Investing in companies that have the backing of a prominent billionaire is always reassuring to the individual investor. Dr. Phillip Frost has built his fortune by identifying and advising highly undervalued, overlooked companies that have the potential to rise significantly. Particularly, Frost has been most successful in the pharmaceutical Industry. Frost began to build his fortune with Key Pharmaceuticals, which he sold in 1986, receiving $100 million for his share. Thereafter, Frost was the founder, Chairman, and CEO of IVAX, which sold for $7.4 billion in 2006 to Israel-based TEVA (TEVA) Pharmaceuticals. Currently, Frost is the CEO of Opko Health (OPK), which has appreciated more than 50% in 2013. Frost has been very successful in the medical/pharmaceutical industry and Opko seems to be his next big success story.
Currently, Opko is sitting right below its 52-week high, with Frost continuing to purchase shares in the open market almost daily. There seems to be a lot of room left for this stock to run, but in this article I'd like to focus on Frost's other investments that have the potential to become multi baggers, just like Opko. These micro cap companies are extremely speculative, highly illiquid, and some of them are not even generating revenue; therefore, only investors who have an appetite for risk should consider these stocks.
Safestitch Medical Inc
Safestitch Medical (SFES.PK) was founded in 1988 and focuses on developing FDA registered medical devices. More specifically, the company focuses on the development of medical devices that manipulate tissues to treat obesity, hernia formations, and any other abdominal abnormalities through minimally invasive surgery. Here is a video from the company's website that demonstrates the use of its AMID Hernia Fixation Device, which Safestitch began selling in 2012.
Currently the company is trading at just under a dollar, with a market cap of nearly $60 million. Technically speaking, the stock price is sitting well above its 50-day and 200- day moving average. The bullish "golden cross" occurred back in April. Phillip Frost owns more than 13 million shares of the company, and his most recent purchase occurred in March of 2013 when he purchased 2 million shares at an average price of $0.25. While the stock has more than tripled since then, there is still plenty of room for growth. The company recorded sales revenue for the first time in 2012, though it continues to burn through an alarming amount of cash, losing more than $6 million in 2012.
As of this writing, Safestitch announced they would be merging with TransEnterix, a privately held medical device company with advanced technology in the use of devices and robots for minimally invasive surgery. This merger will give Safestitch the necessary resources to continue developing devices and to begin marketing them. Dr. Frost will join the new company as a director. Current shareholders of Safestitch will receive 35% of the newly formed company. The deal is expected to close later in the year, and will continue trading over the counter with the same ticker for the time being.
Non-Invasive Monitoring Systems Inc.
Non-Invasive Monitoring Systems (OTCQB:NIMU) was founded in 1978 and is focused on developing computer assisted, non invasive diagnostic monitoring devices and related software that is designed to detect abnormal respiratory, cardiac, and other medical conditions through sensors placed on the body. Frost owns more than 10% of the company and purchased two million shares at an average price of $0.05 in April. Currently the stock is trading at $0.20 and has a market cap near $20 million.
Like Safestitch, this company has weak financials, having lost more than a million dollars every year from 2008-2011. However, NIMU is showing signs of a turnaround, consistently shedding its losses, down to half a million in 2012. The company lost one cent per share in 2012, compared to losing four cents in 2009.
From a technical perspective, the stock price is sitting above both its 50-day and 200-day moving average, with the bullish "golden cross" occurring back in April. This company is similar to Safestitch in that it is providing an alternative to normal practices in the medical industry by focusing on being non-invasive to the patient.
The Bigger Picture
Safestitch and Non-Invasive may seem like two run of the mill penny stocks that deserve no attention, but I believe these two companies are part of a larger, long-term strategy Dr. Frost is pursuing.
