Algae Ponds in Kailua-Kona at Cyanotech

Some nutraceuticals have found the mainstream to the extent that they are considered staples instead of supplements.  That would include multivitamins certainly, and most recently some nonvitamins such as omega-3 oils (like my flax seed or the oils found in oily fish like salmon, tuna, sardines and mackerel).  Some regular foodstuffs have taken on the properties of nutraceuticals as well: chocolate, coffee, horseradish, red wine and all the juices and nuts that advertise themselves as antioxidants.  Those are NOT included in the nutraceutical figures quoted above, but they are part of the same trend.

Any category that includes gargantuan worldwide sales such as these ought to be happy hunting grounds for investors as well.  So we thought we’d take a look at some nutraceutical companies, to see whether there are some out there that are interesting.  In the past, a lot of vitamin and food-supplement companies were structured as multilevel marketing companies, and we have tried to avoid those because of the cloud of doubt that hangs over such schemes (they seem like chain letters or pyramid schemes).

Oslo-based Pronova BioPharma (www.pronova.com) might be a good place to start.  They actually straddle the nutraceutical and medicine markets, because it is their fish oil that is the principal ingredient in Lovaza (R), whose widely seen television commercial has virtually made it a household name.  Pronova is traded on the Oslo exchange under the ticker symbol PRON; there is an unsponsored ADR that trades on the Pink Sheets, but it settles in Oslo and in Norwegian Krone.  The shares closed at 6.53 NOK on Jan 26, which is about US$1.12.  Their market cap is 1.964 million NOK, or about US$337 million.  Volume was about 30,000 shares.  The US is an important market for Lovaza, so it could be that eventually Pronova will list its shares for trading here at some point.

Kailua-Kona, HI-based Cyanotech Corp (Nasdaq: CYAN; http://www.cyanotech.com/) is a cultivator and supplier of natural products, most notably Spirulina Pacifica, a refined algae nutraceutical product that is said to strengthen the immune system.  It is grown in shallow ponds adjacent to the Pacific Ocean in the 80-acre CYAN facility.  They are producing Spirulina at the rate of 350 tons per year, which is a lot of microscopic algae.  CYAN also produces BioAstin, an immune system booster and antioxidant that, among other things, supports skin health during sun exposure (seems appropriate for Hawaii).   For the quarter ended Sept 30, 2011, revenues were $6.0 million, up substantially from the year-earlier revenue for the same period of $3.8 million.  Net income was $0.16 per share, also nothing to sneeze at.  CYAN shares are trading at $6.44 vs a year-high of $9.36, on average volume of more than 50,000 shares per day.  The market cap is within reaching distance of $35 million.

San Marcos CA-based Natural Alternatives International Inc (Nasdaq: NAII; http://www.nai-online.com/) provides private-label manufacturing services for food supplement and vitamin companies.  It also sells its own products under its Pathway to Healing brand, primarily over the internet.  NAII products tablets, capsules, chewables, powders — a variety of ways of delivering nutraceutical products.  NAII recently announced litigation against some competitors, which could mean a combination of legal costs and potential awards: http://finance.yahoo.com/news/Natural-Alternatives-prnews-4218831226.html?x=0.  NAII shares are trading at $9.19 vs a 52-week high of $9.47, on relatively low daily volume of just over 20,000 shares.  The market cap is about $64 million.

Provo UT-based Nature’s Sunshine Products Inc (Nasdaq: NATR;   http://www.naturessunshine.com/) manufactures and markets nutritional and personal-care products: herbs, liquid herbs, vitamins and minerals in tablets and chewable tablets.  They also provide aloe vera gel, natural shampoos and toothpastes, and real range of homeopathic products.  Their market cap is $235 million, and the stock is selling for about $15.11 vs a high of $21.16 in the past year.  Volume is pretty good at 72,000 shares per day.  For the quarter ended September 30, 2011, sales were up nearly 6% to $91 million.  The quarter was a bottomline loser due to termination costs of a contractual relationship, but for the 9 months earnings including all charges & noncash items were about $10 million.

Salt Lake City-based Schiff Nutrition International Inc (NYSE: WNI; http://www.schiffnutrition.com/) manufactures and sells a variety of nutritional supplements, including products under the Tigers Milk brand.  For the 3 months ended November 30, 2011, sales were $61 millon vs $53 million in the year-earlier period, with EPS of $0.08 vs $0.06 the previous year.  The balance sheet is solid, with a current ratio of roughly 2:1.  The stock is selling for about $10.90 vs a high during the last 52 weeks of $13.02, on average daily volume of about 56,000 shares.  Market cap is about $320 million.

