After posting a very rapid and strong upward move, stocks tend
to do one of two things: either surge even higher, or fall victim
to profit-taking. They rarely stay put.
That's why it's profitable to continually pore over recent strong
gainers and assess which stocks have further upside and which ones
look ripe to short. I took a look at the recent top small-cap
gainers that reside in the
Russell 2000 Index
(eliminating stocks that still sport amarket value below $100
Here's what I found:
|Clinical Data (
|Hughes Communications (
|Online Resources (
|Universal American Fin.
Clinical Data (Nasdaq: CLDA)
One of the hottest stocks of January isn't even done yet. You may
have missed a 70% gain on Monday, but analysts think this stock has
another 40% to 50% upside. Clinical Data just received Food and
Drug Administration approval for its drug, Vilazodone, which
treatsdepression . Many thought that approval would be
overwhelmingly likely and strongly predicted that the FDA would
deliver a thumbs-up, but the news still seemed to catch investors
Why aren'tshares done rallying? Because Viladozone has proven to be
especially effective, especially for patients that are unresponsive
to other medications. It's a $10 billion market, and Clinical Data
may garner 5% to 10% of the market down the road. Analysts at
Griffin Securities peg peak annual sales at $750 million.
But this isn't a one-trick pony. Clinical Data appears to have a
fairly impressive drug pipeline, led by Stedivaze, a compound that
helps to highlight symptoms of heart disease during cardiac-stress
tests. Phase III tests are now underway, and Stedivaze could hit
the market by 2015, with potential peak annual sales of around $450
That's why analysts think Clinical Data, which is now worth around
$800 million, could eventually be valued in the $1.0-$1.5 billion
range. Indeed the company must now look awfully tempting to the
major drug companies that are struggling to fill their pipelines.
[There's only one Big Pharma stock I'd consider buying right now.
Read my analysis here.]
Hughes Communications (Nasdaq: HUGH)
Investors have likely missed the boat on this one. The satellite
operator has been reported as seeking a buyer, which pushedshares
from $40 to $60 fairly quickly. What will it fetch? That's anyone's
guess. Press reports have been vague.
Not only may upside be capped at this point, butshares would likely
fall back if a deal doesn't materialize. That's why it pays to
monitor this stock. Impatient momentum investors may lose interest
and exit the stock, pushing it back down to a better entry point,
perhaps below $55. That may never happen, but would be the only
reason to chase this hot stock.
Curis (Nasdaq: CRIS)
This small biotech is pursuing a wide range of clinical trials with
Roche Holdings (PK: RHHBY)
.Shares have risen 50% in the past month, perhaps on the back of a
particularly bullish financial commentator writing in the
blogosphere. Early stage biotech plays are too risky for me and are
best left to experts that track the sector, so I'll take a pass.
Online Resources (Nasdaq: ORCC)
This company helps telecom and financial firms develop
payment-processing systems. As is the case with Hughes
Communications, it is apparently up for sale.
spiked more than 30% on Monday after the company announced it has
been receiving overtures from potential suitors. Analysts at D.A.
Davidson suspect that "preliminary offers would be in the range of
$7-$9 and we believe any offer above $9 would be accepted."Shares
recently traded hands at $6.50, implying modest to robust upside if
a deal came to pass.
Online Resources has been rumored to be of interest to suitors many
times before, but the company has never come out and explicitly
acknowledged interest before. Its decision to announce that the fox
hunt is on now is likely due to a desire to be sure that all
potential suitors know the company is in play. And unlike the case
with Hughes noted above, where the failure for a deal to come
together soon may cause shares to drift back down, Online Resources
more likely can maintain its current share price even if a deal
takes a while to materialize, because expectations are likely in
place for protracted discussions. The company plans to address the
issue in early March when results for the first quarter of 2011 are
released, andshares look worth a flier here in light of the limited
risk and potentially decent reward.
Cerus (Nasdaq: CERS)
The reason behind this biotech's 50% spike: I have no idea. Cerus,
which has a technology that can kill blood-borne pathogens, appears
to possess a fairly large market opportunity. The next step in the
company's development is to try and secure European regulatory
approval for blood processing. (Right now it is only approved to
process blood platelets.)
This was a $70 stock a decade ago, though it eventually fell below
$1 before a recent rebound to above $3. Sales for Cerus peaked at
$30 million in 2006, and the company has never generated aprofit .
The company has continually needed to sell more shares to prop up
thebalance sheet .
Even if Cerus is able to get the regulatory nod in Europe, it's a
fairly competitive market. Right now, many European countries use a
compound known as "methylene blue" to de-activate blood pathogens.
But Cerus' approach has been viewed by some as technologically
superior. This is certainly a stock worthy of further research, but
it's hard to peg any sort of potential target price from my cursory
Action to Take -->
Clinical Data looks set for a solid 2011 as more investors become
aware of the potential for its slate of drugs. If you see analysts
pick up coverage, that's because their employers likely smell a
banking deal coming.Buyout or not, theseshares look headed well
Online Resources and Cerus may be worth small investments. The
first could deliver a good-sized gain in a fairly short time frame.
Cerus looks like it has blockbuster potential, but it also comes
with a high degree of risk, especially since thebalance sheet will
soon be ready for another dilutive capital injection.
-- David Sterman
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.