For big companies like Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG), it is unreasonable to expect that your shares will double in value. There are so many analysts covering these companies that they can’t help but trade close to a fair price. In contrast, some low-priced stocks remain out of focus, although they have significant upside potential. They are undervalued due to their significant short interest levels or if they are a suitable target for a takeover. However, these companies might double in value if they report better than expected earnings and when the market fully realizes the value of all the assets. In this article, I have listed 3 stocks that have such potential.
1. Zynga Inc (NASDAQ:ZNGA) developed some of the popular social media games like Farmville and Mafia Wars. It witnessed a huge slide of its shares in 2012 and is now trading at $3.39, lower than its 52-week high of $9 a share. Much of the slide happened because the initial enthusiasm levels gradually waned after the Facebook Inc (NASDAQ:FB) IPO. The fact that the stock is undervalued can also be seen from the $200 million buyback the company announced in February.
However, I believe investing in Zynga Inc (NASDAQ:ZNGA) still makes a lot of sense. Much of its value has been reduced due to negative publicity and tax-loss selling. Zynga has come up with a new game recently called Zynga Inc (NASDAQ:ZNGA) Slots, and it has already topped the list of the fastest growing Facebook game calculated by monthly average users, for the second week in a row. The recent price decline can also be attributed to the huge short selling that has taken place recently. Zynga Inc (NASDAQ:ZNGA) carries minimal debt of $100 million and is sitting on a cash pile of $1.27 billion. This cash can be utilized in acquisitions of any upcoming Internet start-up, which will add synergy to Zynga. Besides, Zynga recently announced its desire to entire the online gambling business. If this venture goes well, Zynga Inc (NASDAQ:ZNGA) is surely a winner.
2. Radian Group Inc (NYSE:RDN) is one of the homebuilder stocks that has been performing well. It provides mortgage insurance, and though the stock performed well below expectations in 2012, it is expected to jump in the near term. Even well-known analyst Jim Cramer believes the stock to be a steal. The company is the largest private mortgage insurer and trades at a forward P/E of $10.39 compared to the mortgage industry’s 18. Recently Radian Group Inc (NYSE:RDN) announced plans of raising capital by selling 30 million shares. It shares hit a 52-week high of $8.69 just after this announcement–this indicates the level of optimism in the stock and could mean the stock can trade much higher in the future. Considering the market cap of the company sits at $2.27 billion, a cash reserve of $5.3 billion proves the fact that Radian Group Inc (NYSE:RDN) has got a very strong balance sheet. At a current price of $13, I consider the stock to be a very good buy, especially during pullbacks.
3. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is a specialty pharmaceutical company in the areas of dermatology, neurology and branded generics. This is one of the stocks that is actually pushing the drug industry forward. The stock has tripled in value over the past 3 years, giving a return of 35% compared to the S&P’s 14%. With a market cap of $25 billion, the past 1 year EPS growth rate has been tremendous at 28%. This was due to more than 50 takeovers and divestitures taking place, with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) transforming into a global company. The unique thing about Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is it has cut down on the research expenses that are not paying out. In this way it has efficiently utilized its research dollars. No drug makes more than 10% of revenue for Valeant Pharmaceuticals Intl Inc (NYSE:VRX), which means that it is not dependent on a particular drug.
Currently the P/E of the stock is 13, which is line with the pharmaceutical industry. The PEG ratio is also low at 0.82, indicating it is trading significantly lower than the book value. Unlike other pharmaceutical companies, lawsuits and other legal matters would not have an impact on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) because of its diverse portfolio. I am very optimistic about this stock due to its strong portfolio of brand names, its global expansion, and the expected jump in earnings growth.
To summarize, the above 3 stocks might be a major boost to your wallet strength in the coming years. I picked up Zynga Inc (NASDAQ:ZNGA) because of the immense potential in the internet gaming industry, Radian Group Inc (NYSE:RDN) due to its huge cash pile, and Valeant Pharmaceuticals Intl Inc (NYSE:VRX) due to its diversity in the drug market and global expansion.
The article Double Your Money With These 3 Stocks originally appeared on Fool.com and is written by Tanya Kanodia.
Tanya Kanodia has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Tanya is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.