Portfolio Recovery Associates, Inc. (PRAA)

In choosing my first pick, I wanted a solid growth stock that I felt has the potential to be a multibagger within the next few years with little downside risk. It's asking a lot, but PRAA is a company positioned for an explosion.


Being in the bad-debt collection business, it sees two general cyclical phases: strong debt-buying periods, and strong debt-collection periods. A weak economy, such as the one we're in right now, is a strong debt-buying phase where there is a large supply of charged-off debt. Although it doesn't neccessarily mean that this debt is dramatically cheaper, it does mean that there are more debt portfolios to choose from, and the best debt underwriters will be best positioned to pick the portfolios that have the greatest potential for solid returns. It also means that there simply is more high-quality charged-off debt to buy, and PRAA has capitalized on this by establishing and increasing its credit line to purchase more debt the past few quarters than any other quarter in the company's history.


Of course, being in the debt-buying phase of the cycle comes with negatives. Collections are tougher, and management, in its quarterly calls, have acknowledged this fact. Still, the company is continuing to increase staffing in its call centers while aggressively training and cycling its collectors to ensure top performance. And though you probably won't see net income jump past expectations in the next couple quarters, PRAA is gearing up for a big boom once the economy recovers and people are better equipped to pay back their old debts.