May 23 (Bloomberg) -- Few things are more frustrating than riding a stock up to a tremendous gain, only to see it melt back down to the starting point.

Investors ruefully call that a ``round trip.''

To avoid round trips, many people automatically sell half their holding in a stock that has doubled. From then on, they reason, there is no way they can sustain a loss.

I sympathize with their feelings. Yet the goal in investing is not to prevent a loss in any individual stock. It is to maximize overall portfolio performance.

Suppose you buy 500 shares of a stock that rises from $10 to $100, becoming what star investment manager Peter Lynch used to call a ``10-bagger.'' If you hold your original shares, you wind up with $50,000.

If you sell half your shares when the stock doubles, you would end up with $27,500. To avoid the risk of a round trip, your ``opportunity cost'' was $23,500.

My advice: Don't automatically sell big gainers, unless it's necessary to achieve adequate diversification in your holdings. Instead, make a judgment call in each case.

Is the stock still cheap? Do its prospects still look good? If so, let your big winner ride, unless it exceeds 10 percent of your portfolio.

Four times in this column, each May from 2001 through 2004, I have compiled a list of stocks that have doubled and still look cheap to me. The average three-year gain on the first three lists was 47 percent, compared to 17 percent for the Standard & Poor's 500 Index.

Ryland, Phelps

The average one-year gain on the four lists has been more than 14 percent, versus 0.9 percent on the S&P 500.

The best three-year gainer has been Ryland Group Inc. (RYL), a homebuilder from Calabasas, California. It returned 273 percent from May 2001 through May 2004.

The worst loser over a three-year period was Aftermarket Technology Corp. (ATAC), down 35 percent from May 2002 through May 2005. The Downers Grove, Illinois, company remanufactures drive train products for cars and trucks.

Among the 2,288 U.S. stocks with a market value of $500 million on more, 154 have doubled in the past 12 months.

Nineteen of them sell for 15 times the past four quarters' earnings or less, and qualify as cheap in my book. Of these, I recommend five.

The largest is Phelps Dodge Corp. (PD), with a market value of more than $16 billion. Based in Phoenix, Phelps Dodge is the world's third-largest copper producer.

Phelps stock has risen 113 percent in the past 12 months, as the price of copper has more than doubled.

Holly, Freightcar

There has been speculation in the financial press lately about whether the sharp rise in metals prices in the past year constitutes a ``bubble,'' and if so, when it will burst.

Skeptics probably think the bust began last week, when spot copper prices fell more than 5 percent. They fell another 6.5 percent yesterday.

My view is that copper prices may back down but will probably stay fairly strong. If so, Phelps Dodge at nine times earnings looks like a bargain.

Holly Corp. (HOC), a Dallas-based refiner that I've recommended in this column before, earned more than $167 million last year, up from less than $20 million six years earlier. It is up 105 percent in the past 12 months, yet still sells for 13 times earnings.

Holly has no debt. It has $191 million in cash, near cash and marketable securities.

Freightcar America Inc. (RAIL), a Chicago-based company that manufactures freight cars, also stands out for its balance sheet. Its total debt as of March 31 was about $210,000, while shareholders' equity was about $114 million.

Following four years of losses, Freightcar America swung to a profit in 2005. Analysts expect profits to jump 82 percent this year. The stock sells for about 13 times earnings and 0.77 times revenue, even after a 252 percent jump in the past 12 months.

Knight, USG

Knight Capital Group Inc., of Jersey City, New Jersey, (NITE) offers securities brokerage and asset management services. Its stock sells for 12 times earnings and 1.8 times book value (assets minus liabilities).

While Knight stock was up 107 percent in the past 12 months through May 19, at around $15 it is far below its 1999 high of $78.47.

USG Corp. (USG), up 100 percent in 12 months, has the lowest price-earnings ratio in the group, less than seven. I owned it in 2003 and 2004 but sold it earlier this year at about $100.

USG is now trading at $87.23. I think it represents a good value at less than seven times earnings and 0.71 times revenue.

Buffett's Backing

One worrisome item is the company's book value. It is negative because last year USG set aside $3.1 billion to settle more than 100,000 asbestos liability claims that have dogged it for years. As of March 31, USG is $496 million in the hole.

The Chicago-based company plans to raise $1.8 billion by selling new stock. Berkshire Hathaway Inc., controlled by billionaire investor Warren Buffett, owns 15 percent of USG and plans to guarantee the stock sale for a $100 million fee.

Other companies have challenged the arrangement, saying they could guarantee the stock sale for a smaller fee. For my part, were I still a USG shareholder, I would be comforted by Buffett's involvement.

Disclosure note: I own Holly Corp. for a few clients.

(John Dorfman, president of Dorfman Investments in Newton Centre, Massachusetts, is a Bloomberg News columnist. The opinions expressed are his own. His firm or its clients may own or trade investments discussed in this column.)

To contact the writer of this column: John Dorfman in Newton Centre, Massachusetts, at jdorfman@bloomberg.net.

Last Updated: May 23, 2006 00:07 EDT