The accompanying table presents 10 small and micro-cap companies from a variety of industries which are trading at value parameters, with average valuations for the group of 0.54X trailing 12-month sales, 0.44X enterprise value to sales, 0.88X book value, and 8.7X trailing 12-month earnings. The iShares Russell 2000 Small-Cap Value ETF (IWN) has lost about 39% in the past year and serves as a useful ETF benchmark comparison for these companies.
Healthcare – Diagnostics: Home Diagnostics (HDIX) is a maker of blood glucose monitoring systems and supplies under the TRUE and Prestige brands, in addition to partnering with major drug chains and wholesalers for private label and store brand alternatives to more expensive name brands such as Abbott Lab's (ABT) Freestyle or JNJ's One Touch. Think of HDIX as the equivalent of generic drug makers in the diabetes testing and supplies market, which is poised to grow with the rising incidence of obesity and diabetes – along with an increased awareness by medical practitioners of the importance of managing and monitoring diabetes to avoid complications affecting the kidneys, nerves, circulation, and eyes.
Healthcare – Generic Drugs: Caraco Pharma (CPD) and Hi-Tech Pharmacal (HITK) are two under the radar value stocks in the generic drug industry , which has a bullish outlook on the prospects for increased substitution rates and big name brand drug patent expirations in the next four years. Caraco is down lately on concerns over a FDA quality control warning letter, which it will address next week, and the company has strong ties as a U.S. distributor for Indian generic drug maker Sun Pharma (524715), which is also a major investor in Caraco. Hi-Tech specializes in liquid formulations, topical treatments, and eye drops – with a recent approval for a generic version of glaucoma eye drop Cosopt, which posted sales of $342M (ttm) through mid-year.
Healthcare – Molecular Diagnostics & Research Tools: Affymetrix (AFFX) is a stock I wrote about in late July as a value trap while trading around $7.50 per share due to a string of poor results and lowered guidance. While the results are still poor and Illumina (ILMN) continues to dominate its now much smaller rival; the price for Affymetrix at around 3 bucks is getting so low that it could be acquired or will rebound sharply at any sign of improved results. However, with the current bear market conditions and lack of near-term catalysts, I plan to keep AFFX on my watch list for a possible buy as a turnaround play.
$5.54 (11/15/08)
