PM EDT  | Comments
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Stock quotes in this article:

tnp

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ftr

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win

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cvgi

Much of the talk over the weekend was, of course, centered on the Shockers and the Eagles, as well as the continuing drama in Cyprus. As brackets and the European Union debate exploded, one associate wondered if we couldn't just get all the Cyprus stuff behind us so we could talk about something new, like Spain, Greece or Italy. It seems that when it comes to Europe, the song remains the same and the news cycle just repeats itself every few weeks. The macro guys are celebrating or crying in their coffee this morning based on which way they bet the mess this time. Trying to decide which way the various global political and financial winds will blow in an attempt to profit seems like way too much work to me so, I will stick with finding stocks that might go up in multiples instead of percentages and hoping that Duke can muddle tough and save my bracket.

Most of my attention this week is being spent finding and developing long shot ideas. Over the past week or two, I outlined what is still cheap enough to buy right now among classic value stocks. Until we get into earnings season, I do not expect this list to change much so I am wandering the darker corners of the stock market kicking over rocks in search of actionable ideas. Buying a portfolio of somewhat higher risk but potentially spectacular rewards has paid off big the past few years, so I thought I would dig around and see what is lurking in the shadows.

One approach is to look for stocks whose prices have languished in the single digits but are ranked very highly by respected research. This morning, I looked for low-priced stocks that are given either 4 or 5 stars by S&P Capital IQ, the equity research arm of Standard & Poor's. Over the years, I have uncovered some gems on this list and they are one of the better fundamental research services around.

One of my current holdings makes the list, and, although shares of Tsakos Energy Navigation (TNP) are up 11% so far this year, the stock can still be bought at this level. The crude oil shipper trades at just 20% of tangible book so there is enormous upside to the shares for aggressive and patient investors. The company's fleet of 50 vessels is split between crude and refined products and they will benefit enormously form the developing market for liquid natural gas. S&P has a 12-month price target of $7 on the stock, which is more than 60% above the midday price of $4.18. Over the longer term, the stock could easily triple and still trade at just 75% of tangible book value.

Both Frontier Communications (FTR) and Windstream (WIN) have accumulated telecommunications assets serving primarily rural areas of the U.S. Both are ranked highly by ratings service and both offer very high yields, with Frontier yielding a little more than 10% and Windstream over 11%. Frontier's assets are in the western U.S. as well as West Virginia and New York. Windstream's operations are primarily in the southern portion of the country. Both have growth opportunities in the data and broadband markets and should be able to maintain the dividend payout. I would buy both rather than try to pick a winner in the rural telecom markets. There is a good chance they both do very well over time. Frontier was trading at $3.91 for and Windstream at $8.45 earlier this afternoon.

At about $8 per share, Commercial Vehicle Group (CVGI) is a single-digit stock that could see strong appreciation over the next year as the market for heavy-duty trucks continues to improve. The company is the leading provider of seats and seating systems to the heavy-duty truck market and it should see earnings and finance improve as the economy continues to improve and pent up demand reaches the market. Earnings maybe flat in the first half of the year as inventories at the manufacturers are worked down, but the second half should show strong improvement in revenues, earnings and, hopefully, the stock price.

Long shots are not for everybody, but for those who have a longer time frame and a stomach for the higher volatility associated with these stock, the rewards can be substantial.

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