Adolor Corporation (ADLR), Corcept Therapeutics Inc. (CORT) and Micron Technology Inc. (MU) are three analyst stock picks for under $10 per share. In this article, we’ll explore these stocks, the catalysts behind the analyst moves, and how investors can best profit using equity and options.
Adolor Looks Promising Ahead of Clinical Trials
Adolor Corporation, a biopharmaceutical company focused on prescription pain and pain management products, was initiated with an Outperform rating and $6.50 per share price target by William Blair in recent days. The move follows bullish comments by other analysts, including Summer Street and Madison Williams, which both have similar price targets of $6.00 and $5.00, respectively.
With the stock trading at just $2.34 per share, these price targets reflect significant premiums to the current market value. The analysts believe that the firm’s risk/reward profile remains very favorable heading into Phase II clinical trials of ADL5945 in OIC. Meanwhile, the company’s regaining of Entereg could also help it shore up its financial condition and ultimately unlock value.
Investors interested in purchasing this stock with only a small amount of upfront capital now may want to consider the 2.50 January 2012 call options trading at $0.70 per contract. For an upfront investment of $70 plus commissions, investors have the right to purchase 100 shares at $2.50 between now and January 20, 2012, which provides lower costs and greater leverage.
Corcept’s Lead Compound Attracts Attention
Corcept Therapeutics, a pharmaceutical company focused on the treatment of severe metabolic and psychiatric disorders, was initiated by Oppenheimer with an Outperform rating at $8.00 per share price target. At a significant 170% premium to the current market price, the analyst rating reflects a very bullish outlook on the company’s future performance.
At the core of the company’s portfolio is CORLUX, a treatment for Cushing’s Syndrome, which affects 10 to 15 million people every year. The company submitted an NDA for the drug based on a Phase III study that was completed with positive results posted in June of this year. With a PDUFA date of February 12, 2012, some analysts see a strong catalyst that could generate significant value.
Investors looking to increase leverage in this stock may want to consider the 2.50 February 2012 calls trading at $1.35 per contract. With an expiration date set five days after the PDUFA date, these options enable investors to reduce their total amount of capital at risk. If the drug is approved, they have the rights to 100 shares with a breakeven point of $3.85, while the maximum loss is limited to $135.
Micron Could See Better DRAM Pricing Trends
Micron Technology, a manufacturer of semiconductor devices including DRAM and NAND flash memory, was initiated with a Perform rating and $9.00 per share price target by Oppenheimer. At a significant 40% premium to the current market price, the analyst price target reflects a modestly bullish outlook on the company’s future.
A recent report from iSupply indicated that slower advancements in semiconductor manufacturing this year could cause a deceleration in price reductions for DRAM, which could help support the margins of semiconductor manufacturers like MU. Meanwhile, the firm trades with a price-earnings multiple of just 10.39x to its trailing earnings, suggesting it may be slightly undervalued relative to its peers.
Investors interested in taking advantage of this opportunity may want to consider a pairs trade in order to reduce overall market risk, since much of MU’s demand is based on the economic condition. Consequently, investors can purchase MU stock and offset it with long-term put options in broad market indices like the SPDR S&P 500 ETF (SPY).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.