Big Potential in These 3 Stocks

05/13/2013 10:15 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

These three companies, representing very different sectors, are poised for excellent growth yet are trading at very attractive values, says Richard Moroney of Upside.

Anika Therapeutics (ANIK) develops and manufactures specialty health-care products used mostly for tissue protection and repair.

Core products, based on an acid found in the body, provide lubrication of soft tissues and joints. Its flagship treatment, Orthovisc, is an injection used for osteoarthritis of the knee. The company also offers wound-care products, surgical aids, and manufactures ophthalmic products for Bausch & Lomb.

Anika earns an 89 Quadrix® Overall score, ranking it No. 2 among the 35 health-care supply stocks in our research universe. For 2013, the three-analyst consensus calls for per-share earnings of 99 cents, up from 93 cents. Revenue is expected to climb nearly 6% to $75 million.

Over the next five years, the consensus calls for per-share profits to grow 25% annually. While that figure seems unduly optimistic, the company seems capable of delivering double-digit annual profit growth.

Shares trade at 14 times expected current-year earnings. Anika, which earns a solid 73 for Quadrix Value, is being initiated as a Buy.

Meanwhile, Roadrunner Transportation Systems (RRTS) is our third recommendation in the trucking sector—a space we like for its solid fundamentals and growth outlook, partly reflecting an improving US economy.

The company offers freight delivery, logistics, and transportation-management solutions. Unlike many truckers, Roadrunner uses mostly independent contractors that own or lease their own equipment—a business model that requires less investment in equipment and facilities, which enhances cash flow and return on assets.

The stock earns an Overall score of 92, with a 95 for Momentum and 84 for Quality. Roadrunner focuses on small to midsize shippers—a market management calls expansive and underserved.

The strategy paid dividends in 2012, as per-share earnings jumped 39% on a sales increase of 27%. For 2013, the per-share consensus is $1.40, up from $1.35 two months ago and above the $1.17 earned in 2012.

Shares have rallied 27% this year, but upside remains, as profit estimates could prove conservative. Roadrunner, capable of climbing another 15% to 20% this year, is being initiated as a Buy.

Finally, Universal Electronics (UEIC), a leading maker of remote-control products and entertainment accessories, is leveraged to the trend toward connected electronics.

The company's products are sold to cable and satellite TV providers, consumer electronics manufacturers, and retailers. Universal also offers solutions that enable devices like smartphones, tablet computers, and gaming controllers to connect to home networks and entertainment services.

The stock's Overall score of 89 ranks near the top 11% of US-traded stocks. Shares earn a 80 or higher in three of the six categories, with an 81 in Momentum and an 87 in Performance.

Product launches and market share gains should bolster growth. Meanwhile, acquisitions have expanded the company's global footprint and manufacturing capabilities.

For 2013, the consensus calls for per share earnings of $1.68, implying 8% growth. Revenue is expected to advance 5%. Those targets appear conservative given the company's solid track record. Over the last ten years, per-share earnings from operations have increased at a 14% annualized rate, versus 16% for sales.

Shares trade at a modest 15 times trailing earnings, 13% below their five-year average and 30% below their ten-year norm. Universal Electronics is being initiated as a Buy.

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