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It's been said that "the best stock might be one that you already own."

With that philosophy firmly in mind, I've decided to add to two of my current positions in my Special Situations portfolio. Each offers compelling potential for return over the next few years.

Tile Shop Holdings (NASDAQ: TTS  )
Of these two, Tile Shop has the best potential for long-term gains. Thinking 10 years out, it's hard not to see this as a three- or four-bagger, if the company continues to execute as it has. The company recently increased its store count growth expectations for the year, and same-store sales have been on fire. Sure, that makes it tougher for next year's comps to be as impressive, but Tile Shop is riding the wave of an improving home market and the new fashion for tile. So for me, it's a stock to "buy on the dips." And yes, it is pricey, but the best stocks often are.

Because it's a high-growth stock, it's prone to extreme pullbacks in the event of a market meltdown, but that would just give me an opportunity to buy more Tile Shop. I'm already up 50% in less than a year, and I'll be adding $1,000 to this stock.

First Financial Northwest (NASDAQ: FFNW  )
The situation at First Financial has improved in recent weeks. After announcing a 10% stock-buyback authorization in May, the company wasted no time in completing it. Then it went one better, by announcing a 5% buyback authorization. That's exactly what I want to see from profitable banks trading below tangible book value. I wouldn't be too surprised to see yet another buyback announced.

Activist Joseph Stilwell is doing what it takes to clean up this bank and improve returns for shareholders. When he ran for a directorship last year, Stilwell promised that he would look to sell the company. That course looks even more sure now that Victor Karpiak has been ousted from his role as CEO. I think this stock has low downside, and it's riding the strong Seattle economy. My position is up 33% in less than a year, and I'm adding $2,000.

Interested in any of these stocks or have another stock to share? Join me on my discussion board and follow me on Twitter (@TMFRoyal).

Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

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  • Report this Comment On September 23, 2013, at 9:00 AM, AnsgarJohn wrote:

    At the TTS at these prices you´re paying $20M per store that takes $2M to build.

    The IPO money is in the founders pockets, not in the business. Check the SEC financials.

    What is your math 10 years forward?

  • Report this Comment On October 21, 2013, at 2:38 PM, xtall wrote:

    well, Jim, is Infitialis for real? Or just another Seeking Alpha band of bandits out to discredit? Are you in the know? Thanks.

  • Report this Comment On October 23, 2013, at 10:42 AM, constructive wrote:

    What is the special situation at TTS?

  • Report this Comment On November 12, 2013, at 2:25 PM, TMFRoyal wrote:

    Hey, xtall,

    Didn't see your message until just now. That SA article looked very emotional and very inflammatory. The best they could come up with was five samples?

    Stop by my discussion board and we can talk about this further. I'm much more responsive there and check it every day.


  • Report this Comment On November 12, 2013, at 2:27 PM, TMFRoyal wrote:

    Hi, MegaShort,

    The special situation originally was the fact that Tile Shop went public via a SPAC, and so had none of the institutional support that a typical IPO has.

    Here is my original write up:


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