Wake Up! To Sleeper Stocks

They may not be grabbing headlines, but these well-kept secrets could lead to lively returns in 2007 and beyond

housing market on sales of power tools.”

There’s no shortage of sleeping giants ready to awaken. McCormick & Schmick’s (NASDAQ: MSSR) is a seafood chain whose stock, as of this writing, is down from $28 to $22. However, the company has excellent management, according to Jennifer Milan, vice president of equity research at Ryan Beck & Co., an investment banking firm in Florham Park, New Jersey. Milan’s target price for the stock is $31, which would be a gain of around 40%.

Another is eDiets.com (NASDAQ: DIET), which will introduce a prepaid meal service, shipping a week’s worth of portion-controlled meals to customers. Scott Van Winkle, a managing director at Canaccord Adams, a financial services firm in Boston, says the stock, now languishing around $3, could get back above $8 — a 266% gain. (For disclosure purposes, Van Winkle notes that eDiets.com is an investment banking client of Canaccord Adams.)

So what other sleepers are ready to be roused in 2007? John Buckingham, manager of the Al Frank Fund (VALUX), suggests that investors look at Lenox Group (NYSE: LNX), formerly known as Department 56, which sells tableware, giftware, and collectibles. “The company is still integrating last year’s acquisition of glassware maker Lenox, and the share price has suffered,” he says. Currently trading at under $6 (it was over $14 in May), Buckingham’s target price is $10 by the end of 2007 — which would be an increase of more than 75% — if management’s profit expectations are met.

Buckingham says American Science & Engineering (NASDAQ: ASEI) may be a good fit for those interested in inspection systems. The X-ray inspection systems company just landed a potentially lucrative contract from the U.S. Department of Homeland Security for cargo inspection systems focusing on nuclear detection; another new federal contract covers its mobile X-ray detection and inspection vans for port security. Prior to those deals, the stock suffered a drop from $93 to $47. “Our one-year price target would be $65, with $75 not out of the question by the end of 2007,” says Buckingham. Thus, the one-year gain could be as much as 60%.

Buckingham is also bullish on PortalPlayer (NASDAQ: PLAY), a semiconductor maker for portable electronics. He says its new Preface technology, which enhances applications for notebook computers, has great promise, even though the share price is down considerably this year. “I wouldn’t be surprised to see the company trade at $18 in 2007, a 50% advance from current levels,” Buckingham says.

Ryan Crane, chief investment officer and senior portfolio manager of Stephens Investment Management Group in Houston, is bullish on video game retailer GameStop (NYSE: GME), which merged with Electronics Boutique in 2005 to bring the corporate total to more than 4,000 locations. Crane says GameStop could trade at $60 or higher sometime in the next year. It currently has a price of $47. Among Crane’s other picks is Hologic (NASDAQ: HOLX), the leader in digital mammography systems. “Only 10% of the market has converted to digital,” he says, “so there is plenty of growth ahead.” Hologic

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