Insiders And Analysts Like These Speculative Small Cap Stocks

Includes: NVAX, SANW
by: Bret Jensen


Small cap stocks have underperformed the overall market in March after being outperformers since 2013.

Speculative areas like biotech have been particularly hard hit during the month.

Some attractive but speculative small caps have had recent insider buying and are substantially below analysts price targets. Two of these are profiled below.

After easily outperforming the S&P 500 since the beginning of 2013, small caps have broken to the downside a bit over the past thirty days. Particularly hard hit have been the small biotech sector and other speculative niches. With one trading day to go, small caps are underperforming the S&P by some 3% for the month of March.

It was therefore encouraging to see some small caps show up in this week's top 20 insider buy list in this weekend's Barron's. Two on the list are small caps that are in my own personal speculative growth portfolio and I hold high hopes for long term capital appreciation for these shares. Both stocks are also substantially below the median price targets analysts have on the shares.

I have owned small alfalfa seed producer S&W Seed Company (NASDAQ:SANW) since $6 a share earlier in the year. The stock is up almost 20% since then but I still see further upside to these speculative shares. This view has been bolstered recently as a director has made three insider purchases totaling more than $1.5mm in March.

The company is a speculative but fast growing play at this point. The stock has less than a $100mm market capitalization and lost 8 cents a share in FY2013. However, consensus estimates have it earning just under a dime a share in FY2014 and 17 cents a share in FY2015.

Revenue growth should post better than 40% gains this fiscal year before slowing to the mid-teens in FY2015 according to consensus views. Only four analysts cover the shares and have a median price target of $10 a share on SANW, ~40% above the current stock price.

Insiders have also been buying small vaccine maker Novavax (NASDAQ:NVAX). Like most small biotechs, the stock has been crushed in March and the shares are down almost 40% from recent highs. Insiders have taken the decline as an opportunity to add to their stakes. Four different insiders bought some $400K in total shares in late March.

The shares go for just under $4.50 a share after almost reaching $7 a share just a few weeks ago. I have own the shares since I first profiled them at $1.30 a share two years ago. Sales should increase some 70% to 80% this year.

The company has some $125mm in net cash on the balance sheet which should be adequate until the company achieves profitability as new vaccines come on line. Analysts believe these speculative shares have substantial upside. The median analyst price target by the five analysts that cover the shares is $11 a share. Price targets range from $9 to $14 a share. The lowest price target is more than twice the stock's current price after the pullback.

Disclosure: I am long NVAX, SANW. 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.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.