Star Scientific (CIGX) is a company that comes along every 10 years in the stock market. Whether your are trading Star Scientific's fundamentals, technicals or its short interest, there is a place in your portfolio for Star Scientific. Just staying away because it is a speculative stock in my opinion is not a good enough reason. Before a valid opinion is presented I think you have to learn the whole story here. Do I think it is speculative? You bet! But, I say that with some positive certainty that CIGX is a great speculative pick to own. If you are going to own a speculative stock CIGX is it.
Fundementally Star Scientific is a speculative stock. Star Scientific is burning cash with negative net operating income of $1.6 million and sports a negative gross profit margin of $1.67 million. There is nothing in Star Scientific's balance sheet that even resembles an investment stock. Sales have been increasing since 2008 from $450,000 to $1.7 million but since Star Scientific is more of a research-driven company the cost of revenue is very high at $3.4 million a year canceling out any sales profit. This is due to expending large amounts on Research and Development. This large amount spent on R&D is the reason for the large negative Net Operating Income value. If and when one of its research studies is proven note worthy Star Scientific's value will increase dramatically. Purchasing Star Scientific's stock is purely based on believing in its story or in hopes of another company buying it. It is possibly the only company out there that can be bought by big pharma or big tobacco. Now that is some speculative power.
For starters, CIGX shows up under the tobacco sector along with Altria (MO). But, this is actually where the detective work begins. CIGX is a tobacco stock that might be disguised as a biotech. Yes, a biotech with the possibilities of a couple block buster products in research.
- The Roskamp Institute in Bradenton, Florida, has invested and is in the process of conducting research on a compound named RCP-006. This compound has already demonstrated some positive results in that it is a natural anti-inflammatory with benefits to alzheimers and C-Reactive Protein. For those not in the medical field CRP is a marker for heart disease. If these studies continue in a positive direction this will be a great value product for any large biotech or big Pharma company. Think of what Lipitor did for Warner Lambert, Lipitor was invented by Warner Lambert Parke Davis and Pfizer (PFE) bought the whole NYSE traded company for one product back in 1998. Lipitor was not a Pfizer product.
- The product also helps take out the carcinogens in tobacco making "smoking safe" yes this is an oxymoron but it just might be a great treatment to stop smoking. This offers asset values to big tobacco and big Pharma to purchase Star Scientific.
- The smokeless tobacco product that currently sold does not fall under the 2009 Family Tobacco Act or is even monitored by the FDA. Don't you think MO or Reynolds American (RAI) would love to get their hands on something not monitored by the FDA? How much do you think that is worth?
- Star Scientific has won favorable patent rulings against RAI.
Technically, Star Scientific is in a strong bullish up trend. The past couple of months investors have been buying the stock on higher than normal volume which usually means institutional buying. Recently Star Scientific has set a new 52 week high of $5.05. Pull backs to the 10 day moving average have been bought multiple times over the past two months. Currently stochastic are signaling slightly overbought this may suggest a possible slight pull back that might signal yet another entry into the stock. If buying begins again it will be at the 10 day moving average currently around $4.70. A stop loss should be placed just under $4.25 which was where the last break out took place and should be support for Star Scientific as well.
Star Scientific is a speculative stock but where have you ever seen a possible target by two sectors that have some of the deepest pockets in the world? Is it a bio tech or big tobacco company? We will see who wins but currently big institutional buyers are currently buying and driving the stock up in price.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.