We'd all love to find a way to find that +1,000% gainer. To
capture this kind of upside, investors will have to take their
chances on companies that may have a great future but little to
show for it right now. These speculative plays, more often than
not, fail to pan out. They often serve as vehicles to separate
investors from their money -- diluting whatever stake they had by
serially raising money to stay afloat.
But we wanted to take a closer look at the most speculative stocks
on the market by running a screen for companies that were valued at
more than 100 times their trailing sales. The vast majority of
companies we found were either investment firms (that can logically
have no sales if they are just a holding company),
exploration firms (which are likely sitting on valuable land --
even if they have derived no revenue yet), and biotechs (which have
a good excuse for having no sales if their developing drugs are not
yet on the market). We eliminated all of those stocks and are left
with what you see in the table below.
Trailing Sales ($M)
|ICO Global Comm.
|Moggle (Nasdaq: MMOG)
|Single Touch Systems
As you can see, some of these companies are valued at a few hundred
million bucks, even if they are little more than a hope and a
dream. For example,
"intends to identify and evaluate business combinations or
acquisitions of businesses." Right now, Harbinger is sitting on
$150 million in cash and is valued at about $125 million. You can
gamble on this company if you blindly trust that management will do
something wise with that money, but that's what roulette tables are
Several companies on this list are seemingly stuck in the dot-com
era, hoping to strike it rich with a hot new technology in the
areas of software, telecom and the Internet. For example,
ICO Global (Nasdaq: ICOG)
hopes to provide high-speed wireless services using its proprietary
satellites. The company goes through about $40 million in expenses
a year, year after year, and has yet to land a single customer.
The dubiously named
Kaching Kaching (Nasdaq: KCKC)
aims to become "the world's largest online shopping community and
Amazon.com (Nasdaq: AMZN)
isn't shaking in its boots quite yet. According to Reuters, this
little company already has 85 million shares outstanding. That's a
lot of shares to spread over a revenue base of a few hundred
A treatment for diabetes-related blindness
Some companies on this list appear to be on the cusp of real
promise -- and a meaningful spike in sales. For example,
Alimera Sciences (Nasdaq: ALIM)
is quite close to bringing a key new medical device to market. The
company's Iluvien product is an insertable tube that delivers
steroids right into the eye for those suffering from
in late April, Aliemra has hit all the milestones investors had
been expecting, but shares have fallen roughly -30% from the $11
price. Trading volumes have steadily fallen as investors have
seemingly forgotten this new company. But that could soon change as
the company gets past the final FDA hurdles.
In late June, Alimera filed a New Drug Application (
) with the FDA. The FDA is expected to give the device "fast-track"
status some time in August or September. Across the pond, Alimera
filed similar applications with European drug regulators. Now it's
a question of if -- and when -- the United States will grant
regulatory approval. Analysts believe approval should come late
this year, with sales beginning in the first quarter of 2011. And
it could be a quick sales ramp. Smith Barney believes sales could
reach nearly $300 million by 2012, noting that no other approaches
exist to treat this fast-growing problem.
If Alimera can hit that sales target, then
earnings per share (
could approach $2. Yet shares linger under $8. That tells me that
some investors believe either FDA approval is unlikely, or that
actual sales and profits could be well lower than those forecasts.
There is one other possibility: that this is a completely
off-the-radar stock. If that's the case, shares could rise sharply
when Iluvien is approved, perhaps later this year.
A star is (hopefully) born
For an unproven company,
Star Scientific (Nasdaq: CIGX)
sure has received a lot of ink lately. The company has developed a
process that removes many harmful chemicals from tobacco that are
often introduced in the curing process. The company has also
developed a smoking-cessation product that is aimed at slowly
weaning tobacco consumers from any nicotine addiction. Some
investors are also abuzz about the company's potential treatment in
the field of Alzheimer's.
But Star Scientific has disappointed investors many times before.
If you look back over its historical stock chart, you'll find many
instances of sudden surges and sudden plunges. In the last two
months, the stock has perked back to life, and on Monday, it tacked
on another +15% on unusually strong volume as rumors spread that
the company would be soon bought out for a fat premium. Maybe it
will happen. But if history is any guide, a rising stock price has
been a good time to take profits in this speculative name.
The king of the speculative stocks
To my mind, no company better epitomizes the speculative stock
Research Frontiers (Nasdaq: REFR)
. The company has developed a "smart glass" that can automatically
tint when exposed to the sun and might eventually be used in
airplanes, cars and office towers as a way to save energy. To its
credit, the company has attracted interest -- and contracts -- from
several large partners like Japan's Hitachi. Trouble is, those
deals have yet to turn into meaningful sales growth. So Research
Frontiers goes back to investors every year for another capital
injection, implying that the coming year will bring great things.
Yet hope springs eternal, and right now it's springing again.
Shares have steadily risen from around $3 in early June to a recent
$4.90. The message boards are buzzing with talk of an imminent
announcement that will send shares higher. Then again, those boards
have been abuzz many times before -- with nothing to show for that
Action to Take -->
Some of these speculative stocks do eventually emerge as heady
winners. But know this is more about gambling than investing. You
should look back at a company's history. If it has been trying to
build a business for many years, then it's hard to see why this is
the year for sales to finally grow.
-- David Sterman
David Sterman has worked as an investment analyst for nearly two
decades. He started his career in equity research at Smith Barney,
culminating in a position as Senior Analyst covering European
banks. David has also served as Director of Research at Individual
Investor and has made numerous media appearances over the years,
primarily on CNBC and Bloomberg TV. David has a master's degree in
management from Georgia Tech. Read More...
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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