Another Norwegian entry in the Omega-3 race is Aker BioMarine (http://www.akerbiomarine.com/) , which trades on the Oslo exchange under the ticker AKBM.  Like Pronova, there is an unsponsored ADR that settles in Oslo in Krone, and it trades on the Pink Sheets.  Aker seems to have set its sights on a bigger potential market than the US, and has recently signed several deals with China for its omega-3 fish oils, which are known under the brand name Superba (also its Qrill fish meal and oils are meant for aquaculturists).  Smaller than Pronova, revenues are around 229 millon NOK for the first 9 months of 2011, and the year-end results are expected mid-February.  There are some corporate changes being implemented at Aker, which is now owned largely by Aker Seafood, and is in the process of merging with another supplier.  Have a look at their news flow to sort it out.

Please do your own research — we only write about companies we find interesting, and we make no recommendations.  None of these companies is a client, and we do not own any of the stocks.

Box Trader -- a container ship, courtesy of Box Ships Inc

The marine shipping industry around the world was hit hard by the credit crunch and subsequent slowdown in demand for shipping, but the growth in container handling in Los Angeles may be an indicator that at least the container shipping industry is a place to look for current value and recovery in the short term.  Keep in mind that when looking at shipping companies it is important to keep an eye on the balance sheet, because some shippers overcommitted to capital expenditures (new vessels) during the boom years, and have been stuck with heavy debt loads as a result.

At the same time one of the giants of the shipping industry, Maersk, has ordered 10 huge new container ships that will dwarf container ships of the past: http://nextbigfuture.com/2011/02/largest-container-ship-will-be-16.html.  This blog does not follow big companies like Maersk, but there are several smaller container-ship companies that may merit the attention of investors.

First, a hybrid company: Honolulu-based Alexander & Baldwin Inc (NYSE: ALEX; http://www.alexanderbaldwin.com/).  Although it is larger than most companies we write about, much of its revenue comes from gigantic land-holdings and agricultural interests.  But it is one of the larger US-based container shippers as well, with 10 containerships in its Matson Line, which some Americans remember as the line that used to carry passengers from California to Hawaii on the white steamships, Matsonia and Lurline in times of yore.  ALEX containerships ply the waters between Asia, the Pacific Islands (Hawaii in particular) and the US west coast.   With sales of about $1.7 billion, low debt to equity, and rising earnings, ALEX may be a comfortable company for conservative investors, with its market cap of $1.9 billion, stock price of about $44.89, and trading volume of more than 230,000 shares per day.  What’s more, ALEX plans to split to 2 companies, yielding a pure-play marine transport company with the Pacific as a playground: http://www.businessweek.com/ap/financialnews/D9RC234O0.htm.

Many economists would tell us that the second leg of a bull market (if that is indeed where we are today) is likely to make smaller companies more buoyant as to valuation, so some of the smaller containership companies are also worth having a look at.

Athens-based Box Ships Inc* (NYSE: TEU: http://www.box-ships.com/) is considerably smaller overall than ALEX, but its fleet of containerships stands at 7 vs ALEX’s 10, and TEU has 2 more vessels on order.  TEU has only been publicly traded for less than a year, and has been paying a dividend of $0.30 per quarter — its policy is to pay substantially all of its operating cash flow out in dividends, minus the amounts required to maintain its operations, fleet and planned growth.  The current stock price is about $8.39, which would make the yield about 11.9% on an annualized dividend of $1.00.  With a debt to equity ratio lower than many shippers and a fleet whose average age is only about 4 years, it may be worth evaluating.  Several analysts follow the company.  Market cap is about $132 million and average daily trading volume is around 112,000 shares.

Athens-based Diana Containerships (Nasdaq: DCIX; http://www.dcontainerships.com/) is a sister of a drybulk carrier, Diana Shipping, and its market cap is in the same general range as TEU: $164 million, with trading volume of 128,000 shares per day, and a stock price of $7.10.  Its dividend of $0.60 in 2011 gives a yield of about 9%.  DCIX announced last week that it has acquired 2 additional vessels for a total of 9, so its fleet is a bit larger than that of TEU and only a tiny bit smaller than that of ALEX. 

