STOCK WATCH


Looking for Fireworks: Stocks With Pop Potential

Anne Kates Smith

These four stocks -- though risky -- have promising near-term catalysts.



Just in time for the Fourth of July, Lazard Capital Markets has come up with four stocks that could give your portfolio some pop. All of the recommendations, in industries as diverse as gaming, retail, pharmaceuticals and telecom, have stories that analysts at Lazard think deserve your consideration. But these stocks all have something going on soon that could kick them up a notch this summer. The four:

CollaGenex (CGPI, $11) is a small pharmaceutical firm ($200 million market capitalization) with a potentially big drug set to launch in July. Oracea, approved by the FDA in May, is a treatment for rosaccea, a skin condition akin to acne that causes blemishes and redness. Some one million adults suffer from the condition, but only a fraction of them are in treatment. The drug is also expected to see strong demand from docs prescribing it (off label) to treat adolescent acne. (A July launch is well-timed, since demand for acne treatments is strong before kids return to school.) The drug's effectiveness, early awareness of it on the part of doctors and a strong sales force could drive Oracea sales beyond $100 million annually by 2011, say Lazard analysts.

The stock is not without risks. The company hasn't yet been issued a patent for Oracea, for one. Nor is the company profitable. Analysts on average expect a loss of $2.17 per share for the year ending in December, and a smaller loss of 54 cents a share for 2007. Nonetheless, Lazard figures CollaGenex stock could see $16 within a year, based mainly on the promise of Oracea.

Deckers Outdoor (DECK, $37) sells outdoor footwear for the ruggedly fashion forward, including Teva (sport sandals to hiking shoes) and the Ugg brand (boots, moccasins and sandals), favored by the likes of Paris Hilton and other celebs. Teva is recovering well from a 27% decline in operating income last summer, aided in part by favorable placement in Nordstrom's this spring. Ugg's Layback and Spinner sandals are flying off the shelves. But the company's most promising brand might be Simple, a casual line that includes Green Toe, environmentally correct footwear (materials include wool, jute, cork and water-based cement) sold at health-food stores.

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Decker should walk away with another surprisingly strong quarterly earnings report, its third in a row, due July. Lazard's estimate is the highest on Wall Street and analysts there still think it'll prove low, at seven cents a share. The firm is looking for 2007 earnings of $2.70 a share. Lazard analysts think the stock deserves to sell at a premium price-earnings ratio, about 20 times earnings. Hence the firm's $57 price target for the stock over the next 12 months.

Radvision (RVSN, $15) is a play on the workplace of the future. The company designs, develops and supplies videoconferencing technology. In the second half of this year, upgraded networks at Sprint and Verizon will enable mobile videoconferencing in the U.S. using Radvision technology. Meanwhile, the kind of high-quality video that Radvision can deliver to desktop computers (minus the herky-jerky element that mars early versions) is catching on, as sales expand beyond a few government contracts into the Fortune 500 (the Army uses Radvision-enabled video conferencing in Iraq). Lastly, improvements in traditional room conferencing, such as high-definition video, could spur demand for Radvision's core conferencing business. The three types of video delivery together account for 80% of Radvision's revenues.

Lazard analysts figure that the stock will trade in line with similar companies, at about 15 times estimated 2007 earnings of $1.04 a share. Also taking into account an impressive stash of cash on the books that should amount to $6 a share next year, the stock could reach $22 within a year.

THQ (symbol, THQI, $22), an interactive gaming outfit, is headed for a standout year in a slumping industry, thanks in part to the successful launch of Cars, the video game based on Pixar's animated film. In August, THQ will release Saints Row, a shoot-em-up game in the Grand Theft Auto tradition, which Lazard thinks could be a top seller on the Xbox360 consoles. Introduction of a new Nintendo console and strong sales for its handheld game format should be more good news for THQ, since the company is a leading provider of games for Nintendo formats.

Wall Street analysts expect the company to earn 89 cents a share in the fiscal year ending in March 2007. But Lazard thinks that those estimates will prove conservative and that investors will be pleasantly surprised when the company reports quarterly earnings in late July (the average estimate now is for a 21-cents-a-share loss) and updates analysts on what to expect for the year. Look for the stock to trade up to $30 within the year, says Lazard.

If Lazard's stock sleuths have made the correct calls, any of these four stocks could add some sizzle to your summer. But proceed with caution -- fireworks are awesome, but can be extremely risky.




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