Dear Mr. Berko: I purchased 2,000 shares of Synovus Financial in January 2012 at $1.49 on your recommendation. I now have 287 shares at $24 and a nice profit ($3,908) after a 1-for-7 reverse split. Please tell me (my broker is a dolt) whether I should continue to hold the stock or take a profit. Could you also recommend a half-dozen stocks that are less than $10 and could run up as this one did?
— GH, San Antonio
Dear GH: I know bupkis about cheap stocks. But Big Jack, an on-again, off-again acquaintance of mine who was a low-level big shot at Merrill Lynch when John “The Pain” Thain was chosen as CEO, is a recognized certifiable cheap stock genius, or CCSG. In fact, Big Jack is the only ex-Merrill executive to hold this coveted CCSG designation, which is the industry’s equivalent to a CFA, CFS, NUT, CIC, CIMA and RIS combined. And you have Big Jack to thank for your sweet gains in Synovus (SNV-$24), which opened its vault doors in 1888. Big Jack believes that SNV should be held for a much higher target price (he’s looking for $56) in the coming four years. He also thinks the dividend could easily triple in that time frame, to 90 cents a share.
Here are Big Jack’s other el-cheapo recommendations, though I’m compelled to tell you that I have not spoken to a single person in management at any of the following seven terribly speculative issues.
Zynga (ZNGA-$3.09) is the second-largest player in the business of mobile games for stupids. Jack believes that the new CEO, ex-Xbox chief Don Mattrick, has the moxie to move ZNGA to $9 in the next 24 months.
Dice Holdings (DHX-$7.39) is a profitable online recruiter specializing in security clearance, tech, energy and finance positions. The company should earn 41 cents a share this year, and as the economy improves, DHX could double earnings by 2016.
S&W Seed (SANW-$6.16) is a seed company that produces the highest-yielding seed for non-dormant alfalfa (the kind grown in arid climates) and hay-flavored forage for beef and dairy cattle. SANW is experimenting with the stevia plant, which produces a noncaloric sweetener that may be as tasty as real sugar, and Jack believes this could be a blockbuster.
Kratos Defense & Security Solutions (KTOS-$7.27) — which tripled its revenues in the past four years, to $970 million — derives the bulk of its business from Uncle Sam, managing cybersecurity and electronic warfare/attack solutions and intelligence. Earnings next year could grow fourfold, to 60 cents, and Jack believes that KTOS is an attractive takeover candidate.
Tremor Video (TRMR-$3.69) specializes in online video advertising. It has $2 in cash per share (more than half its market value) and posted an expected dip in revenues last quarter, but Jack tells me that revenue growth should bounce back with a vengeance.
CryoLife (CRY-$8.99) is a profitable $140 million-revenue company that has built a sweet, profitable, growing business preserving and providing implantable living human tissue for use in cardiac and vascular surgeries. CRY has zero debt and just raised its dividend to yield 1.5 percent. Jack thinks CRY could be a takeover target by big pharma.
And finally, Sirius XM Holdings (SIRI-$3.40), which is getting hosed by John Malone’s Liberty Media, is officially out of the terrible merger agreement in which Liberty Media would have bought all of SIRI for $3.48 a share. SIRI is the king of financial schlock radio advertising, appealing to listeners with investment IQs between 51 and 77. SIRI may expand its broadcasts to Australia, Great Britain and New Zealand, and Jack thinks that would be fertile ground for revenues and earnings.
Cheap stocks are worth what they sell for, and I’m not comfortable enough with any of these to give them my imprimatur. If you decide to invest, do not cherry-pick from this list. Rather, purchase an equal dollar amount of each issue. Then begin spending some time in the amen corner of your favorite house of worship, or find a money manager you trust.
Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or firstname.lastname@example.org.