5 Stocks Igniting Investor Interest

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Includes: HAR, PCYO, SPEX, STX, SYNA
by: Vatalyst

Buyers are showing considerable interest in a wide range of stocks as they seek investment opportunities in increasingly volatile investment markets. This has seen stock in a number of niche companies substantially increase in value due to the high investor interest. In this article I will review five stocks that investors are buying like crazy, with a view to determining whether the fundamentals indicate they are worthwhile investments. Each of the stocks on this article has traded on substantially higher volume than average recently and has a market cap of less than $10 billion. Let's take a look at why investors have all of a sudden taken interest in these stocks. As always, please use my research as a starting point for your own due diligence.

Synaptics Incorporated (NASDAQ:SYNA)

Synaptics Incorporated has a market cap of $1.11 billion with a price to earnings ratio of 20.74. For a 52-week period its trading range has been $21.97 to $34.94. It’s currently trading at around $35. It reported third-quarter earnings for 2011 of $133 million, a decrease from second-quarter earnings of $143 million. Third-quarter net income was $13 million, a decrease from second-quarter net income of $13.90 million. The company has quarterly revenue growth of -12.90%, a return on equity of 18.04%, and doesn’t pay a dividend.

One of Synaptics’ closest competitors is Cypress Semiconductor Corporation (NASDAQ:CY). Cypress Semiconductor is trading at around $20 and has a market cap of $3.08 billion. It has a price to earnings ratio of 26.07, quarterly revenue growth of 14.20% and a return on equity of 26.44%. It pays a dividend with a yield of 2.00%. Based on these performance indicators, Cypress Semiconductor is outperforming Synaptics.

Synaptics’ cash position has declined, its third-quarter 2011 balance sheet showed $241 million in cash, a decrease from $247 million in the second quarter. It has quarterly revenue growth of -12.90%, versus an industry average of 5.40%, and a return on equity of 18.04%, versus an industry average of 0.0%, indicating that the company is outperforming many of its competitors.

The outlook for the Computer Peripheral industry is subdued primarily due to the poor economic climate and high unemployment that has triggered increasing negative consumer sentiment, affecting demand. There is a view in the industry that there will be a slower start to 2012, although it is expected that growth in the second half of 2012 will improve as economies stabilize.

Based on the negative industry outlook, combined with the company’s poor performance indicators and decreased net income, I believe there are better investment opportunities in the market, and rate Synaptics as a hold.

Spherix Incorporated (NASDAQ:SPEX)

Spherix Incorporated has a market cap of $4.66 million and no price to earnings ratio. For a 52-week period its trading range has been $1.23 to $10.90. It’s currently trading at around $2. The company reported second-quarter earnings for 2011 as $186,000, a decrease from first-quarter earnings of $306,000. Second-quarter net income was -$1.01 million, a decrease from first-quarter net income of $235,000. It has quarterly revenue growth of -43.10%, a return on equity of -102.66%, and doesn’t pay a dividend.

One of Spherix’s closest competitors is BioClinica Inc (NASDAQ:BIOC). BioClinica trades at around $4 and has a market cap of $68.66 million. It has quarterly revenue growth of 6.10%, a return on equity of 5.34% and doesn’t pay a dividend. Based on these performance indicators BioClinica is outperforming Spherix.

Spherix’s cash position has declined, its second-quarter 2011 balance sheet showed $5.56 million in cash, a decrease from $6.55 million in the first quarter. Its quarterly earnings growth of -43.10% is less than the industry average of 15.00%, while its return on equity of 102.66%, is greater than an industry average of 1.50%.

The earnings outlook for the Medical Laboratories and Research industry is subdued primarily due to the poor economic climate and a precarious medical healthcare environment. However, the increased trading interest in Spherix has occurred due to positive results for a new cholesterol drug that it is producing. Any investment in Spherix is highly speculative in nature and a return on that investment is dependent upon Spherix being able to translate drug research into FDA approved and marketable products.

Any investment in Spherix is risky and speculative by nature. When this is considered in conjunction with recent increase in the stock price, its poor performance indicators and substantial decrease in net income, I rate the company as a hold.

Pure Cycle Corporation (NASDAQ:PCYO)

Pure Cycle Corporation has a market cap of $48.07 million. For a 52-week period its trading range has been $1.70 to $5.25. It’s currently trading at around $2. The company reported second-quarter 2011 earnings of $63,300, an increase from first-quarter earnings of $57,000. Second-quarter net income was -$1.36 million, a decrease from first-quarter net income of -$1.78 million. It has quarterly revenue growth of 9.80%, a return on equity of -12.71%, and doesn’t pay a dividend.