Also Athens-based is Costamare Inc (NYSE: CMRE; http://www.costamare.com/) , with a market cap of $900 million and a current stock price of about $14.97.  Its $1.08 dividend from last year gives a current yield of about 7%, and the company recently declared a quarterly dividend of $0.27 payable in February.  Costamare’s fleet consists of 59 containerships chartered to shipping lines, and its long-term debt is fairly substantial when contrasted with its shareholders equity.  It was somewhat less profitable in 2011 than in 2010,  but with a good bottom line.  Caveat emptor.

Piraeus-based Danaos Corporation (NYSE: DAC; http://www.danaos.com/), also has a large fleet of 57 containerships, with 8 more on order, and its relatively low market cap of $363 million (when compared to Costamare with a fleet of similar size) is most likely due to its rather heavy debt load compared to its equity, and its somewhat spotty bottom line — though to be fair, GAAP earnings in the shipping industry may at times not be the only way to judge a company.  DAC is trading at $3.33 on volume of about 32,000 shares per day, which also speaks to a certain reticence on the part of buyers.  Higher risk sometimes means higher gains in the long run — but obviously not every time.

There are numerous other companies in the containership business, and this article does not pretend to be a complete survey of the field.  Please do your own research; we do not make recommendations as to investments — we just write about companies we find interesting.  Box Ships (TEU) is a client of Allen & Caron, the publisher of this blog, though we do not trade their shares.

Pain management is a classic problem -- photo courtesy of WebMD

Last week the NY DAILY NEWS warned its readers of the potential dangers of advanced opioid drugs that are designed and clinically tested for pain relief — but potentially open to the kind of rampant drug abuse that has plagued some providers of opioid pain relief drugs in the past (like Oxycontin).  For that article, click here: http://articles.nydailynews.com/2012-01-07/news/30603028_1_oxycontin-prescription-drug-abuse-new-pain-pill.  Then the same theme popped up Saturday in Everyday Health: http://www.everydayhealth.com/pain-management/will-the-new-hydrocodone-super-drugs-be-a-magnet-for-abuse.aspx?xid=aol_eh-pain_6_20120109_&aolcat=ESO&icid=maing-grid10%7Chtmlws-main-bb%7Cdl8%7Csec3_lnk1%26pLid%3D127515.

The abatement of pain is not only a humane science that provides merciful surcease for cancer sufferers, terminal patients, burn victims and others with unbearable pain — it is big business, accounting for more than $8 billion annually in the US alone.  That means it is a potential pot of gold for drug developers, and it may be worthwhile to have a brief look at some of the up-and-coming contenders.  Keep in mind that most of the “big” drugs are sold by gigantic pharmaceutical companies that are outside the purview of this blog — we’ll be looking at smaller drug developers who are most likely going to license their drugs to the Wyeths and Abbotts and Pfizers of the world.

Parsippany NJ-based Pacira Pharmaceuticals (Nasdaq: PCRX;  http://www.pacira.com/) might be a good place to start a survey.  With a market cap of about $193 million, PCRX shares are around $8, at the low end of a 52-week spread of $6-$15, but with solid average volume of about 300,000 shares per day — so it’s safe to say it is not an unknown stock.  Their entry in this field is EXPAREL, a long-acting non-opioid post-surgical pain drug that the developer feels may help reduce the industry’s dependence on opioids.  2012 is a big year for EXPAREL, with product projected to be shipped for the first time in April. 

Tarrytown NY-based Progenix Pharmaceuticals (Nasdaq: PGNX; http://www.progenics.com/) is worth looking at as well, although strictly speaking they are on the sidelines of painkilling.   Their RELISTOR subcutaneous injection, however, was developed to alleviate one of the pernicious side effects of opioid painkillers — killer constipation.  RELISTOR is partnered with Salix Pharmaceuticals virtually worldwide, and PGNX is also working on HIV, and various kinds of cancer drugs including a monoclonal antibody targeting prostate cancer. PGNX has a market cap of just under $300 million, with a stock selling for about $8.50, virtually at its 52-week high, on average volume of about 200,000 shares per day.

