Doublers and Cycles...

03/03/2006 12:00 am EST


Dennis Slothower

Chairman and CIO, Alpine Capital Management

Dennis Slothower shares a four-pack of stocks poised to double over the coming year. In addition, he offers a fascinating looks at inflationary cycles from a truly long-term perspectivenearly three centuriesand the implications for the years ahead.

"After two years of trading sideways, the stock market is poised to break out to the upside. The Fed is about to end its tightening, and higher prices are expected. This market looks a lot like the end of 1994, when the Fed maneuvered a soft landing just shy of recession. If you recall, in 1995 the stock market took off like a rocket and rallied for most of the year. Fed Chairman Bernanke doesn’t want a recession, so I see the end of rate hikes and an economy about to soar.

"Government yields fall during deflation and rise in inflationary periods. The inflation-deflation cycle has a remarkable periodicity. Each inflationary uptrend lasts about 25 to 30 years in the cycle. Looking at history government yields peaked four times: 1800, 1858, 1918, and 1978. Each cycle marks the end of an inflationary trend and the beginning of a deflationary trend. We have also had three troughs in this cycle–in 1830, 1890, and 1946.

"These cycles were caused because the Fed provided more money than was actually required by the economy due to mounting war debts. When I first researched this trend back in 1996, my research projected a cycle bottom in the deflationary cycle in 2006. Inflation had fallen from the spike days of near 20% in 1978 and now28 years later core inflation is running at close to 2.2%. This long-term cycle is about to end, and current Fed chairman Bernanke will reverse this cycle.

"We now have a new Fed Chairman at a time that happens to coincide with the bottom of the deflationary cycle. Based on these data, Chairman Bernanke is about to promote an inflationary cycle. The Fed is about to make a major monetary shift in Fed policy, and my research tells me that it will be very bullish for the stock market. Meanwhile, here are four stocks that I believe could double in price in a year:

"Credence Systems (CMOS NASDAQ) provides design-to-test solutions for the semiconductor industry worldwide. Its product portfolio includes system-on-chip,mixed-signal, and radio frequency, flash, and automotive test systems, with a suite of debug, validation, and characterization tools. The company sells its products through direct sales employees and representatives, as well as distributors.

"American Pacific (APFC NASDAQ), a specialty chemical company, produces products used primarily in space flight and defense systems, automotive airbag safety systems, fire extinguishment systems, and explosives. It also offers aerospace equipment and equipment used to purify air or water in municipal, industrial, and power generation applications. The Aerospace Equipment segment supplies commercial and military propulsion products and manufactures bipropellant thrusters for the satellite market.

"Nuance Communications (NUAN NASDAQ) provides speech and imaging solutions for businesses and consumers worldwide. It delivers speech solutions that use the human voice to interact with information systems and devices; and imaging solutions that convert and manage information as moved from paper formats to electronic systems. The company was founded in 1992 as Visioneer and changed its name to ScanSoft in 1999 and to Nuance in October 2005.

"AnswerThink (ANSR NASDAQ) operates as advisory and technology consulting firm. The company’ services include benchmarking, business advisory programs and business transformation, enterprise business applications implementation, business intelligence, and offshore application development support. It serves automotive, consumer goods, financial services, technology, life sciences, manufacturing, media and entertainment, retail, telecom, transportation, and utility industries."

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