Among the biggest winners in Wednesday's early trading are
Guidewire Software (Nasdaq: GWRE)
Orexigen Therapeutics (Nasdaq: OREX)
While the 2012IPO market will always be remembered for the
Facebook (Nasdaq: FB)
, the year has also brought a number of high-quality companies into
the public spotlight, and investors have been able to make a
killing in the right names. Last week,
the solid quarterly results offered up by "Big Data" player
, and you can add Guidewire Software to the list of stellar 2012
IPOs. The provider of insurance agency software turned an expected
quarterly loss into a solid quarterlyprofit -- for the third
straight quarter -- when results were released Tuesday evening.
A $0.10-a-share profit was well ahead of the consensus
forecasts of a $0.02 loss.
Guidewire has been around for more than a decade, but has only
recently gained major traction against incumbent vendors such as
Accenture (NYSE: CAN)
Computer Sciences Corp. (
. That traction is translating into 20% to 30% top-line growth, and
sales are likely to approach $300 million in fiscal (July) 2013.
The total market opportunity is far larger than that, and for
Guidewire to boostmarket share to the levels seen by those bigger
rivals, it will need to crack some major accounts. Recent contract
wins with Columbus, Ohio-based Nationwide and Aviva, the largest
insurer in the U.K., are surely good signs. Indeed, international
expansion appears to be a solid long-term growth driver for the
To be sure, this is now a story stock: The current run rate of
around $40 million in annualizedEBITDA is just a fraction of the
company's current $2 billionmarket value . Even if EBITDA hits $200
million by 2015, then this is still a richly-valued stock. So the
key is to wait for the inevitable market pullback, as expensive
stocks like this can sometimes take a pounding, which could then
create a great entry point.
The obesity cure awaits
Investors continue to closely track any companies that are working
on a weight-loss pill, simply because the potential market
opportunity is so huge. So investors are bidding upshares of
Orexigen by nearly 5% in today's trading, solely due to a
widely-expected announcement that a current clinical trial will be
fully enrolled by the end of this year. Investors likely take note
of the fact that rival
Vivus (Nasdaq: VVUS)
saw its share price double in late February when its obesity drug
received Food and Drug Administration approval.
Arena Pharmaceuticals (Nasdaq: ARNA)
has soared to a recent $9.30, from $2 in late April, on the back of
an FDA thumbs-up as well. (In case you are wondering, Vivus' drug
is said to be more effective but has more side effects).
Will Orexigen be next? Merrill Lynch's Steve Byrne anticipates
that the company's Contrave weight loss drug will get the FDA nod
and be on the market by 2014, which underpins his $10price target .
That implies 100% upside. However, the FDA in recent years has
increasingly sought to approve drugs that are clearly superior to
existing approved drugs, so it's unclear whether Orexigen's
Contrave will need to clear a higher hurdle than Vivus' Belviq and
Arena's Qsymia drugs.
As with many biotechs, Orexigen's share price outlook is binary:
Approval would be a solid boost for this stock, but there's also
ample downside if the FDA gives the thumbs down.
Action to Take -->
Guidewire Software has delivered three very impressive quarters in
a row since its January 2012 IPO. The key for investors is to wait
for a less-than-stellar quarter, if it comes, as that could be the
point to tap into the bright long-term opportunity that will still
likely remain on track.
Orexigen's clinical progress is notable as the company edges
closer to the finish line. Yet even if you choose to commit some
funds to this stock, then its speculative nature calls for a fairly
small-sized position in your portfolio.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.