Three Cheap Speculative Bets

 | Apr 20, 2012 | 10:30 AM EDT
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Thursday turned out to a great day for the speculative part of my portfolio. My position in Human Genome Sciences (HGSI) doubled as the company spurned GlaxoSmithKline's (GSK) buyout offer of $13 a share. I was fortunate to pick up some shares late last year for $7 and sold them for $14 yesterday.

Human Genome Sciences is typical of some of my small-cap picks -- that is, a relatively underfollowed stock that has seen much better days and a much higher stock price. The majority of times, the company is currently not making money or just breaking even but has prospects for a much brighter future and a much higher stock price. As is typical in the small-cap space, the stock can go sideways for a long time before some piece of good news or M&A activity causes it to skyrocket.

Here are three stocks with similar profiles that could richly reward patient, aggressive investors who are looking to add some beaten-down, speculative plays to their portfolios.

Aviat Networks (AVNW) provides a range of wireless networking products, solutions and services worldwide.

Four reasons Aviat will reward long-term investors at just $2.50 a share:

  1. This is an earnings turnaround story. The company lost $0.10 a share in fiscal 2011, is on track to breakeven in 2012, and analysts predict it will make $0.17 a share in 2013.
  2. Aviat has a comforting balance sheet, with net cash of $70 million, which is just under half its market capitalization at current prices.
  3. The stock is cheap, under book value and at just 34% of annual revenue.
  4. The company has easily beat earnings estimates the last three quarters. Given that this was a $7 stock less than two years ago and sales growth should return in 2013 (fiscal year starts in two months), the stock should provide nice rewards to investors if the company can execute its turnaround plans.

Capstone Turbine (CPST) manufactures and services turbine generator sets and related parts for use in stationary distributed power generation applications.

Four reasons Capstone Turbine is a solid speculative play at $1 a share:

  1. The company continues to have rapid sales growth with its microturbines aimed at the oil and gas shale sector. It recently received another significant order.
  2. These products are powering Capstone's revenue growth. Analysts predict over 30% sales growth in 2012 and 2013. This explosive growth is starting to get the company noticed, and the company's CEO appeared on CNBC Thursday.
  3. The median price target on CPST by the five analysts that cover the stock is $2 a share. In addition, it has been upgraded to a Buy by Ardour Capital in February.
  4. The company has spent the last nine months building technical support right at these levels.
    Capstone Turbine (CPST)
    Source: Yahoo! Finance

Axcelis Technologies (ACLS) manufactures and services various processing equipment used in the fabrication of semiconductor chips in the U.S., Europe and Asia-Pacific.

Four reasons Axcelis has good turnaround potential at under $1.50 a share:

  1. The company has a robust balance sheet with almost one-third of its market capitalization in net cash.
  2. Two insiders picked up new shares in March, and the stock sells at 70% of book value.
  3. The company only expects to break even in fiscal 2012, but analysts have it pegged for $0.21 a share in earnings for 2013.
  4. The company's products help chipmakers improve yields. It scored a major order from ChipMOS Technologies (IMOS) last October and a follow-on order from a top semi manufacturer for one of its plasma dry strip systems. Provided its customers' businesses continue to improve, 2013 will be a strong year for Axcelis, and its stock should climb in anticipation of this turnaround.


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