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These Stocks Are Up At Least 20% While The Stock Market Has Tanked
By: StreetAuthority   Monday, September 26, 2011 10:30 AM
Sandisk (Nasdaq: SNDK) and Micron (NYSE: MU) are up roughly 20% in the past month, as investors take note of the expected spike in demand for flash memory in tablet computers and smartphones. Micron looks especially cheap, trading below its $8 in tangible book value. (You can read more on my take on Micron in this article.)

Perhaps the happiest company in an otherwise unhappy month is Stamps.com (Nasdaq: STMP), which is seen as a likely beneficiary if the U.S. Postal Service decides to close many branches and cease Saturday operations altogether. The stock rallied nearly 40% in the past month on hopes more consumers would become aware of the company's online postal services.

Even before this potential catalyst, the business looked fairly healthy. Second-quarter sales grew 26% from a year earlier and per-share profits of $0.39 were far ahead of analysts' forecasts. Shares have responded in kind, moving up 100% from the 52-week low. To justify further gains, investors would need to see a clear path to even better results. And this appears to be precisely what investors can expect.

This is a fairly automated business model, and any revenue gains can flow quickly to the bottom line. For example, in the most recent quarter, sales rose $3.8 million sequentially while gross profits rose $3.3 million. Operating income rose $3 million quarter-to-quarter. This means more than 75% of the revenue gain went to the bottom line. This leverage helps explain why analysts expect sales to rise 15% this year to $99 million, but earnings per share (EPS) to rise 30% to $1.21. Shares trade for about 16 times projected 2011 profits, and this multiple could expand into the mid-20s if management can take advantage of the expected shrinkage at the U.S. Postal Service.

Risks to Consider: As these stocks have moved up, they may become tempting targets for profit-taking if investors seek to raise cash from losing trades elsewhere.

Action to Take --> The real charm of these breakout stocks may be yet to come. The tough stock market has likely restrained them from climbing even higher (expect for those receiving buyout offers). When the market stabilizes, you may be able to ride some of these momentum names as they continue their upward trajectory.

-- David Sterman

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

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