More Names for the Long-Shot List

 | Mar 26, 2013 | 3:40 PM EDT
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Yesterday we looked for some long-shot stocks using the research provided by Standard & Poor's and came up with some ideas worth exploring as potential home-run stocks. Today I want to go to my old standby Value Line and see what promising long-shot speculations I can find for patient, aggressive investors. I look at the stocks that Value Line says have the highest three-to-five-year return potential and apply some survivability analysis and a healthy dose of common sense.

I always quickly scan this list of stocks that have extraordinary long-term returns to see if any of my current core value holdings make the grade. I see that Nabors (NBR) makes the grade: Value Line is looking for the stock to appreciate 200% to 300% over the next few years. That's in line with my expectations for this stock as well. Nabors is the world's leading land-based driller, and activity will eventually increase and benefit the stock.

Cliffs Natural Resources (CLF) also has the potential for huge returns from this very depressed level, but I suggest you wear a seatbelt, as this stock offers a bumpy ride to profits. Panasonic (PC) is also still on the list of potential long-shot winners, in spite of impressive performance already this year. BGC Partners (BGCP) remains on the list of potential high performers as well, as the real estate division has enormous upside as commercial real estate continues to improve.

One of my favorite long shots from the depths of the real estate crisis is back on the list this year. After several years as a Wall Street pariah, FelCor Lodging (FCH) is now picking up buy recommendations from several firms, and the stock is actually flirting with new highs for the year. After several years of selling assets, paying down debt and reworking the portfolio, FelCor now has ownership interests in 76 hotels -- more than 21,000 rooms. Most of them are upscale hotels branded under well-known national names.

FelCor paid off its preferred dividend shortfall and has reduced overall leverage by quite a bit over the past few years. It has lowered interest costs, and costs should fall even further as debt is paid off or reworked this year. Many people believe the firm will be healthy enough to reinstate a dividend this year. The stock has done well in the past year but still has a long way to go, in my opinion.

Cross Country Healthcare (CCRN) continues to struggle to gain the traction needed to execute a turnaround. It sold its clinical trials division last month and is now focused on the physician and nursing staffing business, and results there are improving. Demographic and economic trends favor the company's basic health care staffing businesses, but the weak economy recovery is slowing down the timetable to profits. The stock will probably continue to be frustrating in the short term, but I don't have to stretch my imagination to see this stock triple over the next few years.

I have mentioned Casella Waste Systems (CWST) in the past as a long shot. This is a classic stub stock -- most of the capital in the company is debt rather than equity. There is almost $4 of debt for every $1 of equity in the company, but if it survives until the economy recovers fully, this could easily be one of these stocks Peter Lynch used to call a ten-bagger.

Casella has an extensive waste and recycling assets as well as nine landfills that should provide the cash flow that management needs to pay down debt over the next several years. As the economy picks up and we begin to see a pickup in construction and demotion landfill volumes and increases in pricing for recycled commodities, this company should be able to complete its transformation and potentially become a growth stock. It is a highly leveraged, somewhat risky stock, but the potential payoff looks to be worth it for patient investors who have a high threshold for volatility.

Long-shot investing is not for everyone by any stretch. You have to be aggressive as well as patient, and that is a somewhat unusual combination. Doing your own homework and research is essential to success, and you need to own a lot of these high-risk, high-reward stocks to make the strategy work. However, I have found that it does work very well if you have the personality and skill set to be a long-shot investor.

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