By Robert Sutton
While big name stocks such as Caterpillar Inc. (NYSE:CAT) and JPMorgan Chase & Co. (NYSE:JPM) traded higher on Wednesday, there were several microcap stocks that also saw huge boosts during the session. These are stocks with smaller market capitalizations, but can yield much larger upside for the individual investor. However, some present nothing more than traps for investors. Three microcap stocks (not OTC stocks) that traded higher on Wednesday shall be analyzed in this piece — candidates whom I believe could continue to trade higher.
Spherix Incorporated (NASDAQ:SPEX)
Spherix Inc. (SPEX) traded higher by 15.89% on Wednesday, making its three-day return almost 80%. It is a small “under-the-radar” company that is now seeing a sudden boost in exposure and coverage, and some strong catalysts for this is that two high-profile firms took large stakes in the company combined with a recent acquisition.
Hudson Bay Capital Management and Iroquois Capital Partners are two very well known investment firms. Most recently both were among the first to invest in the company Vringo Inc. (NYSEAMEX:VRNG) before the ruling on its patent lawsuit against technology companies such as Google Inc. (NASDAQ:GOOG) and Yahoo! Inc. (NASDAQ:YHOO). Both firms have developed a reputation for spotting the best small cap stocks before they begin to mature, and are well-known for finding unknown companies with seemingly no catalysts that suddenly breakout with great fundamental years. Strangely enough not one, but both firms simultaneously took a large position in Spherix Incorporated (SPEX), which means that something big must be on the horizon.
Is it possible that Spherix is the next Vringo? The company does share certain similarities, not necessarily in business structure, but has focused most of its energy on developing a solid collection of intellectual property (IP). Aside from the investment by Hudson Bay Capital and Iroquois Capital, the company announced the addition of new IP by acquiring the assets of North South Holdings. This further strengthens the company’s IP and most likely was the reason for why Hudson Bay and Iroquois Partners were willing to invest in the company.
Spherix Incorporated (SPEX) operates in two segments: Biospherics Incorporated, biotechnology research and development, and Health Sciences, a technical and regulatory consulting business. The company has its two wholly owned subsidiaries; but with the recent IP acquisition, the company now becomes larger and could explore potential in the wireless communications industry. As I said, this fact is probably why Hudson Bay and Iroquois Partners have shown interest in the company. Hudson Bay and Iroquois both have reputations for investing in companies with large patent portfolios, and I am certain that they saw upside in shares of Spherix due to this diversity, as companies such as this are often acquired.
SPEX is a stock that you want to keep on your radar. It is currently trading at $11.67 after a three day gain from $7.00. Yet despite these gains, the stock is still far from its 52-week high of $28.20 and now displays more upside than at any period over the last year. Investors should watch for a continued trend higher, possibly double or even triple its current price. With institutions now acquiring shares it will attract new money to the stock, as volume has already risen significantly. This could become one of the best stocks of the year, as its already higher by 71% in 2013, and it will be thoroughly enjoyable to see what direction the company chooses to explore with its diversified IP portfolio and its new high-profile investors.
Celsion Corporation (NASDAQ:CLSN)
After losing almost 90% of its worth in the last four weeks, Celsion Corp. (CLSN) traded higher by 5.09% on Wednesday. The stock is still trading lower by 15.57% for the last five trading sessions and now has a market capitalization of $36.06 million, compared to its $268 million market cap last month. Yet despite this loss, some continue to tout the stock as a great opportunity. In my opinion, the stock had its time to shine…and missed its opportunity.
The company’s downfall occurred on January 31st, when the company reported an unsuccessful trial for its Phase 3 product, ThermoDox. The stock had been one of the market’s best performers in 2012 leading up to data, but now finds itself with just $8.32 million in cash and many years from having an approved product on the market. The biotechnology company’s pipeline consists mostly of ThermoDox, the product that just failed its Phase 3 trial for primary liver cancer. It is testing the same product on recurrent chest wall breast cancer (Phase 2) and colorectal liver metastasis (Phase 2).
If I were looking to add a microcap biotechnology stock to my portfolio, Celsion would not be it. The company was one of the best performers of 2012. Yet after a failed Phase 3 study, and with most of its pipeline revolving around the same product, most of the “smart money” has taken the losses and left the stock. Just last week the company announced a $15 million direct offering, which will dilute its shares by 50%. Red Acre Investments points out that its ATM facility has already been tapped and that the company is basically telling shareholders that, “We have decided to dilute existing shareholders by 50% after badly mismanaging our cash position and balance sheet over the last 3 quarters of operations.” The problem is that it may never have the opportunity to fully develop another product, because in biotechnology, when investors lose faith and money, it’s hard to regain.
Plug Power Inc. (NASDAQ:PLUG)
Believe it or not, Plug Power (PLUG) trades on the Nasdaq as a $5 million company at $0.13 per share and saw a 10.51% gain on Wednesday. The company has lost 95% of its value during the last year, and 99.55% of its value over the last five years. It has been a straight shot lower for this stock, which means it doesn’t take much to create a short-term gain.
We saw a perfect example on Wednesday as the stock trended higher following news that one of its largest investors wants to replace the company’s board of directors following a $2.8 million stock sale. Obviously, as the stock trades with such a steep loss, new leadership is needed. However, it may be too late. The company has a profit margin of (95%), and an accumulated deficit of almost $800 million. This “threat” may have come a little too late for its re-emergence to long-term gains. Much like Celsion (CLSN), this is a company that had its chance to succeed — and after years of being mismanaged, I wouldn’t touch the stock.
There is always risk when you invest in microcap stocks, but the goal is to separate the pretenders from the contenders. Most of these stocks saw technical gains, but then there are examples such as Spherix, a stock that should trade much higher. If you are seeking an investment in a microcap stock then I would look closely at SPEX, as it does appear to be a company on the rise. It is very rare to find such value. But when you do, it is imperative that you jump on the opportunity, and take advantage of gains that don’t come along often.
Disclosure: Long VRNG, SPEX.