When it comes to stocks, I’m of the Peter Lynch School, which says that you shouldn't purchase a stock unless you can, a) rationalize your purchase in few sentences, and b) draw what the company does with a crayon. These companies fit the bill.
I have no idea whether these stocks will go up or down in the next 6 hours, days, or weeks, and don’t know anyone who does. My intention is to hold them (I own both) until at least the peak of the next market cycle, or until the company proves to be something other than what I thought (for example, the dreaded words, “accounting irregularities.”)
Note that both of these companies are relatively unknown and relatively low-priced, which puts them squarely in the "speculative" category.
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CRTX – Cornerstone Therapeutics Inc.
To quote from the 2004 10-K report (honesty at its finest): “We were incorporated in Delaware on July 14, 2000. Since our inception, we have incurred significant losses each year. As of December 31, 2004, we had an accumulated deficit of $58.5 million. We expect to incur significant and growing losses for the foreseeable future…we expect our operating losses to continue to increase over the next several years as we continue to fund our development programs and prepare for potential commercial launch of our product candidates. We do not expect to achieve profitability in the foreseeable future; and we cannot assure you that we will achieve profitability at all.”
In those heady days of rising housing markets and consumer glee, Cornerstone (formerly Critical Therapeutics) was trading at about $70 per share, despite having no earnings whatsoever. That was then. Fast-forward to 2010, and Cornerstone touts rapidly increasing sales at great margins and with no long-term debt; yet, its share price is only 1/10th what it was as a purely speculative play in 2005.
Cornerstone’s specialty is respiratory ailment medications. Although Cornerstone is engaged in research, it is more interested in acquisitions. That is, CRTX finds established products that are poorly marketed, and re-launches them for a quick earnings boost. It also acquires late-stage development products that it can push for FDA approval and bring to market. Once products have been acquired or approved, Cornerstone uses a highly focused sales force of 113 agents to market these products.
The only thing I don’t like about Cornerstone is that, like many growing companies, is has been regularly increasing its number of outstanding shares (essentially printing money) for acquisitions. Having said that, when it does issue shares the purpose is to acquire product rights for added revenues – a good sign.
CRTX Statistics (at time of writing):
$6.77 per share
P/E of 8.8
No long-term debt
Gross margin 76.6%
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SKBI – Skystar Bio Pharmaceutical
Skystar is a Chinese pharmaceutical company (incorporated in Nevada) that primarily engages in medicines, vaccines and related health care for animals, both personal (pets) and commercial (livestock and poultry).
In one of those ridiculous transitions that can only happen in the world of speculative stocks, Skystar was incorporated in 1998 as “Hollywood Entertainment Network,” which was an independent film company. In 2000, riding the wave of the technology boom, it changed it’s name to “Cyber Group Network Corp” and became a security hardware and software developer. Several paragraphs of 10-K report later, and Skystar is now a bio pharmaceutical company. Normally I wouldn’t invest a dime with a change-your-line-of-business-a-thousand-times company, except for one important factor: Skystar is now legitimate.
In 2009, Skystar had over 33.8 million in revenue at 51% gross margin. Skystar manufactures a long list of products, including medications, microorganisms, feed additives and vaccines, while employing over 200 people. It has research and development facilities in China. And it has solid, growing earnings.
I suspect that Skystar's shaded past has a lot to do with its low stock price.
China's stock market is firmly in bubble territory and volatile of late, so expect this share price to move around a lot.
SKBI Statistics (at time of writing):
$9.75 per share
P/E of 7.17
No long-term debt
Gross Margin 51.09%
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Disclosure
Do not buy stocks, or take this or any other financial advice without doing your own analysis; including, but not limited to: reviewing business models, financial statements, management style and philosophy, recent developments, market macroeconomic analysis, and chart analysis. If you do not know how to do these things, you shouldn't be buying stocks in the first place. Seek the advice of professionals, as appropriate.