A less well-known Australian firm, Sydney-based QRx Pharmaceuticals (OTCQX: QRXPY.PK and ASX: QRX; www.qrxpharma.com) may be the dark horse in this race, with its MoxDuo combination of morphine and oxycodone at far smaller doses than other opioid nostrums on the market.  QRx is wending its way through the FDA, and the light at the end of that particular tunnel was seen by its new partner for MoxDuo, the Swiss giant, Actavis (like I said, the biggies are the eventual conduit to the market for most big-league drugs).  QRX shares trade on the ASX for Australian $1.65 on average volume of about 200,000 shares and for a market cap of about $200 million.  For US investors, the ADR trades for $8.61 on low volume — it has 5 Australian shares in 1 ADR, but as a sponsored ADR it can be held in USD at DTC, which is important to many investors in the US.  ADRs can be converted back to Australian shares in the twinkling of an eye to be sold in Sydney.

Uppsala, Sweden-based Orexo (Stockholm OMX: ORX; www.orexo.com)  has developed a sublingual (under the tongue) tablet of fentanyl for severe cancer pain.  That drug has been partnered by ProStrakan Group plc and is was introduced in the US last year.  There is no ADR, but the Stockholm shares trade at SEK28.20, or about US$4.04. 

San Diego-based Zogenix Inc (Nasdaq: ZGNX; http://www.zogenix.com/) is a company with a medical device for needle-less injections, but also with an oral version of hydrocodone, ZX002, for patients who need constant pain relief and are tolerant of opioids.  ZGNX shares are about $2.60, for a market cap of a little over $167 million, and very healthy daily trading of nearly 400,000 shares.  As a hybrid device/pharma company it may be more difficult to follow, but may also be worth looking at.

Finally, Cambridge MA-based Zalicus Inc (Nasdaq: ZLCS; http://www.combinatorx.com/), is a somewhat beaten-up microcap with a market cap of about $115 million and a stock priced at $1.15-$1.20 vs a year high of $3.21, but with average daily volume of nearly 1 million shares.  ZLCS has some very enthusiastic fans — like this widely ready SeekingAlpha writer: http://seekingalpha.com/article/319339-11-biotech-bets-for-2012?source=yahoo.  Its Exalgo is an extended-release version of hydromorphone, an opioid long in use in the US.  They are also working on a calcium channel blocker that has captured the imagination of many investors.

Please do your own research; we only write on companies we find interesting.  None of these companies is a client and we own none of the stocks.

Auto sales were up 10 percent in 2011 to 12.8 million vehicles sold, far short of the 16 million total sales before the recession but certainly much better than recent years. Individually, Chrysler was up 26 percent (driven in part by its “Imported from Detroit” advertising campaign), GM 13 percent, Ford 11 percent. Honda sales were down 18 percent during the year and Toyota sales were basically flat.

American cars owned 47 percent of the total sales market in 2011, up from 45 percent in 2010, according to the Times, and the U.S. “remained the most profitable car market in the world.” The Times story included a JD Powers report noting that “December was the first month in which sales to individual customers (excluding big fleet sales) topped 1 million since the August 2009 spike during the federal cash-for-clunkers trade-in program.”

Most analysts suggest that the big question for 2012, putting aside considerations of the overall strength of the economy, will be how well the U.S. automakers will do compared to their foreign counterparts, who were hindered by supply issues caused by such things as the tsunami in Japan and flooding in Thailand. Most of the Asian car makers, as well as Europeans such as Volkswagen, have geared up with new products that could pose a threat to their American rivals. Many analysts are predicting that the U.S. “Big Three” will lose market share in 2012, but should continue to prosper because of the restructuring efforts made during the recession.

All this should be particularly good news to the legions of small cap companies that feed into the global automobile market. These include many long established names in the auto industry including:

Quincy, IL-based Titan International (NYSE: TWI, http://www.titan-intl.com) manufactures wheels, tires and other products for vehicles in the agriculture, earthmoving and construction markets. TWI sells its products to automotive OEMs and in the aftermarket through its own dealers as well as distributors and independent dealers. Its stock, which is sitting about halfway between its 52-week range ($12.97-$31.42), has gnerally been trading up since Oct. 3 and closed Jan. 9 at $20.39.

Detroit-based American Axle and Manufacturing Holdings (NYSE: AXL, http://www.aam.com) designs and manufactures drivetrain and driveline systems for the automotive industry. AXL has been on the upswing since mid-November when it was trading for less than $8. It closed Jan. 9 at $11.34, down 6 cents on the day. Its 52-week range is $6.77-$16.20.

