July 6, 2011 PSW Staff
decade now, a slew of NASDAQ stocks priced below ten dollars are finding new 52
week highs. Below, we zero in on five poised to see further gains in the months to
come, especially if this comeback comes to fruition.
LAVA (Magma Design Automation Inc.)
Magma Design Automation, Inc. provides electronic design automation software
products and related services. The company has now seen three straight quarters
and two years of accelerating revenue and increased gross profits. Over the past two
quarters, the company has come into profitability. Growth is forcasted to continue
over the coming years, and the stock has a PEG ratio right at 1. A relatively small
amount of shares outstanding, 66 million, coupled with a history of relative self-
control with respect to dilution makes this stock a solid bet for the mid-term.
LVLT (Level 3 Communications Inc.)
Level 3 Communications, Inc. engages in the communications business in North
America and Europe. We recently covered LVLT in our article Highly Liquid Stocks
Under $2.00 for Active Traders. At that time, we saw LVLT simply as a short-term
trading opportunity. Our view has changed a bit, as fundamental improvements and
strong price action has us seeing opportunities for the mid-term. Revenues and
gross profits have been improving quarter over quarter for the past year and although
the company has yet to hit profitability, it has beefed up the asset portion of the
balance sheet quite substantially. LVLT now has over a billion dollars in cash, nearly
twice what was seen just a couple of quarters ago. Although profitably is not seen in
the near future, double-digit earnings growth is. The cash stockpile coupled with
rapid growth overseas and some new initiatives, including a deal with Global
Crossing (GLBC), may allow the company to see green sooner that what is expected.
GLUU (Glu Mobile Inc.)
Glu Mobile Inc. is a leading global publisher of 3D Social Mobile games for smart-
phone and tablet devices. After a very promising looking first quarter this year, GLUU
came out at the end of may and upped their guidance for the second quarter. Non-
GAAP revenue is expected to be between $16.0 million and $17.0 million, up from the
previous range of $15.0 million to $16.5 million. Non-GAAP net loss is expected to be
between $1.9 million and $2.7 million, or a net loss of $0.04 to $0.05 per share,
compared to the previous range of $1.9 million and $3.1 million, or a net loss of $0.04
to $0.06 per share. The primary growth driver has been a dramatic increase in smart-
phone revenue. The possibility of even more upward revisions remains, especially
with a slew of social media IPOs ready to take off, including Zynga, the provider of
social and mobile games. This market is extremely hot right now, and although
playing the games is not a problem, finding ways to play the investment is. Glu
Mobile, a small cap, is a great way to get on board well before any of the IPOs hit the
market. The company has zero debt and $24 million in cash on the balance sheet.
AFFX (Affymetrix Inc.)
Affymetrix, Inc. engages in the development, manufacture, sale, and servicing of
consumables and systems for genetic analysis in the life sciences and clinical
healthcare markets. Bio-tech is not quite as hot as mobile gaming right now, and this
company's flat revenue growth over the past several years adds evidence to this.
Gross profits, however, have improved dramatically over the past three quarters, and
the company has seen some profits. The balance sheet looks pretty good for a bio-
tech with over $80 million in cash, only $95 million in debt and a book value of $4.20.
The improved margins along with fairly consistent revenue over the past five years
bodes well for this stock in the mid to long-term future. The company is generating a
huge amount of cash relative to its peers.
AKRX (Akorn Inc.)
Akorn, Inc. is a generic pharmaceutical company engaged in the development,
manufacture, and marketing of multi-source and branded pharmaceutical products in
the areas of ophthalmology, antidotes, anti-infectives, and controlled substances for
pain management and anesthesia in the United States and internationally. Despite
recently hitting a 52 week high, this stock still looks undervalued based on analyst
estimates, with an upside of at least 30%. Revenues and gross profits have grown
dramatically over the past year, and the future looks even brighter with 25% earnings
growth per year predicted for the next five years, and 66% growth seen for the current
quarter. The stocks PEG is below the industry average.
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