As I promised in my last blog post, I would keep you posted on the results of our recent survey and discuss what your fellow investors want to know about. The number one answer was “hot stocks ready to break out,” which is exactly what I’m going to talk to you about today.
I’ve made a list of four hot stocks that are ready to breakout next year. All four have great fundamentals and each has the potential to benefit from the “January effect” that supports small-cap and illiquid stocks. Let’s take a look now.
Intervest Bancshares Corporation (IBCA) is an attractive play on rising interest rates. IBCA is a regional bank whose stock has stayed between $7 and $8 for the last five months, which is a large discount to tangible book value of $8.77. Earnings have been pressured due to low interest margins, but an eventual rise in interest rates could raise margins meaningfully from the current depressed level of 2.32%.
In the company’s last quarterly report, I was encouraged to see loans outstanding increased from the previous quarter to $1.1 billion from $1.05 billion. In addition, the bank is well-capitalized (with a Tier One Common ratio of 14.87%), and most loans are for commercial real estate and well-secured by property values, so credit losses should remain minimal.
With loan losses at a minimum, book value and capital will continue to grow, and with the company's TARP preferred stock retired earlier this year, IBCA will be in a position to return capital to shareholders through a dividend or a share repurchase despite the tough operating environment.
Fortegra Financial (FRF) is a provider of payment protection and other insurance services. The company has worked to expand its product offerings in the fastest-growing aspects of insurance to increase its customer base while meeting their biggest demands. That growth potential is still strong, and a string of acquisitions will also help build the company's business, and open up new sources of revenue.
Through the recent sale of its insurance brokerage unit, FRF will deleverage its balance sheet and gain additional capacity for stock buybacks in the future. The whole company could be sold, too, as management recently indicated it would consider all alternatives to add to shareholder value.
FRF has the recurring revenue and predictable earnings model that is currently in favor with the market. Further growth is ahead, and it is definitely a possible takeover target. Even so, management has internal growth plans and is cutting costs, so I like its potential.
Tandy Leather Factory (TLF) is a do-it-yourself (DIY) leather craft retailer and wholesaler, the strongest brand in the leather crafting hobby for generations, and is uniquely positioned to benefit from any expansion of popular interest in do-it-yourself wallets, handbags and other accessories. With a market cap of just $86 million and daily volume of just over 7,000 shares, the stock is a hidden beauty, but one that can shine in January.
TLF has been growing sales at a rate in the high single digits, yet sells for less than 11X 2014 expected earnings of $0.80 per share. It also has tremendous international opportunity. Tandy currently has three foreign stores open (one each in the UK, Spain and Australia), and all have been performing very well.
During a time in which many retail related companies have struggled, TLF has drifted higher and I see that momentum continuing into the new year. I see it as both a good short and long-term play. Traders only looking to hold the stock for a short period of time can sell TLF at $9.25, but investors can also keep TLF for the long term and still be rewarded.
Premier Global Services (PGI) provides cloud-based solutions that enable virtual meetings through video, voice, mobile, web streaming and file sharing technologies. PGI began transitioning its business toward a software-as-a-service (SaaS) model in 2011, and ever since has established itself as an industry leader in business collaboration software. The company has a global presence in 25 countries on five continents, with an established base of over 40,000 enterprise customers, including 75% of the Fortune 100. Over the last four years, PGI has hosted nearly one billion people from 137 countries in over 200 million virtual meetings.
The company has also expanded its business offerings through acquisitions. In September, the company acquired ACT Teleconferencing, Inc., a global provider of integrated conferencing solutions. The deal gives PGI a solid base of new enterprise customers who are already interested in its type of services. It’s most recent acquisition of Via-Box, a European-based conferencing and collaboration provider, will give PGI a good foothold to cross-sell its products.
With the SaaS products showing impressive growth and solid guidance, PGI appears well on its way to regaining its footing after stumbling earlier in the year. The company's earnings quality is good, and it generates significant free cash flow that should help to reduce debt and buy back stock.
So there are four stocks that have solid breakout potential in 2014 to get you started. Many of you also want to know about my market outlook for 2014, and we’ll talk about that very soon in a future blog post.
Remember, the key to successfully investing in low-priced stocks is to do your homework and separate the losers from the winners. Truth be told, some low-priced stocks are cheap because they deserve to be. I sort the wheat from the chaff for my Breakout Stocks Under $10 readers every week, and I’d like to do the same for you.
If you’d like to learn more about my top Breakout stocks for 2014 , including my specific instructions as to when to buy and sell these stocks on the verge of breakout, I invite you to accept today’s risk-free trial to Breakout Stocks Under $10. With my 100% satisfaction guarantee, you have nothing to lose.