Small cap stocks are capable of producing large gains any given day. Sometimes these gains are legitimate and other times they are not. The largest corporations in the world started off small at one time. Small cap stocks are no different, many of these companies are well ran organizations that are in the process of expanding operations and will provide long term investors with returns of significant value in the coming future.
The following small cap stocks witnessed an increase in value or an increase in volume throughout the day on Tuesday. I believe these gains are appropriate as many of the companies announced developments that are critical to it's business.
Majestic Entertainment Company (NASDAQ:COOL), a provider of video game products, announced that Zumba Fitness 2, the sequel to best selling Zumba, will feature tracks from many of the best selling artists for the first time. After this news was released the stock began to climb, and has seen gains of more than 9% as of this time. I believe this to be relevant news, not because of the songs but because of the dates within the article. The original Zumba was the best selling fitness game, selling more than 3 million copies worldwide. The game attracts gamers of all ages, from small children having fun to middle age adults trying to get a workout.
Investors are excited about COOL and at these prices everyone should be as well. In one month the stock has lost roughly 25% of its value, as a result of market conditions. This loss brings the company's yearly gains down to only 259%, which is amazing. But unlike many small cap stocks who can see gains with little justification, COOL has the numbers and guidance to back it up.
The company increased guidance from the already increased guidance which estimates full year revenue at $110 - $120 million compared to $75.65 million in 2010 and EPS between $0.30 - $0.35, compared to negative $0.04. The company's recent quarter topped year over year earnings by a great margin. With no debt, a discounted price, and a new game that could see sells of $3 million copies I believe that COOL's gain is well deserved, and furthermore I believe the stock is undervalued and is setting itself up for another 250% year in 2012.
TeamStaff, Inc (TSTF) announced another award in which the total value is equal to $225 million. The company will be sharing this award but it will still allow the company to win a significant amount of new business. This award will only add to the many awards (see article on TeamStaff for more information regarding these awards and what the awards could produce) the company has accumulated since the beginning of this year. Along with the award TeamStaff released operating results which show the company made financial progress during the previous quarter yet nothing exceptional.
The earnings report was exactly what I would expect from TeamStaff at this time. The company has received various awards which have the potential to increase revenue very quickly. However, all of these awards have occured within months of one another. It takes time to train employees, expand a company, and see a financial impact from the new business, but I believe TSTF will in the near future. The news was relevant and justified the increase in stock price. The amount of potential revenue is mind boggling in comparison to the $12.5 million market cap of TeamStaff. I expect investors to be heavily rewarded within the next 6 months, much more than the stocks 335% return since January.
I am always bullish on purchasing small cap biotech stocks and to explain why I will use two examples. First, Questcor Pharmaceuticals (QCOR) sees revenue, assets, and income continue to increase. If you would have purchased $3,000 worth of shares exactly 4 years ago, the value of your investment would now be over $260,000. Second, if you would have purchased $3,000 worth of Jazz Pharmaceuticals (NASDAQ:JAZZ) stock in April of 2009, your investment would be worth almost $200,000. Both companies were small cap biotech companies that are now billion dollar corporations because of the success of their drugs.
Pernix Therapeutics (NYSEMKT:PTX) is a small cap biotechnology company that is growing at an incredible rate. The company is trading with gains of more than 20% after releasing 2nd quarter earnings. The company announced revenue of $12 million compared to $4.3 million and EBITDA of $3 million compared to $0.6 million year over year. The company credits the success in growth and revenue to its drug CEDAX for the treatment of various respiratory infections. What excites me about the potential of this company is obviously the growth and sales of CEDAX but also a new drug for the treatment of head lice called NATROBA which is expected to launch in August. With the additional drug in addition to the growing success of CEDAX this stock appears to have success written all over it. I am not stating that this stock will return profits such as Questcor or Jazz Pharmaceuticals but with a one year return over 130% the company is on the right track to return a hefty profit of its own.
Another biotechnology company that saw big gains is Marshall Edwards (MSHL), which posted a trading gain of more than 50%. The company released news that it's application to the FDA has been approved for ME-143. The company announced it's plan to begin phase 1 of clinical trials by September which show managements willingness to proceed quickly. This news comes less than a month after the company released a publication claiming that ME-143 demonstrated anti-tumor activity against a number of tumor cell lines. I am curious to see what happens from this point, with the company's stock. Clinical trialsare a long process and I do not believe that MSHL investors will be so patient. This stock has already seen 3 different pops of more than 50% this year alone, and one in September of last year. The company usually sees a few days of gains then drops back down to it's initial price, or maybe slightly higher.
I would make a small investment within this company, but not at these prices. I believe that a price of around $1.10 - $1.30 is likely within the next month. All indications point towards Marshall Edwards having a good product, but in pre-clinical trials it is hard to tell. This stock could go to trials and have horrible results then lose 80% of its value. If I were going to purchase this stock, as a long term investment, I would buy in small portions. We have already proved how much $3,000 can return with a blockbuster biotechnology company and I believe a cancer drug is among the best in potential returns.
Disclosure: I am long TSTF.