|Written by GSCR Staff|
|Thursday, 31 October 2013 07:04|
Happy Halloween everyone! In the spirit of the day we thought we would take a look at some ultra high risk, high reward stocks, or in the festive verbiage, some tricks or treats.
He drinks blood and can only come out at night. For those who have never read the Bram Stoker novel there is a huge underlying theme of promiscuity in Victorian England and is a great, quick read. To make a connection with stock picking we took a look at the small cap space for companies whose success is tied significantly to large or mega cap companies, in essence ‘feeding’ off of them.
We pulled Cypress Semiconductor Corporation (NASDAQ – CY $9.24) right off the Apple, Inc. (NASDAQ – AAPL) preferred supplier list. The Company is a unique Silicon Valley supplier of everything from computers, hardware, to games. Additionally, it’s Programmable Solutions division designs and develops programmable product offerings, including Programmable System-on-Chip (PSoC) devices, CapSense, and TrueTouch touch-sensing/touch screen products, technology definitely tied to Apple and others. The stock has taken a downturn recently mostly due to lowered expectations for Q3 financial results. Still, forward 12-month forecasts make it strong from a valuation perspective with a FY14 P/E under 18. We would not be surprised to see CY get back to the $11.50 level in just a month or two.
Mary Shelley’s novel was probably never intended to be classified in the horror genre. Man creating a monster while trying to cheat death is more of a ‘lesson learned’ for science and technology. I think of the movie Jurassic Park and the line uttered by the Jeff Goldblum character, “…they were so occupied with if they could, they forgot to ask if they should”.
In making the connection here back to reality, we sought out a biotech play that may be on the cusp of a big breakout with some new drug or treatment which might be a longer term play.
Cyclacel Pharmaceuticals (NASDAQ – CYCC - $3.50) is a company that fits the mold with an innovative but risky approach to its oncology treatment platform based on technology that centers on altering the related DNA structure in cancer cells. The Company has progressed steadily in clinical trials and reached Phase III for ovarian cancer treatment for its leading candidate, Sapacitabine. As trials continue and Cyclacel is successful, the stock could take off, as some leading analysts to tout a one year target of $9.00. CYC should bounce back and get up to the $6.00 range sometime in 1Q14, in our view, based on development progress and seasonal valuation increases.
The Wolf Man
The wolf man is at full strength getting the most energy at the full moon, with no human elements remaining in the monster. The cyclical nature of this beast made us want to look for a cyclical and possibly downtrodden industry.
A natural pick is the energy industry and specifically, coal. Peabody Energy (NYSE – BTU - $19.90) is a mid-cap play, but close to our price range. From purely a momentum and technical analysis viewpoint, BTU looks great. The charts are very bullish in the short, intermediate and long term DMA, and the stock has climbed from the $16.50 level on over 6 million shares traded per day on average over the last three months. This dark stock could be a nice seasonal/cyclical play on a comeback to the $22 level over the next few months.
Have a great day and Happy Halloween!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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