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I have previously suggested ways to build a stock portfolio designed to withstand market vagaries while growing in the months to come. For those with a taste for more aggressive fare, I am offering a new selection of four smaller and more volatile stocks.
The overall market is signaling an attempt to resume its uptrend after being mired in a “correction.” This would play nicely into its usually reliable rally in December, sometimes called the “Santa Claus rally.” This is also the third year of the Presidential election cycle, also historically strong for the market. This looks like a propitious time for more aggressive investors.
iGate is an Information Technology (“IT”) service provider. Based in Northern California, its principal outsourcing operations are located in India. This is similar to much larger Cognizant Technologies, which is based in New Jersey and also provides IT services from India. I recommended Cognizant in August of 2009 at $35 and iGate has the potential for similar appreciation.
The smaller company has only $252 million sales compared to Cognizant’s $4.1 billion but iGate’s recent quarterly report showed increases over 50 percent in both sales and earnings. Its stock was also appreciating nicely until it announced its intentions to acquire Patni Computer, another Indian IT firm, which has three times the sales of iGate.
iGate has no debt and a stronger growth record than Patni, thus it may succeed in this takeover, but its stock price will probably wobble while attention remains fixed on this development. The takeover attempt will be resolved, one way or another, and I expect iGate to be back on track with a target of $30.
Microchip Technology makes semiconductors for various uses in embedded control applications. Its valuation is reasonable at only 15 times forecast 2011 earnings. This reflects recent announcements by the company lowering its sales forecasts to a decrease in the 3-7 percent range. The company has modest debt and a twenty-year history indicating that it will thrive as the economic recovery gets legs. $45 looks possible in 2011.
Both iGate and Microchip have substantial short interest positions, a source of latent buying stock price support as short sellers must eventually buy back the stock sold short. Mutual funds have been buying their stock, an indication of fundamental support.
The oil patch is always ripe with speculative opportunities. Rather than gamble on obscure mining stocks, I think we can improve the odds with companies that provide services to energy companies. Core Labs (CLB-$89) has done well for us since recommended a year ago at $55. RPC, a smaller provider of oilfield services, has similar potential.
This Atlanta-based company reported solid increases in sales and earnings for its most recent quarter, boosted its modest dividend and even declared a three for two stock split. All this activity has not gone unnoticed and its stock price has tripled this year. After this recent burst of good news, its price may settle back a bit but it looks headed for record earnings in 2011 and a price target of $40.
No list of aggressive stock picks would be complete without a low-price wonder and Alcatel Lucent easily qualifies. The company makes various types of communication equipment, has $20 billion in sales and a persisting inability to make a profit.
It is the product of lots of mergers, including one with Lucent, a spin-off from the breakup of old AT&T. That unit still includes the legendary Bell Labs, inventor of the transistor, since more known for innovations that other companies successfully improve and market. It needs a new hit to spring its stock price and may get one, perhaps inspired by its being based in Paris, birthplace of so many varied innovations. If it gets a hit, a $5 price could follow.
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