One of Pure Cycle’s closest competitors is Pico Holdings Inc (NASDAQ:PICO). Pico Holdings last traded at around $22, has a market cap of $493.58 million and doesn’t have a price to earnings ratio. It has quarterly revenue growth of 133.80% and doesn’t currently have a return on equity. Pico doesn’t currently pay a dividend.

Pure Cycle’s cash position has improved, its second-quarter 2011 balance sheet showed $542,000 in cash, an increase from $218,000 in the first quarter. It has quarterly earnings growth of 9.80% versus an industry average of 4.70%, and a return on equity of -12.70%, versus an industry average of 10.40%. Based on these performance indicators, Pure Cycle is underperforming its competitors.

The outlook for the Heavy Construction industry is positive, but this is expected to weaken due to federal government spending cuts precipitated by the poor economic conditions and government debt issues.

On this basis, the industry earnings outlook combined with Pure Cycles low earnings, negative net income and poor performance indicators, I can’t understand the increased investor interest in the company. Accordingly, I rate Pure Cycle as a sell.

Seagate Technology (NASDAQ:STX)

Seagate Technology has a market cap of $7.70 billion. For a 52-week period its trading range has been $9.05 to $18.50. It’s currently trading at around $18. The company reported third-quarter earnings in 2011 as $2.81 billion, a decrease from second-quarter earnings of $2.86 billion. Third-quarter net income was $140 million, an increase from second-quarter net income of $119 million. Seagate has quarterly revenue growth of 4.20%, a return on equity of 18.77%, and pays a dividend with a yield of 4.30%.

One of Seagate’s closest competitors is Western Digital Corp (NYSE:WDC). Western Digital is trading at around $28. It has a market cap of $6.53 billion with a price to earnings ratio of 8.57. It has quarterly revenue growth of 12.40% and a return on equity of 14.44%. Western Digital doesn’t pay a dividend.

Seagate’s cash position has declined; its third-quarter 2011 balance sheet showed $2.56 billion in cash, a decrease from $2.68 billion in the second quarter. Seagate has a quarterly revenue growth of 4.20%, well below the industry average of 18.60%, and a return on equity of 18.77%, versus an industry average of 12.60%.

The current outlook for the Data Storage Device industry is negative primarily due to the poor economy. The economy's effect on business processes and new technology innovation will dominate the IT and data storage landscape, leading to a drop in demand as businesses focus on cost cutting and capital efficiencies to maintain profit margins.

Despite the negative industry outlook, Seagate has managed to increase net income in a difficult operating environment, and when this is considered conjunction with solid performance indicators and an attractive dividend yield, I can understand the investor interest in the stock. Accordingly, I rate Seagate as a buy.

Harman International Industries (NYSE:HAR)

Harman International Industries has a market cap of $3.08 billion with a price to earnings ratio of 19.83. For a 52-week period its trading range has been $25.53 to $52.54. It’s currently trading at around $43.20. The company reported third-quarter earnings in 2011 as $1.05 billion, an increase from second-quarter earnings of $1.03 billion. Third-quarter net income was $48.40 million, an increase from second-quarter net income of $18.90 million. The company is achieving quarterly revenue growth of 25.50%, a return on equity of 11.90%, and pays a dividend with a yield of 0.70%.

One of Harman International’s closest competitors is Spectris plc (SXS.L). Spectris trades at around $1,290. It has a market cap of $1.50 billion with a price to earnings ratio of 1,314.98. It has quarterly revenue growth of 25.20%, a return on equity of 23.52%, and doesn’t pay a dividend.

Harman’s cash position has declined; its third-quarter 2011 balance sheet showed $398 million in cash, a decrease from $604 million in the second quarter. Harman has quarterly earnings growth of 25.50%, versus the industry average of 9.30%, and a return on equity of 11.90%, versus an industry average of 0.0%.

The earnings outlook for the Electronic Equipment industry is quite negative. This is primarily being driven by the poor economic environment and high unemployment, which is negatively impacting consumer sentiment, triggering reduced demand.

However, despite the negative industry outlook, Harman has been able to substantially increase net income in a difficult operating environment. In addition, the company has solid performance indicators, although there is some concern regarding the substantial decrease in cash holdings on the balance sheet. Accordingly I understand the increased investor interest in the company, and rate Harman as a buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.