The world isn’t always a simple place. Sometimes you can find opportunity in the weirdest places. Because of this, I am going to provide you with a glimpse of what may be unique opportunities with the potential to generate pretty large returns.
Dell Inc. (NASDAQ:DELL) could be a potential opportunity
Yes, I seriously believe that Dell Inc. (NASDAQ:DELL) is a compelling investment opportunity right now. Currently Michael Dell (CEO and founder) wants to buy the company at $13.65 per share in partnership with Silver Lake. But Dell Inc. (NASDAQ:DELL)’s biggest stock holder, Southeastern Asset Management, believes that the company is heavily undervalued and could be trading at depressed valuations. Southeastern Management believes that the company should be trading at $23.72 per share.
The stock market doesn’t always reflect the true value of a stock, so both Southeastern Asset Management and Carl Icahn are taking some serious initiative. The duo wants Dell Inc. (NASDAQ:DELL) to give a special one-time dividend to shareholders worth $21.35 billion ($11.86 per share). After the special dividend, the hoped-for outcome is that the stock will be worth more than $2.50 per share (Dell Inc. (NASDAQ:DELL)’s offer price minus the special dividend). If the stock publicly trades at a valuation exceeding $2.50, shareholders would have earned an added return from the special dividend.
I wrote about the potential best-case scenario for Dell Inc. (NASDAQ:DELL) before. I believe that Dell Inc. (NASDAQ:DELL) should be able to trade at $10 per share after the special dividend, giving investors 65% in upside if that best-case scenario occurs.
Solar is pretty hot right now
Now, I am pretty excited about First Solar, Inc. (NASDAQ:FSLR). The stock is stable enough to buy, and small enough to grow. The company currently trades at a $4.5 billion market capitalization. The company’s balance sheet is fairly stable. This is despite all the negativity currently associated with solar companies and government subsidies.
Solar also got a little bit of attention in the recent presidential elections, specifically Solyndra. Even with all of the negativity surrounding alternative energies in general, I am becoming increasingly optimistic in this company.
First Solar, Inc. (NASDAQ:FSLR) is projected to increase the size of its production by 40% over the course of three years, while the cost of production is expected to decline by 30% over the same period. I assume that the profit margins will remain constant. I also believe that the additional 40% produced will be sold on the market. Therefore, I believe that the 40% increase in production will directly translate into a 40% increase of profit for the period. If that is the case, First Solar, Inc. (NASDAQ:FSLR) could potentially grow at around 13% on average over the next three years.
The stock currently only trades at an 11-times earnings multiple. The low earnings multiple is slightly cheaper than the projected growth, which leads me to believe that the stock is heavily undervalued.
Believe it or not, GE could be put on the list
In a previous article, I tried my best to break down the growth opportunity of General Electric Company (NYSE:GE). The company is planning to spin off General Electric Company (NYSE:GE) Capital from General Electric. If General Electric was to commit all of the cash that was set aside as loan loss reserves, the company could generate even more substantial returns on investment.
I encourage investors to read the full break down of the predicted outcome of the M&A. Now of course, in the real world there are many ways to do a corporate spin-off, but I chose the simplest way to analyze an IPO spin off.
As a result of the spin-off, General Electric Company (NYSE:GE) would be able to free up $61.9 billion in capital. If the cash is invested at a 20.22% return on capital, the company could contribute an additional 7.5% per Annum to its long-term growth. Analysts projected 11.03% earnings growth, and adding in the 7.5% additional growth will increase GE’s growth to 18.5%. This means that General Electric Company (NYSE:GE) (the parent company) is extremely undervalued. This all assumes, of course, that General Electric Company (NYSE:GE) spins off GE Capital and successfully invests its $61.9 billion at a 20% return. This could be difficult to accomplish.
Conclusion
There are many kinds of investment opportunities in the stock market. Sometimes a stock has a blatantly obvious “buy” signal. This time around, however, I hoped to summarize three investment opportunities that are likely to go undetected by the masses unless you get out there and do some digging.
The article These Three Stocks Could Go Undetected by the Masses originally appeared on Fool.com and is written by Alexander Cho.
Alexander Cho has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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