Three Small Cap Stocks on Fire

DDRX & OGXI keep going higher and MRM is next in line.

Diedrich Coffee (DDRX) is a coffee stock that closed at $0.41 per share on February 19, 2009. Last Friday, May 22, 2009, the same stock closed at $15.75 for a 3741% gain!

On April 20, 2009, the Company reported a turnaround quarter of $0.25 EPS compared to a loss of $0.39 EPS the prior year. That news sent the stock from $2.01 on April 20 to close at $4.44 the next day for a 121% gain. The stock did not stop there but continued to rise to close at $7.40 on April 29, the day Green Mountain Coffee Roasters (GMCR) reported earnings. DDRX's growth is tied to GMCR because they sell the K-cup packets for GMCR's Keurig coffee systems. GMCR's earnings drove to hit an intraday high of $12.28 and a close of $11.50 on May 7. For the next 3 trading days, May 8, 11 & 12, DDRX sold off and acted weak as can be, hitting the $8's on the May 11 & 12 to close at $9.89 on May 12. Since then the stock has continued to move higher to close at $15.75 this Friday May 22.

What is my point? This stock has continued higher for two reasons. Reason number one there is substance to the business turnaround ($0.25 eps) and the sector is hot (coffee brewed at home). Reason number two is because shorts keep betting against this stock which has a very low float. When this stock pulled back during May 8, 11, 12, people were betting against this stock because it had risen from $0.41 and they saw this as the first sign of weakness. It was during this pullback to $9 that I was pounding the table to buy at www.thelion.com where I also post. Shorts were arguing with me, saying DDRX is overvalued, has run up too high, and every other reason they could think of to convince people this stock was going down.

I ended up selling in the $13's and $14's and have a few freebies still riding this monster stock. DDRX is still going.

OncoGenex Pharmaceuticals (OGXI) is a biotech that went from $8 to $21 last week. Yes, we know it is a completely different sector, but it's the same effect. OGXI is a biotech that had great results from a drug and is headed into ASCO next week for a presentation. So there is substance to the move but shorts continued to short it from the $9's because it has risen so much (as well as various other unsuccessful reasons).

Next is Merrimac Industries (MRM) , which I first called as a buy here at $6.40 on a fundamental turnaround in there business. The stock was as low as the $3's when earnings came out and it closed at $10.85 on Friday. MRM has a lower float and outstanding share structure than both DDRX and OGXI. Due to the turnaround in its business, it has an EPS run rate after last quarter that could support a price in the high teens or $20's (with a reasonable historical P/E) like DDRX and OGXI. If we get a pullback on MRM, the shorts will be saying it is done because it has risen so much. However, I will be buying on any pullback of substance, because just like DDRX and OGXI, I think MRM is going higher and we have only seen the first wave. If you missed my call at $6.40 I am NOT saying to chase it but watch for any significant pullback (I would send out an alert if that happens). This company and its products are in demand (by the recent growth) and it now has EPS to support a higher share price.

An excellent momentum chartist that I follow, Picture of Power has said the same thing.

In summary, DDRX and OGXI keep going up because they had fundamental turnarounds of substance in their business that supported a higher share price and shorts kept betting against them. MRM is in the same category with a lower float and I am watching to see if we get any kind of pullback or just keep shooting higher.

Disclosure: I am long MRM and DDRX.

Comments

[User 419971:]

You forgot to mention ADLS, Advanced Life Sciences that has been buzzing around under a dollar for a long time ~ actually, a good part of that period spent in under 50 cents. This company has so much going for it ~ with Ceth as their new drug candidate, an antibiotic to be ruled on in July by FDA. My reason for buying initially was for the melanoma salve being tested in early stages as a potential cure of this horrific cancer's lesions on skin, lessening the need for surgery.
It's moving a bit each day, it seems...and should be looked at, not only for Ceth to be used for some Pneumonias, but also for usage by DoD, who gave the company a recent grant to develop possibilities of usage of Ceth against two toxic subsances that might be used in some terror attack in the future.

This stock has tons of room on the upside, should be back on nasdaq soon and as I write, is SITTIN' on READY & ROCKIN' on GO!

May 26 01:02 PM

[gtmcduffy@g...:]

seekingalpha.com/artic...

May 27 02:20 AM

[svygear:]

Please see: pitch.pe/13017

Access Pharmaceuticals (ACCP.OB) provides update on Global Launch MUGARD™ - New FDA-Approved Treatment for Oral Mucositis:
MuGard™ is a ready-to-use mucoadhesive oral wound rinse for the management of oral mucositis, a debilitating side effect of many anticancer treatments. Up to 40% of all patients receiving chemotherapy and/or radiation therapy develop moderate to severe mucositis, and almost all patients receiving radiotherapy for head and neck cancer and those undergoing stem cell transplantation develop mucositis… The market for the treatment of oral mucositis is estimated to be in excess of $1 billion world-wide.

May 28 12:26 PM

[Chris Jackson:]

SmallCapStockFinder.com
Portfolio Builder

You can check out our investor points and ranking on Investopedia @ community.investopedia.../

Frequently Asked Questions

Q: What are some examples of your small capital company picks?
TAKE A LOOK AT THE FIVE YEAR TRENDS OF THESE COMPANIES.

MGS
MetroGas SA
Exchange: NYSE
Sector: Utilities
Industry: Natural Utilities



FCEL
Fuel Cell Energy Inc.
Exchange: NASDAQ
Sector: Technology
Industry: Electronic Instrument & Controls


AAV
Advantage Energy Income Fund
Exchange: NYSE
Sector: Energy
Industry: Oil & Gas Operations


TUNE
Microtune Inc.
Exchange: NASDAQ
Sector: Technology
Industry: Semi-conductors


NHLD
National Holdings Corporation
Exchange: OTC Bulletin Board Market
Sector: Financial
Industry: Investment Services


GRB
Gerber Scientific Instrument Co.
Exchange: NYSE
Sector: Technology
Industry: Computer Peripherals

May 31 07:04 PM

[discov:]

I am getting short DDRX, in small size, so as not to get smashed like many other shorts.

Things have improved for them, but not as much as the +4000% gain in the stock suggests.

Jun 03 12:13 PM

[User 425734:]

Paul,

Great call on MRM. Take a look at ERI as this company is exactly like MRM and is located down the street!

Let us know what you think! emrise.com

Jun 04 02:19 PM