For Lottery Thinkers Only

You'll need a strong stomach for these stocks

Cynics have long likened playing the stock market to betting on the horses. Recent political and economic spasms have roiled the market, confirming that dismissive point of view. In that spirit, this story will examine some stocks--compiled from suggestions by the BusinessWeek staff--that are not for the fainthearted. They are rolls of the dice, if you will--stocks where the risks are huge, but so is the potential for high returns.

A good place to start is with companies that are so unpopular you might think the market is ganging up on them. (No, not Enron Corp.--that would be stretching the idea too far.) Think Edison International (EIX ), the beleaguered California utility. Its stock has barely budged even though state regulators in October allowed the utility to recover from ratepayers all its expenses related to the California power crisis. So one of the largest U.S. utilities--with an extensive portfolio of power plants around the world--is on sale at half the price of two years ago.

Another battered stock is Gateway Inc (GTW ). The PC maker has been struggling all year but had a better-than-expected Thanksgiving season. If the tech sector rebounds, Gateway could be a takeover target. In the financial sector, Bear Stearns Cos. (BSC ) is also widely viewed as takeover fodder. It's heartily disliked by analysts who doubt the firm can make it on its own as the financial services arena becomes even more brutal.

Airlines have burned countless investors. But if you want to take a chance on the industry, try Amtran Inc. (AMTR ), parent of American Trans Air, the country's 10th-largest carrier. Its stock is 72% owned by founder and Chairman J. George Mikelsons. Before the terrorist attacks, he had planned to take the airline private. Give Mikelsons time to line up new financing, and he may buy up the rest at a nice premium.

If you ardently believe tech will climb out of the dumps soon, Conexant Systems Inc. (CNXT ) may be worth a look. It trades at just a fraction of its March, 2000, high, but it recently said sales of chips to wireless customers were higher than expected. Another telecom speculation is equipment maker ADC Telecommunications Inc. (ADCT ), which also has seen its stock get beaten down but has none of the debt problems of its rivals.

Investors with really strong constitutions might consider Palm Inc. (PALM ) Sure, it's swimming in red ink. But prospects in 2002 are hot for cell phones with built-in personal digital assistants--so Palm could get a boost from software licensing revenues. If Palm survives the recession, it might well thrive. Fiber-optics maker Corning Inc. (GLW ) has crumpled along with the telecoms, but it's a huge company with only part of its business in the ailing fiber-optics industry. Down more than 80% since the start of 2001, it now trades at only about 1.4 times book value.

Or you can bet on obscurity. Obscure stocks can turn into little-known money pits, or they can transform your portfolio into a source of enduring pleasure. One high-cholesterol play is Steak n Shake Co. (SNS ) Based in Indianapolis, the restaurant chain has seen its shares climb 70% in 2001. It has expanded nicely and is packing them in at the counters. If that's not to your taste, you can aim at one of those little niche-within-a-niche companies that either grow handsomely or tank. One such stock is @Road Inc. (ARDI ), which sells transmitters for enabling fleet owners to keep track of their trucks, taxis, and so on. Insiders have been buying the stock, always a good sign.

Keep in mind that these plays are "trades"--short-term bets, not core buy-and-holds. Sell discipline is a must. If the stocks begin to sour by, say, 10%, don't double down. Dump 'em.

By Gary Weiss

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