by Jamie Dlugosch | July 21, 2011 9:49 am
One of the residual benefits of the cantankerous debate regarding the debt ceiling in Washington is the health care sector. The debate on raising the debt limit has demonstrated the remarkable gains in political clout of the tea party and fiscally conservative elements of the GOP. With that clout, expect current health care legislation to be repealed or changed entirely at some point in the near future.
Already, the health care sector has been humming along in 2011. Stocks in the group have been rallying as politicians’ attention shifted to other priorities. Free to operate without the fear of onerous regulations, investors have been bidding up health care stocks like UnitedHealth (NYSE:UNH) and WellPoint (NYSE:WLP).
The biggest gains are yet to come, especially if the current health care law is repealed. I expect outsized gains in the sector, and I am particularly enamored with health care penny stocks. The SEC defines a penny stock as being less than $5 per share. The penny stocks mentioned here are all real companies with promising futures despite low prices.
Catalyst Pharmaceutical Partners (NASDAQ:CPRX) is a tiny health care penny stock with a $35 million market cap. Despite the low price, the average volume of shares traded is at 129,000 per day. There is plenty of action in this stock, including a recent analyst recommendation of “outperform” from Wall Street firm Cowen.
Catalyst Pharmaceutical is a biopharmaceutical company in search of drugs to treat neural system disorders. As one would expect, the company is losing money. The play here is to buy future success today. There really are only two outcomes: huge success or failure. Thus, this a higher-risk/high-reward health care penny stock.
Low-priced health care penny stocks can generate significant returns. Dynatronics (NASDAQ:DYNT) is one of the best-performing under-$5 stocks in the market, with a gain of more than 100% this year.
The medical device-maker has signed impressive purchasing agreements that bode well for its future. The company, now trading for more than $1 per share, is listed on NASDAQ. That listing is likely to attract the attention of more buyers that otherwise would shun the company. A focus on chiropractic and alternative solutions to physical ailments holds much promise for this health care penny stock.
Pro-Dex (NASDAQ:PDEX) is a medical device company specializing in rotary drives and motors for physician and dental practitioners. This tiny health care penny stock has a valuation of only $6 million, and as a result, shares are volatile. In May, shares soared to more than $3, thanks in part to an impressive earnings report.
The company generated a profit in excess of $1 million on sales of $7.6 million. The sales number represented an improvement of 24% from the year prior. As quickly as the market bid up shares, the rug was pulled out as sellers emerged. Shares now trade below $2. Investors might have been spooked by the company’s admission that future buying might not be similar to the impressive quarter announced.
That said, Pro-Dex is working hard to diversify its customer base. To the extent they are successful, this stock will rally back to more than $3 per share – and then some.
If the name Theragenics (NYSE:TGX) sounds familiar, you likely heard of this stock via its heavily advertised prostate cancer treatment program. TheraSeed is an FDA-approved medical device helping to diversify this 30-year-old medical device company. Earlier this year, the $58 million market cap company received a takeover bid that would have valued Theragenics at $74 million.
Shares soared on the news of the bid to more than $2 per share, but the eventual rejection of the offer has resulted in shares drifting lower. You can buy the stock today for $1.70 per share. As acceptance of its prostate treatment gains momentum, look for TGX to soar higher.
It doesn’t take much to move a health care penny stock significantly higher. On Wednesday, shares of Bioanalytical Systems (NASDAQ:BASI) gained 5% on a 9 cent-per-share move in stock price. At the end of last year, BASI spiked to $3.98 per share, hitting a 52-week high. Shares have been sliding lower since and now trade for $1.88.
The company is in the business of providing contract-based research and development in the biotechnology industry. The tiny $9 million market cap company stands to benefit from the increasing research activity in this critical area of health care. As more barriers to research are removed, this stock should climb higher. It certainly is worthy of a speculation at this low price.
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