By Stockpickr Staff
Posted on May 21, 2009
As the market and economy bottom, investors have recently turned to the most beaten-down and speculative stocks imaginable in hopes of outsized profits.
The idea with these speculative plays is that the marginal improvement in the economy will in total have a larger affect for the smaller, more beaten-down companies than for the larger, more globally diversified ones.
It's true that solid blue-chip companies such as Apple (AAPL), IBM (IBM), Google (GOOG) and Microsoft (MSFT) are all up 25% to 45% since bottoming in early March, but there's just as many instances of smaller, more-speculative companies whose stocks have shot up 100% to 500% in the same time frame.
Such companies include Patriot Coal (PCX) which hit a low of $2.76 on March 12 and closed at $10.44 on Wednesday; Cell Therapeutics (CTIC), which was trading at 5 cents in early March and closed at $1.28 on Wednesday; and PetroQuest Energy (PQ), which hit a low of 61 cents on March 9 and closed at $4.96 on Wednesday all in the same timeframe.
An interesting speculative stock that could be following in the footsteps of Patriot Coal and Cell Therapeutics is Bio-Imaging Technologies (BITI).
Bio-Imaging Technologies, a leading contract research organization, is focused on providing medical imaging services for clinical trials. It designs and manages medical imaging services and evaluates the effectiveness of potential drugs and medical devices. Bio-Imaging Technologies focuses on phases II, III and IV of clinical trials, with more than 75% of the firm’s total revenue coming from phase III trials.
One of the things that makes Bio-Imaging stand out is that the results of its clinical trials don't matter. The company still gets paid.
Bio-Imaging has $15 million, or $1 per share, in cash and zero debt. It's full-year 2008 revenue was $72 million, with gross margins of 34% and $120 million in sales backlog. Insiders own 28% of the company, and this amount of insider alignment with shareholders is massively important in terms of creating shareholder wealth. Bio-Imagin trades for just four times earnings, making it incredibly cheap.
As the Food and Drug Administration encourages use of imaging as a means of determining drug efficiency, pharmaceutical and biotechnology companies are outsourcing imaging technology and electronic data for clinical trials. This works in Bio-Imaging’s favor.
Moreover, the medical imaging market is forecasted to grow at 10% to 15% per year over the next five years.
It's important to keep in mind that speculative stocks are indeed speculative. But with Bio-Imaging's clean balance sheet, strong margins, improved profitability and a positive growth market trend, there's a strong case to be made that the stock's going higher.
For more ideas, check out the Top May Speculative Stock portfolio.
