What screens do you use to find great options trades? They are all based on technicals — and I prefer common sense. Of course, I still want to see my money double, but I can get that kind of performance with a very cheap stock that trades like an option.
Common sense tells me to take a hard look at a stock with a market cap that’s less than its cash, and cashflow estimates that are positive by year-end. A real business with real products in an ignored part of the market that trades under a buck — a price that defies common sense.
Interested?
Well then take a look at Cerus (CERS).
Cerus: A Pure Play on a Pure Blood Supply
Cerus is a pioneer in something called “pathogen inactivation.” Translation: They have a technology that enables them to clean blood, making blood banks almost completely indifferent to the health of the donor.
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Think of the time and money spent screening donors for AIDS and other diseases that could be saved if this technology was in use. Not to mention what this will mean for parts of the world where so many people have blood-borne pathogens that collecting clean blood locally is almost impossible.
The company has developed and is now marketing the INTERCEPT Blood System, which kills off — technically, the term is inactivates — viruses, bacteria, parasites and other pathogens, and is unique in that it can be used to treat both platelets and plasma. This product is also being developed for use on red blood cells, which is a much larger market, but requires a new set of clinical trials.
The INTERCEPT system has been designed to work in the physical environments of blood banks worldwide. A disposable kit with the appropriate compounds is mixed with the donor blood plasma or platelets (and eventually red blood cells), and this is then exposed to ultraviolet light to get the process going.
This all means that blood can be collected from a variety of sources, and in locations previously considered too dangerous for the blood supply. For example, one of my closest friends was living in Uganda and traveled to South Africa for elective knee surgery due to the problems with the blood supply in Uganda.
The INTERCEPT Blood System is approved for use in Europe and the Middle East. France is adopting INTERCEPT in part because of an outbreak of a virulent virus in a colony that completely eliminated authorities’ ability to collect blood — that is until the INTERCEPT system was installed. In Europe, the rollout of INTERCEPT, which began in France, will spread country to country, and eventually to Asia over a multi-year period.
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At present, the product is sold in 18 countries. Germany is the next big target market, and this week the largest region in Germany approved use of the INTERCEPT system, moving the stock almost 20% — from a ridiculous 63 cents to an equally ridiculous 79 cents a share. It’s now trading around 95 cents per share.
The overall market in Europe is almost half a billion dollars. And once the system is developed and approved for red blood cells, Cerus is looking at a multi-billion-dollar market in Europe.
The company also has a long-term program to develop the product for the United States, which has a much more convoluted and fractured blood supply system, and suffers from equally fractured and inadequate regulatory oversight.
The company’s business strategy is simple: Simplify the company, focus on blood, go to countries with the lowest barriers to entry first, sell them the hardware system (the razor), and then sell them kits (the blades) over and over and over again.
Given the epidemic of AIDS and other diseases in Africa, you would assume the company might start there first, but it is not due to the difficulty of reaching these markets. It will get there eventually, but business success comes first.
Revenues could hit $25 million this year and up to $50 million next year as approvals drive sales. The company may have to raise money in 2010, but with this kind of run rate, I do not see this as a problem, even in light of current market conditions.
There is little analyst coverage — yet — and this will changes as Cerus receives more product approvals and revenues grow. The biggest potential catalyst is successful movement in the U.S. regulatory process. The company recently pared back development resources to save cash, and should have enough to reach near breakeven in cashflow.
Bottom line: CERS is priced like an option — at around 95 cents — yet one year ago the stock was north of seven bucks. So a double — or even a 10-bagger — is not as far-fetched as you might think.
Michael Shulman is the editor of ChangeWave Shorts. To learn more about him, read his bio here.
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