This month I am recommending four new stocks, three of which are thinly traded biotech companies that are benefiting from rising trading volume. So far this year, small-capitalization stocks have outperformed large-capitalization stocks, since they are more volume-sensitive and tend to “melt up” as trading volume rises.
With this in mind, let’s get to today’s new buys:
Anika Is More Than Skin Deep
Anika Therapeutics (NASDAQ:ANIK) is a company making big bucks from older folks’ desire to look—and feel—young again.
Anika is a niche biotech company focused on skin protection and repair. Its products are all based on a polymer called hyaluronic acid, which is naturally found in the body. The company is known for dermatological products that can regenerate damaged tissue like burns and ulcers, prevent post-surgical adhesions and even correct facial wrinkles, but its real revenue drivers are its treatments for osteoarthritis of the knee and other surgical aids.
In fact, the company recently received a $2.5 million payment for the distribution rights for a product in this group that hasn’t even yet been approved by the FDA. Clearly, the potential here is big. Plus, Anika has a start-up Italian division that just became profitable in the fourth quarter, as some of its products are marketable in Europe but are awaiting FDA approval.
And while the company’s products are impressive, the most important part of this story is earnings. For the fourth quarter, the company’s sales rose 25.2% to $18.4 million while earnings surged 110% to $2.9 million or 21 cents per share. The analyst community was expecting fourth-quarter sales of $16.1 million and earnings of 13 cents per share, so Anika Therapeutics posted a 14.3% sales surprise and a 61.5% earnings surprise. Looking forward, the company’s sales continue to climb, and I expect that we should see another solid surprise when the company reports its next quarterly results.
Now, with this in mind, I want you to be careful here. This is a stock that is thinly traded, and a spike in volume can cause shares to soar—hurting both yourself and other investors.
An Up-and-Coming Cancer Treatment
Curis (NASDAQ:CRIS) is a biotech company with a focus on treating cancer. Curis has four major drugs in the pipeline, including one that is currently undergoing testing for use in pancreatic cancer, the fourth most common cause of cancer death around the world and one of the toughest cancers to fight.
The treatment is marketed as Erivedge, otherwise known as vismodegib, a hedgehog-pathway inhibitor that is the first drug in its class to gain FDA approval. The drug is still going through studies, but interest in the drug as a breakthrough in treating pancreatic cancer is growing. The company’s other three products, treatments for specific cancerous tumors, are in early or mid-stage trials.
In the fourth quarter, Curis’ sales surged to $14.1 million from about $100,000 in the same quarter a year ago, after it received two large payments from Swiss drugmaker Roche (PINK:RHHBY), which is its partner on the skin cancer drug Erivedge. During the same period, the company’s earnings rose to $6.1 million or 7 cents per share compared with a net loss of $5.6 million of (7) cents per share year-on-year. The analyst community was expecting sales of $11.1 million and earnings of 2 cents per share, so Curis reported a 27% earnings surprise and a 250% earnings surprise.
Once again, this is a relatively thinly traded company, and spikes in investor interest can mean that shares might pop before you can fully initiate a position.
A Sciclone Cyclone in China
Our final biotech stock, Sciclone Pharmaceuticals (NASDAQ:SCLN), has a flagship product, Zadaxin, which is approved to treat hepatitis B and C in some 30 countries. China is the company’s primary market where Zadaxin is also used for viral vaccines and cancer treatments—and the treatment’s sales surpassed the $100 million milestone last year in China.
The company also has a strong portfolio of partnered products that it markets in China, including exclusive China promotion rights to Depakine, a treatment for epileptic attacks, Tritace, a treatment for hypertension, and Stilnox, a treatment for insomnia. The company’s pipeline is also promising, including Tramadol for pain, DC Bead for liver cancer and RapidFilm, used to prevent nausea and vomiting caused by chemotherapy, radiotherapy and surgery.
In the fourth quarter, Sciclone Pharmaceuticals’ sales rose 75.4% to $41.4 million compared with $23.6 million in the same quarter a year ago. During the same period, the company’s earnings surged 162.5% to $12.4 million or 21 cetns per share compared with $3.8 million or 8 cents per share year-on-year. The analyst community was expecting sales of $40.9 million and earnings of 13 cents per share, so Sciclone Pharmaceuticals posted a slight sales surprise and a 61.5% earnings surprise. Looking forward, the company’s is expecting 23% to 27% 2012 sales growth to $165 million to $170 million and its earnings to be between 72 cents per share to 78 cents per share.
As with our other biotech buys this issue, Sciclone Pharma is a small-cap that can surge higher without much warning.
Armed and Ready for Profits
After all these biotech companies, I also want to initiate a position in a more traditional name—Sturm Ruger (NYSE:RGR). This is one of the biggest gun makers in the U.S., and it’s been a hot hand in recent months. The company produces four categories of firearms, namely pistols, revolvers, rifles and shotguns. Its models include hunting and target rifles, single- and double-action revolvers, muzzle-loading guns, and double-barreled shotguns.
The company recently made headlines after announcing that it had received more than one million orders in the first quarter and actually had to suspend accepting new orders due to the incredible demand for its firearms from its distributors! The company has been rapidly ramping up its production and expects to resume accepting new orders by the end of May.
In the fourth quarter, RGR sales rose 24% to $98.1 million compared with the same quarter a year ago. During the past four quarters, the company’s earnings rose to $5.4 million or 8 cents per share compared with a loss of $2.7 million or (5) cents per share year-on-year. Excluding extraordinary items, Sturm Ruger’s operating earnings were actually 7 cents per share. The analyst community was expecting sales of $95.2 million and operating earnings of 4 cents per share, so the company posted a slight sales surprise and a 75% earnings surprise.
Looking forward, Sturm Ruger expects $113 million to $118 million in sales growth for its current quarter, due to the fact that they continue to gain market share relative to their competitors.