Small-cap momentum plays
CoolcatReport.com publisher Kevin Kennedy uses a proprietary trading and screening system, based in large part on momentum. For example, the stocks that make his buy list must be trading above their closes of 3, 6 and 12 months ago. In addition, they must have made new 52-week highs in the past two months.
Generally, Kennedy prefers stocks that have made new highs, have pulled back in a consolidation pattern, and are then poised to again move to new highs.
This basic strategy is applied to a wide range of stock ideas through his multiple Coolcat newsletter services. Small caps are featured in his Coolcat Explosive Small Cap Growth Stock Report.
“This batch of stocks is hanging out just above its 50-day moving average, offering some interesting entries with decent risks,” Kennedy says. “All have put earnings season to bed and appear well-positioned to move up from here.”
Passing Kennedy’s screening process is a trio of biotech stocks. Metabasis Therapeutics Inc. (Nasdaq: MBRX), says Kennedy, has a “promising pipeline” of preclinical and clinical product candidates targeting metabolic diseases such as diabetes, hyperlipidemia and obesity.
He notes that first-quarter revenues jumped 252% to $3.4 million, which included a $1.8-million upfront license fee received from Schering-Plough Corp. (NYSE: SGP) and license fee and sponsored research revenue from its hepatitis C collaboration with Idenix Pharmaceuticals Inc. (Nasdaq: IDIX).
The company – with a market cap of $243 million -- had $71.3 million in cash, cash equivalents and securities at the end of March, Kennedy notes.
Meanwhile, BioImaging Technologies Inc. (Nasdaq: BITI), with a market cap of $78 million, offers services to support the pharmaceutical, biotech and medical device industries in product development.
Kennedy reports, “First-quarter revenues rose 19% to $11.1 million. Net income was $0.03 per share, versus a net loss of $0.01 per share in the first quarter of 2006.”
He notes that the company reiterated full-year 2007 guidance of service revenue in the range of $36-$38 million and earnings per share of $0.12-$0.16.
Technically, Kennedy observes, the stock spent March and April below its 50-day moving average before “reclaiming it” in recent trading. He also notes that BITI remains 29% below its Jan. 9 high of 9.40.
Third in this trinity of biotechs is, coincidentally, Trinity Biotech plc (Nasdaq: TRIB), based in Ireland. The company is a developer of diagnostic products for the point-of-care and clinical laboratory markets.
Kennedy reports that revenues for the first quarter rose 49% while earnings rose 88% to $0.15 per share. “The stock gapped up into new high territory on strong volume on the news and has since pulled back on lower activity,” Kennedy says.
Also scoring high on Kennedy’s ranking system is a trio of small cap stocks in the technology sector. IncrediMail, Ltd. (Nasdaq: MAIL) is an Israeli software company specializing in Internet consumer products and services. Kennedy notes that the stock – with a market cap of $74 million -- has shown strong accumulation recently.
First-quarter revenue doubled to $4.4 million, he says -- a record for the third straight quarter -- from $2.2 million in the first quarter of 2006. Net income was $0.09 per share, a 50% increase over the first quarter of 2006. Kennedy notes that the stock is still 9% off its December high of $8.76.
Also based in Israel, Kennedy looks to Silicom Ltd. (Nasdaq: SILC), a provider of high-performance server/appliances networking solutions. Technically, he notes, the stock has risen some 120% in 2007 despite slipping almost 24% off its April 25 high of $26.74.
Now, he says, “It's back to within 5% of its 50-day moving average of $19.54.” Strong earnings, he notes, coupled with a “tiny 2.6-million-share float have fueled the move to the upside.”
Kennedy adds, “First-quarter revenues advanced 84% to a record $6.0 million to mark the 13th consecutive quarter of rising sales. Net income doubled to $0.22 per share, or $1.2 million, from $0.11 per share, or $548,000, for the first quarter of 2006.”
Finally, PC Mall Inc. (Nasdaq: MALL), with a market cap of $137 million, sells computers and other technology products through catalogs and the Internet. The advisor notes that the company reported record first-quarter earnings per share of $0.14, or $1.9 million, compared with a breakeven first-quarter 2006 based on a loss of $55,000. Sales rose 10% to $256.8 million.
“The stock has started to trade sideways and straddle the north side of the 50-day moving average after spending a couple of months under it,” Kennedy says. “MALL remains 26% off its February high of $15.15, but it has also bounced nearly 19% off its March sell off low of $9.50.”
