During a bull market many investors often comb through the underachievers looking for companies that are full of potential, exhibit steady growth or have terrific fundamentals. The following four small companies have some of these elements and offer terrific value for investors, but have share valuations that don't reflect their great mechanics. One of these companies, National American University, even pays out a dividend with a 4.9% yield! Sometimes it might take a while to realize a return with these smaller companies while other times their stock might soar given just a little positive news. Some small companies can be associated with the failure of a highly touted drug, others a troubled industry but most often investors simply consider these smaller companies to be too much of a risk. Here are four small companies that you might want to consider:
Aeterna Zentaris (AEZS) - Market Cap $48.38 million (5/14)
I have already mentioned the case for Aeterna Zentaris after it came crashing down in early March. Aeterna's stock is still reeling from the effects of failure from Perifosine, but that is something investors have been aware of for quite some time now. Currently, Aeterna has some positive signs of life coming from an agreement with Merck Serono and others for the manufacturing rights and obligations for Cetrotide along with a partnership with Ergomed to co-develop AEZS-108 which is entering Phase III trials for endometrial cancer. Cetrotide is the first luteinizing hormone (LHRH) antagonist treatment developed for use in in-vitro fertilization. AEZS-108 is a hybrid molecule composed of a synthetic peptide carrier and doxorubicin which basically acts to bind the compound to cancerous tumor cells allowing doxorubicin to accumulate in the malignant tissue and target the tumor cells.
Aeterna also has much more with AEZS-130 in Phase III trials for stimulating the secretion of growth hormone and also in Phase II trials for the treatment of cachexia. AEZS-108 is also in Phase II trials for the treatment of ovarian, prostate, bladder and breast cancers. Another candidate, Ozaralix, is in Phase II trials for the treatment of sexual hormone dependent malign and benign tumors like prostate cancer and endometriosis. This enormous pipeline also includes five more candidates in either pre-clinical stages or Phase I trials. For a company that has taken its share of bumps and bruises with Perifosine, there is plenty left for investors to get excited about.
Can Aeterna last long enough to get AEZS-108 and AEZS-130 to the endpoints of their trials? That is a big question, but Aeterna currently has about $33.2 million in cash and equivalents with a cash burn that was only $1.9 million last quarter. Revenue was up to $16.6 million for the first quarter of 2013 compared to only $9.5 million a year ago reflecting progress from the sale of Cetrotide. The partnership with Ergomed to develop AEZS-108 will have Ergomed reimbursing Aeterna with 30% of the clinical trial costs for endometrial cancer (up to $10 million) to help advance the drug through trials. The deal with Merck Serono and others will also add about $3.2 million with an upfront charge as well as other payments related to the transfer of manufacturing. These two moves bring in more money and helps Aeterna focus attention on developing more of its pipeline. Shares of Aeterna are currently trading at $1.91 a share (May 14th) and are down over 41% from a year ago and barely above the 52-week low of $1.70 a share. The 52-week high of Aeterna shares is $5.64 a share which was attained September of last year. The stock has room to move minus the issues with Perifosine and now might be a great time to take notice.
Orion Energy Systems (OESX) - Market Cap $46.54 million (5/14)
Orion Energy Systems is a leader in the design, manufacture and implementation of energy management systems. Most of Orion's business comes from the sale of commercial high intensity fluorescent (HIF) and light emitting diode (LED) lighting systems along with energy management systems. In a setting like a commercial shopping center or indoor warehouse where lighting is prominent, these systems are designed to provide bright lighting that saves electricity and money. One of Orion's more innovative products is the Apollo Solar Light Pipe that collects sunlight from outside a building, uses a dome shaped lens to focus the rays through a reflective tube and releases the light inside the building to light big spaces without using electricity. This device is designed to be most efficient at the times of day when energy usage and the sun's rays are both most intense. Orion also develops an ISON class of LED light fixtures that offer bright lighting with unparalleled energy efficiency. In one facility, Orion replaced 660 x 400 watt HID fixtures with 368 x 123 watt LED fixtures to save the client $54 thousand a year in electricity costs. Orion also has InteLite control systems that integrate with the lighting systems to allow greater control of the lighting systems along with other LED and fluorescent retrofits for various industries.
Orion had a solid last quarter of 2012 ending the quarter with nice revenues and a small profit ($651 thousand). The stock has been responding with shares currently at $2.31 a share (May 14th), significantly above the 200-day moving average of $2.07 a share. The 50-day moving average is $2.37 a share and the 52-week change is just under 11% showing some movement with Orion's stock. Orion had just over $14 million in cash along with almost $18 million in inventory at the end of 2012. Orion's revenue growth has been steady and last quarter Orion even produced revenues of just over $29 million for a company with a market cap of only $48.2 million. Orion only had about $7.5 million in debt at the end of 2012. Orion's books are better than most of this size.
Energy costs do not seem to be in decline and that is exactly what makes Orion worthy of consideration. Solar power can certainly save money in electricity costs, but most systems and panels can be costly. Orion's products can produce a savings in electricity costs that can pay for the initial investment in less time.
