Schafer: My second company is Medivation. Its market capitalization is only about $400 million. It is a bio-pharmaceutical company focused on acquiring and developing small-molecule drugs. Its lead compound, Dimebon, is designed to treat Alzheimer's and Huntington's disease. Its other product is a once-daily oral treatment for prostate cancer.

Schafer: My last stock is Wyndham Worldwide, one of the world's leading hospitality companies. It operates in three segments. The lodging segment is the largest hotel franchiser in the world, operating Wyndham, Ramada, Days Inn and other properties. The vacation-ownership business is the world's leading provider of time shares. RCI includes the largest vacation-exchange network, as well the leading European vacation-rental group. Wyndham's brands range from economy to upscale, with most rooms in the economy and mid-scale markets.

Schafer: Experian Group is the largest credit bureau in the U.S., U.K. and Western Europe. It owns credit data on more than 450 million consumers and 35 million businesses. It also has files on motor-vehicle histories, insurance policies, household purchasing trends and consumer Internet traffic. There are substantial regulatory and economic moats protecting its core business. Experian helps organizations find new customers and develop and manage relationships. It also helps consumers understand, manage and protect personal information, and make more informed purchasing decisions. The stock fell sharply on fears regarding slowing mortgage activity and consumer spending. These fears are overblown.

Schafer: My third company, Ocean Rig, is a Norwegian ultra-deep-water-driller; it makes rigs that drill 7,500 to 10,000 feet in water, and send the drill bit down to 30,000 feet. This market is likely to remain tight for the next five years, in part because of the discovery of a new field offshore in Brazil. New rigs are being built to meet demand, but it is difficult to attract rig crews, and there are delays. Contracts are getting longer. Also, the big oil companies are having difficulties with complex deep-water wells. Ocean Rig is well poised to capitalize on the strength of the market this year and next. There are only three active rigs available to satisfy demand over the next two years, and the company owns two of them. The CEO envisioned this situation and has been waiting until contracts roll off to set higher prices.

Schafer: Investors underestimate TransAlta's exposure to rising power prices. In the next four years, the company will realize about C$400 million of increased profitability primarily from repricing its merchant Alberta and Pacific Northwest power plants. This should drive Ebitda to about C$1.5 billion in 2011. Earnings of C$1.40 a share in '07 should improve to more than C$3 in '11. Normalized discretionary free cash flow is about C$1 a share more than earnings, due to high depreciation and amortization, so the stock is cheaper than its P/E would suggest. The story really gets interesting when you consider the possibility of strategic changes.