well, you have a couple of different options:
- quality stock rebuild; a newly rebuilt engine with a slight overbore will certainly make a bit more power than what you had in there; throw in a lightweight flywheel, a bit of headwork, you can do well;
later on, you can add a DASC supercharger or homebrew turbo and make a lot of power
- high compression n/a rebuild; using different pistons can raise your compression level, maintain reliability, and make more power
- stroke and bore + cams; I think the M44 crank has slightly longer stroke, I went with the M47 but... it is expensive.
There's more to performance than simply just horsepower, and lets face it, our cars will never be about that.
Having done a high performance rebuild, here are some of the OTHER factors that really make as much a difference for our cars:
- the rev limit; a good stock rebuild, with aggressive cams, quality balanced valvetrain, M50 lifters, new harmonic balancer and new valve springs can let you raise the rev limit a little above 7000 rpms (with a mark D chip)... thats the same as giving you longer gears, and keeps you in the powerband longer.
- intake; I drove around in an s14 with a miller MAF all yesterday... working on the intake --for example an ITB project or a mod similar to my intake manifold makes a BIG difference
- gearing... this also makes a huge difference; hit the junkyards and try to find a small case 4.27 lsd
- driving skill... let's face it.... anybody can drive a fast car slow... but driving a (relatively) slow car fast is a real test of skill, and a rewarding one. Every other car I've ever owned (c280 sport, e46 330i, mk III gti, even my saab) had more torque and power than a stock M42. But I enjoy my car now because I drive much better than I used to.
So, think about your goals and your plans... and your budget. If you really wanna go ahead with yer project. There are a number (at least

guys on here who have completed what yer thinking of doing.
Do what we all do; scour our threads, look for answers, PM people who can help you. There are lots of specialty tools you will need, like the cam sprocket holder, valve tools, etc. that folks can loan you. It's a fun wild adventure and this car can teach you more than you realize.
We have a complete factory engine teardown manual in our reference section and you have access to some of the most knowledgeable folks on the planet when it comes to the M42... let's go!!