Colmar, PA-based Dorman Products (Nasdaq: DORM, http://www.dormanproducts.com) supplies auto replacement parts and service line products primarily for the automotive aftermarket. Its brand names include OE Solutions, HELP!, First Stop and Pik-A-Nut. DORM was characterized as “poised for solid growth” in 2012 by Investopedia (http://stocks.investopedia.com/stock-analysis/2011/Small-Caps-For-2012-STRL-TA-DORM-CPWM1207.aspx?partner=YahooSA#axzz1ibl7JQSS). Its 52-week range is $26.57-$43.04 and it closed Jan. 9 at $36.88, down 46 cents on the day.

Novi, MI-based Cooper-Standard Holdings (EBB: COSH.OB, http://www.cooperstandard.com) manufactures and sells fluid handling, body sealing and anti-vibration systems to automotive OEMs and replacement markets. Its products are used in SUVs, light trucks, passenger vehicles and sedans. The stock trades lightly, and is languishing down at the bottom of the 52-week range ($33.25-$52). COSH closed Jan. 9 at $35.50.

Troy, MI-based Meritor (NYSE: MTOR), http://www.meritor.com) designs, manufactures and sells a wide range of systems, parts and components to automotive OEMs and the aftermarket. The company changed its name from ArvinMeritor in March 2011. MTOR stock suffered through a steady decline throughout most of 2011 but managed to rally starting in late November. It’s currently trading near the bottom of the 52-week range ($4.80-$22.65) and closed Jan. 9 at $6.09, up 21 cents for the day.

New York City-based Fuel Systems Solutions (Nasdaq: FSYS, http://www.fuelsystemssolutions.com) designs and manufactures alternative fuel components and systems including fuel injectors and fuel pressure regulators. It’s 52-week range is $15.35-$30.80. It closed Jan. 9 at $17.47, up 12 cents for the day. If interested, the company will be presenting at the annual Needham Growth Conference in New York on Jan. 12.

Warren, OH-based Stoneridge (NYSE: SRI, http://www.stoneridge.com) designs and manufactures electrical components for the automotive, agricultural, medium and heavy-duty truck and off-highway vehicle markets. BB&T Capital Markets just initiative coverage of SRI in mid-December with a Buy rating. Its 52-week range is $4.53-$16.87. It closed Jan. 9 at $9.15, up 7 cents on the day.

But many signs point to a rebound. Jim Paulsen of Wells Capital Management “foresees 15 percent rise for US stocks in 2012, according to a MarketWatch headline Dec. 30. And smallcaps have already been rallying, starting about Oct. 4. Small caps are up 11.5 percent since then, outpacing the large caps by 3.5 points, according to the WSJ. Relatively good news from Europe and improved economic data in that time frame has prompted the small cap rally. If the U.S. economy continues expanding, as such advisors as Goldman Sachs and Macroeconomic Advisors have predicted, the small caps should continue to grow as well.

History is on the side of small caps as well. During a bull market, small caps have outperformed the S&P 500 Stock Index by 47.1 percent since 1929, the WSJ reports, citing Ned Davis Research, which just last month upgraded small caps to overweight.

So how do you choose which small caps to invest in? Look for the highest quality companies, such as the ones that are listed on the S&P Small Cap 600 which requires four consecutive quarters of profitability, as opposed to an index like the Russell 2000 which only screens for size, the WSJ notes.

Here are three other small caps, including one (VHC) picked by Otis T. Bradley of ICM Capital Markets in New York:

Scotts Valley, CA-based VirnetX Holding Corp. (Amex: VHC, http://www.virnetx.com/) is a developer of software and technology for securing real time security solutions over the Internet. In November 2009 it was trading at $1.95 but then went on a tear, running all the way up to $41.77 in early July before market corrections brought it back down to the $20 range where it has stayed since late August. VHC closed Dec. 29 at $25.23, up 13 cents on the day, but Bradley lists this stock as capable of gaining “at least 5- 10-fold over the next 1-2 years.” 

Mountain View, CA-based IRIDEX * (Nasdaq: IRIX, http://www.iridex.com/) is a developer and marketer of innovative laser systems and related products for the treatment of eye diseases and another small company on the rise.  A 3-year turnaround and a new CEO, Dominik Beck promises a more commercial orientation.  IRIDEX was trading at $3.66 on Nov. 16 and closed at $3.58 on Dec. 29.  The 52-week range is $3.08-$4.75. Market cap is $32 million.