These two companies offer many synergies and may be prime take over targets down the road by Opko Health. Both of these companies offer a compelling selling point, minimal invasiveness when it comes to procedures that normally require tons of medical invasiveness. When thinking long term, these two companies offer products that have compelling selling points and benefit both the patient and doctor by reducing costs, pain, and recovery time. Safestitch is working on treating obesity, hernias, and other surgery intensive procedures with minimal invasive procedures. NIMU is developing a product that you lay down on and is able to diagnose your over all health, detecting problems within your body just through external sensors. What would normally require blood shots, X-rays, MRIs, and other invasive procedures would now require the patient to lie on a bed instead. If these two products don't sound like the future, what does? The potential market for these products could be massive, and focusing on non-invasive technology is a unique selling point that can pick up momentum as the products continue to be fully developed.
The reasoning behind the idea that Frost may down the road plan on acquiring these two companies is based on the fact that both companies have products that would complement and diversify Opko Health's business, and the fact that all three of these companies have the same exact headquarters. Go ahead, look it up.
4400 Biscayne Boulevard
Miami, Florida 33137
Castle Brands Inc.
Castle Brands (ROX) is a beverage company that develops and markets soda and alcohol under many different brands. Its most notable brand is Gosling's Rum and Gosling's Ginger Beer. It also markets premium whiskeys, vodkas, tequilas, wines and more. The company headquarters is in New York.
The company's biggest seller continues to be Gosling's Rum and its trademarked, ready to drink cocktail, Gosling's Dark 'n Stormy, which is a mix of its ginger beer and rum. It is a very tasty drink, and its popularity is exploding. The company recorded impressive growth figures in its latest quarterly filing, released this week. For the quarter ended June 30, 2013, the company saw:
Net sales increased 7.2% YoY to $10.4 million
Gosling's rum sales increased 19.7% YoY to 28,000 cases sold in the U.S. (in only three months time)
Whiskey revenues increased by 26.1% YoY
Gosling's Stormy Ginger Beer sold 50.1% more cases YoY, selling more than 104,000 cases.
General and administrative expenses were reduced 4.7%
EBITDA improved by 54.9% to a loss of ($0.2) million
This company is experiencing extraordinary growth. The stock is sitting at $0.35 as of this writing, about 8 cents off from its 52-week high, and has a market cap of approximately $40 million. The stock has been in a free fall since its IPO of nine dollars a share back in 2006. I believe this is an overlooked company that has experienced management at the helm and is experiencing tremendous growth. Frost owns more than 10% of the company, is a director, and has purchased shares as recently as July, for an average price of $0.35. He also bought shares in March and February of 2013 at an average price of $0.27. Castle Brands presents an opportunity to get into a company at the same price level of many insiders. This company is shedding losses and growing fast; this is a turnaround story in the making.
Ladenburg Thalmann Financial Services Inc.
Ladenburg Thalmann (LTS) is an investment banking and brokerage company. The company offers a wide variety of financial services and has many different subsidiaries.
Ladenburg Thalmann has a market cap of more than $300 million and its stock price is sitting at $1.66 as of this writing. Its 52-week high is $2.02. The company has been experiencing robust revenue growth, but has been struggling to operate profitably. The company's revenue more than doubled in 2012 to $650 million, up from $273 million in 2011. The company has total client assets of more than $75 billion, and manages more than $30 billion. The company has a solid balance sheet and is financially healthy.
This company also shares close headquarters with the first two companies mentioned. 4400 Biscayne Boulevard, though it is located on the 12th floor. Phillip Frost owns more than 10% of the company, is a director, and most recently purchased shares in April at an average price of $1.45. This company has seen strong insider buying over the past year at levels hovering around $1.50. This is a strong operating company that has the backing of Frost and should continue to grow for years to come.
Following smart money is a smart way to identify interesting stocks and to begin research. I believe Frost has been buying a diverse group of companies that are extremely cheap right now, but he clearly sees plenty of room for growth. Consider the fact that Opko Health traded under a dollar, in the range of NIMU and SFES from 2002 to 2007. While the companies listed above may still be in the development stage, I believe each offers compelling future growth in the long term, and may even end up being acquired down the line. Phillip Frost is a patient investor, and for other patient investors who would like to open a small speculative position, these companies may be a good place to start.