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Collins: A Six-Pack of Opportunity
05/21/2004 12:00 am EST
Jim Collins has been investing since 1956. He manages about a billion dollars, with a focus on small and mid caps. His OTC Insight is the top-performing newsletter for the last 15 years. Here are his current favorites from the healthcare and Internet sectors.
"We are really fundamentalists at heart, but we do use a few things on the edge to try to find big winners in the stock market. Our investment process is a gigantic funnel. We take a look at everything that is traded–in a good healthy market that is about 8,000 companies– and we reduce it down very quickly to a buy list of about 75 stocks and out of that we pick the winners. In our fundamental analysis, we look for high-quality, rapid-growth situations. We like to see rapid growth in sales and earnings. We very seldom invest in a company that does not have any earnings.
"We’re not particularly optimistic on the market right now. But if you are an investor in the market now, I think you might want to resign yourself to staying invested–but go through your portfolio and take out very high p/e stocks. When you get into bad things in the market place, look at it more as an opportunity to buy– not a time to sell. Don't go with the herd. The herd panics and runs over the cliff and you don't want to do that. Here are some of the best opportunities we see now:
"Amedices (AMED NASDAQ) is a provider of home healthcare nursing services. This chart is very good, we’ve seen insider buying, a pickup in volume, and some very good earnings. We are looking at $1.30 this year–that would be a 57% increase over last year. We are also looking at $1.56 for 2005–that would be a 20% gain. Professionals in the business are pricing stocks based on next year's earnings– not this year's. I think the stock is attractive. The NASDAQ rolled over in January but this stock rose. This is another thing you want to look at to determine how strong a company is in the marketplace. If the market is going down and this stock is still going up, that tells you volumes about the quality of this company.
"One stock that been buy list since February of last year and is up about 400%, is eResearch (ERES NASDAQ), a very interesting company that provides software applications to the pharmaceutical and biotech companies that have blockbuster drugs going through the FDA approval process. When a drug goes through that process, they have to take electrocardiograms on how it is affecting people. Most of that is still done today with an analog machine–a little needle moving on paper. But, this company digitalizes all that and the FDA wants it digitalized because you are getting more reliable data. It is also easy to transmit to another location for people to analyze. This market is small– only about 10% of all the clinical trials today are using digital electrocardiograms. So, there is a huge market here.
"Another company to look at in the health care field is MGi Pharma (MOGN NASDAQ). Right now it is struggling in this market. But here, we have a company that has grown almost five-fold over eight quarters– $5.7 million all the way up to $27 million and the earnings have gone from a loss of $2 to $0.50 this year and $1.69 expected in 2005. This company targets the oncology market, cancer. They just launched a product called Alopsis for treatment of chemotherapy-induced nausea and vomiting. They have been having a lot of success with this product. Sales have gone from $5.7 million to $27 million over a quarter.
"Let's move into some Internet stocks. One stock we like is Ask Jeeves (ASKJ NASDAQ), a search engine. When you do a search, the first responses that come up are what's called sponsored searches. People pay to have their listing come up first. This company is doing a great job out there and we are looking at a long-term growth rate on this company of about 35%. We are looking at earnings up 155% this year and 41% next year. Revenue this year will be up 130%, and also 52% in '05. This is a very attractive stock. This is a stock I worry about five years out because technology changes very fast, but I think you could make some very good money on this over the next couple of years.
"Yahoo (YHOO NASDAQ) is the world's largest Internet portal. Again, there is a strong rebound in on-line advertising. This company has also cash niche– over $3 billion. They also have a major share of ownership in Japan Yahoo. Over the past eight quarters, sales have gone from $226 million to $758 million– about 3-fold increase. The firm it continues to generate all kinds of products, such as Yahoo Mobile, which allows you to tap into the Internet from a palm device. This company is the biggest, and I think it will stay there for some time. It's a little bit pricey– try to pick a very bad day in the market to put this in your portfolio. This is a stock that I think you must own.
"eBay (EBAY NASDAQ) is also a must-own stocko. This operates the world's largest on-line marketplace with both auction and fixed-price selling. Revenues are growing very rapidly. We are looking at 47% gain up to $3.2 billion for this year and next year, we are looking at another 32% gain. We think the long-term growth rate on this company is about 35% per year. Some good things are happening there. Its large size is a major plus. Stop and think about it: If you have something you want to sell, wouldn't you want to go to the biggest marketplace and get the best price? That's what size does for you, and I don't think there is anybody on the horizon that can possibly catch this company."
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