...Greeting Cards, Motels...

Takeovers could prove at least as lucrative to investors in small-capitalization stocks. "There are legitimate candidates with rapidly rising earnings and revenues that have been virtually ignored by the market so far this year," says Charles LaLoggia, editor of Special Situation Report in Rochester, N.Y. His picks: greeting-card maker Healthy Planet Products (HPP) and hotel operator Microtel Franchise & Development (MCTL).

Healthy Planet, the largest cause-related greeting-card company--endorsed by the Sierra Club and the ASPCA, among others--has been growing rapidly. With earnings jumping to 10 cents a share in the first quarter--up from 2 cents last year--and with sales rising 38%, to $885,833, the company is an attractive target for the large outfits such as Hallmark and American Greetings, says LaLoggia. The stock will soon be in play, he says, because one of the big stakeholders, which he declined to identify, wants to sell. The estate of Ludwig Jesselson, onetime chairman of Phibro-Salomon, owns 23.2%, and the family of Charles Bluhdorn, who founded Gulf & Western Industries, owns 15%.

Microtel Franchise, a fast-growing chain of low-priced, no-frills motels, is an ideal target for bigger chains, says LaLoggia. One possible buyer is Hospitality Franchise Systems, which franchises six lodging names, including 1,570 Days Hotels, 765 Ramada Inns, and 615 Howard Johnsons. "Such large companies are always looking to buy new brand names," says LaLoggia.

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