10 Micro and Small Cap Healthcare Value Stocks Currently Under the Radar

The accompanying table presents 10 small and micro-cap companies from a variety of industries which are trading at value parameters, with average valuations for the group of 0.54X trailing 12-month sales, 0.44X enterprise value to sales, 0.88X book value, and 8.7X trailing 12-month earnings. The iShares Russell 2000 Small-Cap Value ETF (IWN) has lost about 39% in the past year and serves as a useful ETF benchmark comparison for these companies.

Healthcare – Diagnostics: Home Diagnostics (HDIX) is a maker of blood glucose monitoring systems and supplies under the TRUE and Prestige brands, in addition to partnering with major drug chains and wholesalers for private label and store brand alternatives to more expensive name brands such as Abbott Lab's (ABT) Freestyle or JNJ's(JNJ) One Touch. Think of HDIX as the equivalent of generic drug makers in the diabetes testing and supplies market, which is poised to grow with the rising incidence of obesity and diabetes – along with an increased awareness by medical practitioners of the importance of managing and monitoring diabetes to avoid complications affecting the kidneys, nerves, circulation, and eyes.

Healthcare – Generic Drugs: Caraco Pharma (CPD) and Hi-Tech Pharmacal (HITK) are two under the radar value stocks in the generic drug industry, which has a bullish outlook on the prospects for increased substitution rates and big name brand drug patent expirations in the next four years. Caraco is down lately on concerns over a FDA quality control warning letter, which it will address next week, and the company has strong ties as a U.S. distributor for Indian generic drug maker Sun Pharma (524715), which is also a major investor in Caraco. Hi-Tech specializes in liquid formulations, topical treatments, and eye drops – with a recent approval for a generic version of glaucoma eye drop Cosopt, which posted sales of $342M (ttm) through mid-year.

Healthcare – Molecular Diagnostics & Research Tools: Affymetrix (AFFX) is a stock I wrote about in late July as a value trap while trading around $7.50 per share due to a string of poor results and lowered guidance. While the results are still poor and Illumina (ILMN) continues to dominate its now much smaller rival, the price for Affymetrix at around 3 bucks is getting so low that it could be acquired or will rebound sharply at any sign of improved results. However, with the current bear market conditions and lack of near-term catalysts, I plan to keep AFFX on my watch list for a possible buy as a turnaround play.

Comments

[Mike Havrilla:]

Here is the other part of the article (ex-healthcare):
Industrials – Textile Manufacturing: Culp (CFI) trades at some of the deepest valuations of all the companies listed with a PSR of 0.15X, PE of 7X, and a PBR of 0.4X and I wrote about it recently as a turnaround candidate on cost cutting and debt reduction despite its exposure to the highly competitive furniture and bedding markets as a manufacturer of upholstery and mattress fabrics in the face of housing and economic downturn.

Industrials – Security Products/Services: Napco Security Systems (NSSC) has lost over two-thirds of its market value in the past year as a provider of electronic security products that has been affected by the housing and economic slowdown. However, Napco has been in the business for over 30 years and the Founder & CEO, Dick Soloway, owns about 6M of thhe19M shares of outstanding common stock.

The Company is conservatively managed with a history of accretive acquisitions and has the ability to navigate through tough economic conditions. Also, a commitment of over 5% of revenue to R&D for the development of innovative products positions the Company well for enhanced profits once th economy and housing markets rebound. Click here for my September 2007 article on Napco and some peer valuations, including 2001 acquisitions by Tyco (TYC) at about 2X sales for Sensormatic and SecurityLink – a full 4X greater than Napco's 0.5X PSR.

Industrials – Infrastructure: L.B. Foster (FSTR) is a manufacturer of products for the railroad, construction, energy and utility markets which is poised to gain on prospects for increased spending by the government to improve our nation's infrastructure.

Alternative Energy – Solar: Canadian Solar (CSIQ) has traded down sharply on lowered estimates and analyst downgrades, which appear to be piling on the stock at or near the bottom as it has cratered from all-time highs of around 50 bucks to a low of 5 bucks this week.

Technology – Alvarion (ALVR) provides WiMAX and other wireless broadband connectivity systems worldwide which trades at an EV of just $55M despite being profitable with excellent growth prospects. CIBER (CBR) is an IT services company trading at 1995 levels on lower profit and sales guidance for 2008.

2008 Nov 16 05:09 AM