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The small medallions that taxicabs display to show they're licensed earn big bucks for Medallion Financial (TAXI
). Prices in New York have rocketed from $195,000 in 2001 to $400,000 -- and keep climbing as demand outstrips supply, since only a few new ones are auctioned each year. As the No. 1 financier to cabbies in big cities such as Boston, Chicago, and New York, Medallion makes a tidy profit on its 7%-to-9% interest. "The Street underestimates the potential of Medallion, which serves a niche that traditional lenders overlook," says Michael Kubas of Davidson Investment Advisors, which focuses on little-known value stocks. With earnings growth in double digits and a price-earnings ratio of 17, Medallion, whose stock trades at 12, is "compelling," says Kubas. Medallion President Andrew Murstein notes that loans rose 25% in a year, to $434 million. Medallion, which also lends on boats and RVs, is a dividend play, as well, with a 5% yield, he adds. Robert Napoli of Piper Jaffray (PJC
), who rates it "outperform," figures Medallion earned 74 cents a share in 2005. He sees 83 cents in 2006 and 92 cents in 2007.Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them. By Gene G. Marcial