Picks from the pros

One of the highlights of the World Money Show held in Toronto in October was a “Power Lunch” session at which four stock pickers were each asked to provide five recommendations chosen on the theme: “Which Stocks Will Be the Next Ten-Baggers?”

I was one of the four and before I began I cautioned the sell-out audience that choosing stocks that have the potential to go up 1,000 per cent is really not my style. As a general rule, such stocks are too speculative for my comfort level. (Okay, so Apple is an exception but how often does that happen?) My objective for the luncheon was to identify stocks with the potential to double within 12 months. Anything after that would be gravy.

Since attendees paid $59 to attend the session, it would be inappropriate for me to reveal all 20 stock picks here. However, I’ll pull back the curtain a little and tell you about one selection from each member of the panel. Perhaps that will whet your appetite enough to attend the Power Lunch at the Vancouver World Money Show to be held April 6-8, 2010 or next year’s Toronto show which will be held in October 2010.

We’ll begin with Gavin Graham, Director of Investments for BMO Asset Management and a contributing editor to my Income Investor newsletter. One of his recommendations was Franco-Nevada Corp. (TSX: FNV), which owns royalty interests in gold mines and other mining ventures in Canada, the U.S., and Australia.

If the name sounds familiar, that should be no surprise. The old Franco-Nevada made a lot of money for investors before being taken over in 2002 by Newmont Mining. In 2007, a group that included some employees from the old company acquired several mineral royalties and other assets from Newmont and formed a new Franco-Nevada based in Toronto.

The company is thriving. Second-quarter earnings came in at $0.25 a share, up from $0.10 a share in the same period last year. Free cash flow was $0.27 a share. (Franco Nevada reports in U.S. dollars.) The stock pays a semi-annual dividend of $0.14 a share, up 17 per cent from last year.

Our next selection comes from Ryan Irvine, CEO of Vancouver-based KeyStone Financial Publishing Corp., which searches out high-quality small and mid-cap stocks. One of his picks that caught my attention was Migao Corp. (TSX: MGO). It’s actually a Chinese fertilizer company but it is publicly listed on the Toronto Stock Exchange. (We saw a similar example of this last year in the case of Canadian Solar, which was recommended in my Internet Wealth Builder newsletter by contributing editor Glenn Rogers and eventually sold for a gain of more than 200 per cent.)

Although you’ve probably never heard of Migao, it’s a large company, with $59 million in sales during the quarter ending June 30 and earnings per share of $0.20 (fully diluted), up from $0.16 in the same period a year ago. The stock fell to a 52-week low of $2.71 last December but has since recovered and closed recently in the $7.00 range. Mr. Irvine believes there is a lot of upside potential from here.

For the next pick, we turn to Jim Jubak, well-known U.S. financial author and Founder and Editor of JubakPicks.com. I liked his recommendation of Lynas Corp., an Australian company that trades over-the-counter as an ADR (American Depository Receipt) on the Pink Sheets in the States under the symbol LYSCY.

Lynas controls one of the richest deposits of rare earths in the world. So what the heck are rare earths, you may ask? I didn’t know either so I went to the Lynas website, which describes them this way: “Rare Earths are a moderately abundant group of 15 metallic elements known as the Lanthanide series (atomic numbers 57 through to 71) plus Yttrium (39). Although Scandium (atomic number 21) is not a Rare Earth element, it is commonly included with the Lanthanides because of its similar properties.”

So does that make it clear? No? I thought not. What’s really important is that rare earths are essential components in a wide range of products including compact florescent lights, hybrid batteries, flat panel TV sets, iPods, disk drives, wind turbines and more. Moreover, about 80 per cent of the world’s supply of rare earths is in China and there are concerns the Chinese government may place limits on their export.

It’s a fascinating story. The big problem with the stock is that it is very thinly traded in North America (only 400 shares on one day recently). If you’re really interested, see if you can buy them on the Australian Stock Exchange where the volume is much higher.

And what stocks did I select? Every one is a current recommendation of either the Internet Wealth Builder or The Income Investor. My number one choice was Daylight Resources Trust (TSX: DAY.UN) which I picked for The Income Investor in September at $7.96. It was trading recently at $9.32. Theoretically, it could be a ten-bagger if the prices of oil and natural gas went crazy but a 12-month target of $15-$20 looks much more realistic.

Note that all of these picks fall into the higher risk or speculative category so they are not suitable for risk-averse investors. Talk to a financial advisor before taking any action.

This article originally appeared in the Internet Wealth Builder, a weekly e-mail newsletter that provides timely financial advice from some of Canada’s top money experts. For more information about becoming an Internet Wealth Builder member, click here.

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