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5 Small-Cap Buys With Large Potential

Now's the time to get a piece of these up-and-coming small caps

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Spectrum Pharmaceuticals (NASDAQ:SPPI) is a pharmaceutical company with a specialty in oncology — the treatment of cancer. The company currently has two cancer treatments on the market, Fusilev, a treatment for advanced colon cancer, and Zevalin, a treatment for a type of lymphoma. Currently, Fusilev sales make up about 86% of total revenues, and Zevalin sales account for the remainder. Interestingly enough, this time last year Zevalin sales accounted for most of Spectrum Pharmaceutical’s business, but in the last 12 months Fusilev sales have exploded over 584%! This is partly because colon cancer is the third most commonly diagnosed cancer and is the third leading cause of cancer death in the U.S.

The success of Fusilev helped fuel record sales growth in the last quarter, which boomed 205% to $51 million — compared with the same quarter last year. Earnings also rocketed 541% from a loss of $4.6 million in Q3 2010 to a gain of $20.3 million in Q3 2011. Adjusted earnings per share weighed in at 34 cents, which trounced the consensus earning estimate of 11 cents per share by 209%! Looking forward to the fourth quarter, the analyst community is expecting 47.3% annual sales growth and 225% annual earnings growth. In the past month, the analyst community has revised their consensus forecasted earnings by 110.8%.

But what really excites me about this company is its pipeline: Spectrum has over 10 drugs in either late stage development or development! This includes Apaziquone, a treatment for bladder cancer; Belinostat, another lymphoma treatment; and Ozarelix, a treatment of prostate cancer. This is a midsize biotechnology company that is about to experience blowout growth. It’s already at the top of the industry in terms of return on equity and revenue growth, and I’m excited to see where this agile company will go in the future.

Susser Holdings (NASDAQ:SUSS) is the first small-cap grocery store I’ve reviewed in some time! But what’s interesting about Susser Holdings is that, although it is classified under the Grocery Stores industry, it also has quite a handhold in the oil industry. The company started over 70 years ago as a family gasoline and convenience store business. Susser’s Petroleum Co., as it was known back then, was actually responsible for the system that allows customers to purchase gas with a credit card from unattended stations!

Several decades and acquisitions later, Susser is responsible for over 510 convenience stores and supplies fuel to 372 dealers and a significant number of other commercial customers. Stripes LLC, Susser’s retail arm, also operates 270 Laredo Taco Company and Country Cookin’ restaurants.

Now, there aren’t too many store chains that have such tremendous growth prospects like Susser’s Stripes — the company plans to add 18-22 new retail units to its network this year. This is because the company has enjoyed tremendous operating results and is looking for a way to put this money to use. In the third quarter, Stripe’s sales rose 40% to $1.35 billion — compared with the same quarter a year ago. During the past four quarters, Susser Holdings’ earnings surged 103.8% to $18.5 million — or $1.06 per share — compared with $8.9 million or 52 cents. The analyst community was expecting earnings of 56 cents per share and $1.32 billion in sales, so the company posted a modest sales surprise and an 89% earnings surprise!

Looking forward to the fourth quarter, the analyst community is expecting 27.3% annual sales growth and 91.7% annual earnings growth. In the past month, the analyst community has revised their consensus forecast for earnings by almost 33%. This makes me very excited to see what kind of earnings surprise the company can pull off in the next quarter. Mix a diversified business model with favorable diesel and gasoline prices, and you have a recipe for success.

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