Neuralstem (CUR) - Market Cap $95.63 million (5/14)
Neuralstem is a biopharmaceutical company that is developing treatments for central nervous system diseases. They develop stem cell and small molecule treatments and have focused on amyotrophic lateral sclerosis (ALS), spinal injuries resulting from ischemic stroke and major depressive disorder. Neuralstem's lead candidate stem cell treatment is in Phase I trials for treating patients with ALS. ALS is a disease that usually leads to death in just 3 to 5 years following diagnosis. These trials involved the injection of a stem cell product (NSI-566) in the lumbar and then cervical regions of the spine for some patients. The trials were small and included a total of only 15 patients, six of which were in advanced stages of ALS, and injections of only 100,000 cells when 300,000 is considered effective. The Phase I trials are only supposed to prove the safety of the surgical procedure and stem cells themselves. Apparently the safety of the procedure and cells isn't the only thing that has gone right. The protocol for Phase II trials has already been approved by the FDA. The number of injection sites and cells used will be increased dramatically (up to 400,000 cells used per injection). Test results should be released later this year, but one patient in general appears to be improving when even slowing the progression of the disease has been pretty impossible to this point. There has been so much optimism with only 100,000 cell count injections, so the potential of 400,000 cell count injections looks pretty real.
Neuralstem also has the ischemic stroke spinal cord injury trials with NSI-566 and a small molecule compound (NSI-189) for treating major depressive disorder. It's the stem cell treatments that have received most of the attention. ALS is a deadly disease that affects only about 25,000 Americans each year but this would be an orphan drug, command high prices and the potential for treating more spinal cord disorders would be immense.
Neuralstem's current $88.75 million market cap might be a low valuation if positive trial results come out any time soon. Phase II trials for ALS will certainly favor Neuralstem in the patients that can be enrolled and number of cells that can be injected so Phase I hype can only be assumed to get better. Investors have noticed, driving the stock (currently at $1.39 a share, May 14th) up 47.9% from a year ago and even up from the 50-day moving average of $1.16 a share. Neuralstem had about $12.66 million in cash at the end of last quarter with a burn rate of close to $3 million right now (not including one time charge last quarter). Even if more cash needs to be raised, news with positive results in the Phase I trials will be much more significant. Safety concerns aside, every bit of good news will mean even better news for investors.
National American University Holdings (NAUH) - Market Cap $88.29 million (5/14)
I have been following this stock for quite some time and while the company continues to grow, the stock has languished despite paying out a nice dividend. National American University (NAU) is based out of South Dakota and serves over 11,000 students with satellite locations throughout the Midwest region of the U.S. NAU offers many programs for working adults and young people looking for careers including programs for healthcare coding and computer network administration along with many other specialties. NAU has been providing career education services since 1941 with its first campus in Rapid City, South Dakota. NAU offers degree programs in traditional classroom, online and hybrid settings to offer great flexibility in addressing the needs of today's workforce and young students working their way through college. The company has now grown to include locations in major cities such as Dallas, Denver, Minneapolis, Austin and Kansas City. NAU's workforce now consists of over 1,200 employees, with property plant and equipment now standing at over $47 million for a company with only a $88.3 million market cap. This company keeps performing for shareholders with a dividend yield that currently stands at a hefty 4.90%.
Education and continuing education are not going to go away any time soon and the economy seems to support coursework with convenience that many of these private multi-campus colleges can provide. NAUH has been involved with career oriented education which helps position it against many of its competitors and it also has steadily increasing revenues ($89.8 million in 2010, $106.8 million in 2011, $118.9 million in 2012) to help maintain that nice dividend yield. The quarter ending Feb 27th, 2013 yielded revenues of $32 million to go along with a profit of about $1.6 million which are solid figures for any company with share values down 11.17% from the previous year. The 50-day moving average is $3.55 a share and the 200-day moving average is $3.85 a share, while the stock has currently settled at $3.45 a share (May 14th) offering plenty of value.
The trading volume of NAUH is very light at about 51,000 shares moving on a daily basis and the float is only 7.52 million out of 25.6 million shares outstanding. Almost 94% of the shares are owned by insiders or institutions which leaves very few shares free for big investors. Forbes magazine just wrote about insider buying that just happened in April with NAUH's stock. Despite the healthy dividend yield, the payout ratio is a very acceptable 66% adding plenty of support to the dividend for some time to come. This stock has the potential to perform with a dividend to keep investors happy while waiting for the upward movement to occur.
Small companies can offer big opportunities for growth. When their shares trade at levels that are close to 52-week lows and there is potential yet to realize or when growth has been steady and consistent, there can be plenty of room for shares to gain momentum. Some small companies like National American University offer growth and even a dividend, while others like Neuralstem offer a future that is so much greater than any trial results can provide. Aeterna Zentaris is ready to bring back jilted investors, while Orion Energy Systems is looking to prove it can be a major provider of energy saving lighting products. These companies might have different things to offer investors, but the potential to have shares reach new highs is something they all can share.
Disclosure: I am long OESX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.