3 Companies Whose Losses Might Be Your Gain
Oct 10th 2013 11:32AM
Updated Oct 10th 2013 11:34AM
Since Sept. 19, the Dow Jones Industrial Average has lost 5.3% of its value. During this time, many of the market's top performers have significantly lagged the broader market in performance. In the case of some, however, fundamentals suggest that now might be a great buying opportunity.
Pipeline expansion boosts upside
In recent years, Questcor Pharmaceuticals has been known for its large price swings. In 2012, it declined from over $50 to under $20. Since the end of August, shares are lower by more than 20%.
Over the last five years, however, Questcor has shown an unquestioned uptrend with gains of 650%. The strong performance is tied to the growth of Questcor's product Acthar Gel, which is used to treat several orphan diseases.
While most companies develop a pipeline of products, Questcor simply expands the use of Acthar, and it has done so with incredible success. Questcor shipped 7,050 vials in its most recent quarter -- 50% more than the previous year -- and had total revenue growth of 64%. Moreover, the company launched Acthar in the rheumatology space and had its best response ever, with 300 vials shipped. This has investors excited about the company's continued efforts in rheumatology, ongoing studies in pulmonology, and expansion outside the U.S. (for the first time).
After Questcor's recent decline, shares are trading at just 15 times earnings, or 10 times next year's earnings. Questcor appears to be a rare value investment in biotechnology that should perform well for long-term investors.
A trio of reasons to buy
Since August, shares of Santarus have declined nearly 25% as investors take profit after a one-year 130% return. As a result, Santarus is cheap. It is also a company with five marketed products, revenue growth of nearly 90%, and a drug launch that has been exceptional to say the least.
In 2013, Santarus has been driven by a trio of catalysts that include the relaunch of heartburn treatment Zegerid and the continued growth of its glycemic control drug Glumetza (which generates nearly half of the company's sales). The third catalyst is the growth of Uceris, which treats mild to moderate ulcerative colitis. Analysts had projected just $20 million in full-year sales, but sales have already exceeded $22 million in the first six months of 2013. Uceris has performed better than expected, and because of this fact (along with Glumetza and Zegerid's growth) Santarus remains a strong company.
Much like Questcor, Santarus trades at just 15 times earnings and is expected to see continued growth throughout the next several years. Hence, Santarus' weakness might make for a good long-term opportunity.
Expansion and high store traffic signal upside
Last is Restoration Hardware , a company whose stock performance is beyond my comprehension. Restoration has doubled in the last year, yet it has lost 20% over the last month.
The company operates in the home improvement space, which is not a rapidly growing industry. With Restoration's niche in the high end, however, it has produced top-line growth in excess of 30%. Impressively, all of this top-line growth has been created through same-store sales, without expansion.
The company is simply driving new customers into its stores, and it continues to guide for same-store sales growth in excess of 20% year over year. With that said, the company is currently exploring 20 additional markets for expansion. This could spark even greater growth in the years ahead.
At 1.8 times sales, Restoration is cheap. In comparison, Lumber Liquidators (a company with half the growth) trades at 3.2 times sales. With that said, Restoration presents a rare long-term opportunity to capitalize on the demands of high-end customers and future expansion possibilities.
In any long-term cycle, pops and drops are going to occur. Even the best-performing stocks will see periods of loss. For these companies, pullbacks present great opportunities when the fundamentals and valuation create value. In the case of the three companies I've discussed above, it appears we're seeing a classic example of the market creating value. This almost always results in gains for those who are patient and willing to buy at depressed levels.
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The article 3 Companies Whose Losses Might Be Your Gain originally appeared on Fool.com.Brian Nichols owns Restoration Hardware and Santarus. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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