6 Speculative Stocks To Watch Here
by Julian Close
There are some speculative companies on my list this week that may seem like wing-and-a-prayer dreams, as well as others that are good, consistent earnings grinders. Whichever way your own interest lies, remember to take these ideas merely as starting points, not ending points, of your own research, and never put more than 20% of your money into speculative issues.
Fusion-io (FIO)
FIO Daily Chart
This one is a bit of an oddball, since we don't normally think of small caps as turnarounds, but turn around is exactly what Fusion-io needs to do. This company makes flash memory hybrid drives, and many other memory products for nearly every kind of computing environment. They also make acceleration software that allows their flash memory to be stored centrally and used by an array of servers.
With the rise of cloud computing, the need for the kinds of solutions Fusion-io provides is high, but in recent years, competition has also been intense, and the company has been losing money. In 2013, the company's net income was -$38.2 million. That's not a life threatening rate of loss at the moment, since the company has over $600 million in cash and no long-term debt, but it has caused the price of FIO stock to fall from its late 2011 high of $39.60 to where it currently languishes at $8.90.
The company's chief operating officer recently addressed the company's competition in an interview in Barrons. As I think he did a better job explaining than I could, I'll kick this one back to him:
"as for Nimble and their IPO, and Pure's latest [funding] round, they are all in the appliance [i.e., storage array] business. We've invested heavily in that appliance market. We are supporting it with our iON product [all-flash array] and our IO Control [hybrid flash-disk storage array]. - when we take this to market, we've been building our partnerships. What's key is that we leverage the channel - use HP, IBM, Dell, Lenovo. The difference is with Nimble, they are not as vertically integrated as us. We buy raw flash and turn into drives and solve real-world issues. We take full advantage of flash whereas the others offering hybrid products do not. The SSD [solid-state drive] is not as effective on the three metrics that matter: bandwidth, IOPs, and latency."
MannKind (MNKD)
MNKD Daily Chart
I have been officially bullish on Mankind for almost three weeks now, and it has been a great ride. The company is about to receive word from the FDA (on July 15) as to whether its flagship drug, Afreeza, will be approved for use as an orally inhaled form of insulin, and conventional wisdom says that it's in the bag.
So while that news should be huge for the company going forward, there will be a great deal of market risk for MNKD stock around July 15, so I don't think anyone who is not in the stock yet should buy in until after that date. First, if the FDA should do something totally unexpected, the stock could tank, and second, if the approval does come through as expected, a lot of traders who bought the stock for a short-term pop will blow out of it in typical buy-on-the-rumor, sell-on-the-news fashion. After things stabilize, this looks like it could be one of the best long positions to hold during the second half of the year.
Orexigen Therapeutics (OREX)
OREX Daily Chart
It has never been my instinct to double-down when a long position of mine goes south. I prefer to clip my losses while they are small and let my winnings run forever. Still, I'm bullish on Orexigen Therapeutics, a company which I spotlighted last Monday as having a truly promising new diet drug, Contrave, that was expected to be approved by the FDA on Wednesday. Instead, the FDA delayed approval of the drug for three months, and OREX stock fell from $6.80 to a recent price of $5.71.
All is far from lost. The Street has to some extent misinterpreted the meaning of the delay, assuming that the FDA has worries about the safety of Contrave, since the FDA has been playing rough with other recently approved diet drugs. There really is no parallel, though, as Contrave is a drug that works in a very different way from the others, and is the only one of the three that is not even a controlled substance. If marketed properly, Contrave has a good chance to gain real market penetration, and that could push OREX sky high.
Corning (GLW)
GLW Daily Chart
Corning is a bit of an anomaly-and old school industrial glass manufacturer that has grown ever more high-tech in the years since its founding, way back in 1859. If you are unsure of exactly who they are, it is probably in part because they have been so successful in creating partnerships and spin-offs. There is Owens Corning, of course, which was spun-off in 1938, as well as the more recent spin-offs, Quest Diagnostics and Covance. Corning also has major partnerships today with Dow Chemical (DOW) and Samsung.
Many of the most important advances in glass technology have come from Corning, including the toughened glass that today is used for windshields, as well as the basic technology for making fiber-optic cable. Today, the company is seeing-and, I believe, will continue to see-rapid growth in its optical communications division. The law seems determined to allow one company to dominate the cable lines, but that will raise the desire on the part of consumers for the freedom of fiber optics, and the wonders coming in Internet 3.0.
Future Fuel (FF)
FF Daily Chart
A beautiful woman / dashing man (whichever you prefer) turns to you and says "I love you!" You barely have time to become gleeful before he she says, "Oh, wait, my mistake. I'm completely indifferent too you," and turns his/her back. You may never know what it was your fickle, ephemeral paramour saw in you, but if you are anything like me, you will conclude that there is, almost certainly, a chance that he or she will see it again.
On March 17 of this year, the Street looked at Future Fuel, a biofuels company and saw something it hadn't before; on May 8, it stopped seeing it. That something was rapid growth, as in March, Future Fuel reported having earned $0.61 per share in the fourth quarter of 2013, an increase of 46% from the year-over year quarter. Then, in May, the company announced having earned only $0.14 per share in the first quarter of 2014, missing analysts' expectations.
Why the big drop? Blame the taxman-specifically, the expiration of the $1 blender's tax credit.
...And you're working for no one but me...
The future still looks good for Future Fuel, though. A company with this much growth potential should probably be trading at a higher P/E Ratio than the trailing 11, or even the forward 15.1.
Harman International Industries (HAR)
HAR Daily Chart
Harman is a company you will probably be hearing a lot from, since they make high-tech audio equipment. Even if you have never heard of the company, you have almost certainly heard of some of their innovations-Dolby noise reduction in particular.
And Jim Cramer suggested Apple (AAPL) should have bought Harman instead of Beats, as owning Harman would have given Apple dominance in car audio, allowing it move forward with its plans for iPhone/car crossover apps. Harman would have cost a bit more, but Apple certainly has the money.
Instead, it was Harman than went shopping, gobbling up rival A/V maker AMX LLC, which should give the company more pricing flexibility going forward. Harman's market cap is now a bit more than $7 billion, but don't rule out the possibility of a buyout. Whoever controls car audio could gain a toe-hold in the music/radio industry similar in size to what Apple gained by creating iTunes, if not even larger.
Courtesy of MarketIntelligenceCenter