A small cap stock can begin a long-term uptrend with just one speculative catalyst. It does not matter if the stock has traded lower for a year or if it has been dead money for a period of many years. A small cap stock is naturally speculative and, once one begins to trade higher, there are large gains that can be made for investors due to potentially accelerating momentum. Because of this fact, I will focus on four of the best performing small cap stocks during the last six months. These are all stocks that traded with loss in the previous six months, making its yearly return flat or a loss, despite recent gains. But now, with new catalysts and a solid uptrend, it is possible that these four stocks could continue to trade higher. I advise a bit more research into each company with a plan in place in case the stocks either lose their current technical supports and/or begin trending downward. For now, however, each of these is trending upward with the possibility of momentum carrying them even higher.
Medical Device Company Rises on New Hope
Hansen Medical (HNSN), a $145 million healthcare company that makes robotic systems under the names Sensei and Magellan, has been a story of two halves during the last year. During the last six months, it has increased in market capitalization by 62%, but had declined 60% in the six months prior. The stock, still trading with a 32% loss during the last year, has seen recent gains for two reasons: insider purchasing and excitement surrounding Magellan.
Over a five-year period, Hansen Medical has lost over 85% of its value, going from a $1 billion company to a $150 million company. The reason has been weak sales of Sensei, a system that has been commercially available for more than five years. During this five-year period, revenue has been stagnant at around $20 million each year. The company continues to operate with a loss and is watching its balance sheet get weaker by the quarter. Currently, the company has a debt-to-assets ratio of more than 65% and has an accumulated debt of more than $30 million.
The upsurge in gains has been a result of the company's newest system, Magellan, which has been commercially available for about a year. Since it is so early in Magellan's existence, it's too early to know whether or not it will be a success. However, insider Larry Feinberg purchased more than 400,000 shares between the months of October and November, and slightly less than $250,000 worth of shares in 2013. Consequently, there are many who believe this insider purchasing is a sign that sales are rising or that its new device will perform well. Also, there have been whispers for the last year that either Intuitive Surgical (ISRG) or St. Jude Medical (STJ) might make an attempt to purchase the company. Either way, this remains a high-risk, high-reward investment. Because of the company's products, it could be drawing interest from a potential acquirer/partner; or sales of Magellan could very well perform better and lead to profitability. If either scenario occurs, one can expect significant rises in the stock price. Shall neither scenario occur, expect a significant pullback.
Small Cap Device Company Expanding its Business
Biolase (BIOL) is a medical device company developing and manufacturing laser technology that is used during oral procedures in dentistry and medicine. The company has been in operation for many years and has been wildly volatile during the last decade. However, in the last six months the stock has more than doubled, after a 40% loss in the six months prior.
The best way to summarize Biolase is to say that it has been very inconsistent. The company's revenue for the last five years has been up-and-down; it has very little cash and short-term investments, and it has been difficult to predict the company's growth. However, investors are now excited about Biolase's future-and it all started back in October when the company received FDA clearance and a CE Mark for its EPIC 10™ diode soft tissue laser. This is a product that should increase sales for the company, and is the catalyst that initiated the stock's uptrend.
The recent news surrounding EPIC 10™ must have had some fundamental impact because the company recently raised guidance and reported that it expects positive cash flow from operations for Q4 of 2012, a major milestone for the company. As you can see, Biolase's approval of EPIC did have some meaning, but not to the same degree as its FDA approval for the Diolase 10™. The Diolase 10™ is one of the company's more promising products, and after its approval the stock shot higher by more than 20%.
The Diolase 10™ had already been approved for tooth whitening and temporary pain relief, but earlier this month the FDA approved it for 19 additional medical uses. As a result, the product is much more appealing as a multipurpose tool. In addition, it is no longer limited to just dental use, but rather ophthalmology, plastic surgery, vascular surgery, cardiac, and gynecology. Hence the sales potential for the product are much greater. The only concern is that expectations are high, and Biolase does not have a great track record when it comes to being rapid in its marketing approach. Many believe the company is waiting for a large partner, or a buyout, and will be slow to market into the other medical fields. If so, it could cause a decline in share price as investors are now pricing the stock for an immediate boost in long-term sales.
Sweetener Company Rallies on Hope of Efficient Production
Stevia First Corp (OTCQB:STVF) is a small company based in the heart of Central Valley, California with 1,000 acres of land used to research, produce and harvest stevia. The stock has more than doubled over the last six months, yet lost over 50% of its value in the six months prior. Its recent rally has been due to a number of catalysts such as news regarding stevia, its new-age fermentation process, and the fact that its first crop growth is set to begin for the company.
At first glance, stevia does not appear to be an interesting or attention-grabbing product, yet the outlook for the commodity is incredible as a global switch to healthier alternatives for consumption occurs. Stevia is a natural zero-calorie artificial sweetener that is rapidly replacing sugar in soft drinks, coffees, and other beverages. It has all the taste benefits of sugar without the unpleasant side effects, including poor dental hygiene, weight gain and diabetes as a secondary outcome to excessive sugar intake.
What makes Stevia First exciting as an investment is the fact that it's one of very few that is planning to grow stevia in the U.S., has the land to produce large revenues and profits, and is located in one of the best geographical regions in the U.S. for effective harvesting. To this date, the company has reported no revenue. In 2012 the company licensed a fermentation process from Vineland Research and Innovation Centre to produce more consistent and less expensive extracts that are derived from the sweetest parts of the plant. As a result of lowering costs via fermentation of plant materials, the process will allow for more efficiency from the company, allowing it to produce better quality product for lower costs (since most costs are attributed to growing of the crop, according to the announcement). Much of the production and purifying process involved in yielding stevia extract would be removed. This fermentation technology may be used in conjunction with the company's agribusiness model, or it may work independently, giving the company a more diverse business model with two chances at success rather than just one.
Stevia First is now testing and tweaking its fermentation process and is hoping to begin producing revenue in 2014. The timing should be great, as American beverage and food companies need a domestic and stable supply of stevia, and this company has the acreage and technology to supply much of the country's demand. I believe that this is a stock that investors should watch as we continue to see the shift to healthier alternatives, and stevia's natural origin and zero-calorie makeup should allow the product's growth to continue.
Speculation Takes this Stock Higher Despite Horrendous Balance Sheet
ANADIGICS, Inc. (ANAD) is a provider of semiconductor solutions in the broadband wireless and wireline communications markets. Over the last year the stock has lost 15% of its value, but has gained more than 125% in the last three months. Strangely enough, the rally has occurred without the presence of analyst coverage (only one upgrade in last three months from Needham) and absolutely zero media coverage. In fact, it's hard to determine why this stock has rallied.
The stock's rally began in mid-November and lasted all the way until the new year. Since January 2nd the stock has been flat; however it does appear to have found a steady trading range. Looking ahead the company does have a number of potential catalysts. It is supplying a multimode multiband power amplifier that is used in the Samsung Galaxy S Relay 4G and also recently introduced its new small-cell wireless infrastructure power amplifier (which bulls believe will be a success).
As an investment possibility there are reasons to be optimistic, with the company having new products/services. However, investors must be certain to properly assess and weigh its balance sheet woes. The company has seen its margins drastically decline over the last year, with operating margins of (54.60%) over the last 12 months. The company has no debt, but does have an accumulated deficit of almost $500 million. Almost all of the company's financial losses come from its operations; this is a bad sign for the likelihood of future profitability. The only positive is that with new products the fortunes of the company can change rapidly, judging by the stock's recent performance there are many who believe that its new products are a game changer.