Northville, MI-based Amerigon * (Nasdaq: ARGN, http://www.amerigon.com/) is the world’s leading marketer of thermoelectric technologies for automobiles and is best known for its actively heated and cooled seat systems featured in more than 50 vehicles. But it is winning new headlines for a thermoelectric generator (TEG) that the company is developing with partners including BMW, Ford and Caltech’s Jet Propulsion Lab. The TEG converts waste exhaust heat into electricity, a technology that has been shown to reduce toxic emissions and increase fuel economy along with providing a much needed new source for electricity in a vehicle. The January edition of Car and Driver lists the TEG as one of the top 10 most promising innovations of 2012 and experts are predicting a rebound in auto sales in 2012. The stock closed Oct. 10 at $14.02, down from its $18.18 high for the past year, but above the $9.33 low. On Dec. 29 it closed at $14.22, up 25 cents for the day.

* Denotes client of Allen & Caron, Inc., publisher of this blog

But then you flip forward a few pages and there’s another report about solar panel maker First Solar, which fell 21.4 percent to $33.45 on Dec. 15, its lowest level in four years, after announcing its second restructuring in six weeks. First Solar, long considered a solar success story and the world’s largest solar company based on market cap (although its market cap has fallen almost 75 percent this year), released an earnings warning Dec. 14 suggesting that “downward pressure on solar panel prices and profit margins will continue ‘indefinitely,” according to the Financial Times.  The company’s basic problem is that there are too many solar panels on the market and countries in Europe, where solar is very popular, are cutting subsidies and will continue to do so.

“If you’re making solar modules, it’s very dicey out there. The prices keep going down, down, down,” said Philip Lawes, chief executive of Laguna Beach, CA-based Insoltech Solar.

But just go back a few weeks and you can read the reports about Google investing millions in solar power, and then there was last week’s news about Warren Buffett getting into the solar business for the first time. MidAmerican Energy Holdings, a unit of Buffett’s Berkshire Hathaway Inc., purchased the Topaz solar farm in California’s San Luis Obispo County from First Solar. Terms were not disclosed but the Wall Street Journal suggested Topaz was worth “more than $2 billion. If you scan the news further, you’ll see that Buffett isn’t the only one jumping into the solar farm business. First Solar and SunPower Corp. have been unloading their solar farms to some of the U.S.’s biggest utilities, including NextEra Energy, NRG Energy and Exelon Corp.

Lawes said the big investors like Buffett see long term income in the large solar farms.

“These solar farms, they aren’t glamorous, they aren’t going to be a home run, but they create a steady cash flow over the long term,” said Lawes, adding that Buffett’s company will enjoy that steady cash flow by selling the energy produced in the farms to a utility. “The utility companies aren’t going anywhere.”

Google and KKR must agree, since they recently announced a joint investment in four solar farms south of Sacramento, CA. The deal allows the solar farm developer and operator, Recurrent Energy, to raise cash and fund future solar farms. Recurrent has a 20-year contract with Sacramento Municipal Utility District to supply electricity to power 13,000 homes, according to a story in the Wall Street Journal.

There’s also opportunities for small investors, Lawes added. Entrepreneurs are approaching owners of commercial buildings offering in some cases to pay 15 cents a square foot for the use of their roofs. The entrepreneurs then install solar and sell the power to utility, just like the big guys with the big farms. “Typically, they just need a flat roof,” he said.

So, other than the big guys like First Solar, how are the smaller solar companies faring? Not that well if you are in the solar panel business.

Ontario, Canada-based Canadian Solar (Nasdaq: CSIQ, http://www.canadian-solar.com/), which sells a variety of solar products, continues to decline. Back in late August it was trading for $6.74. At mid-day Dec. 23 it was trading for $2.85.

China-based LDK Solar Co. (NYSE: LDK, http://www.ldksolar.com/)) manufactures solar products and silicon materials. It, too, has bounced back from lows in late October of around $3. At mid-day Dec. 23 it was trading for $4.91, much closer to the highs of nearly $6 in late August.

China-based Trina Solar Ltd. (NYSE: TSL, http://www.trinasolar.com/)) designs, manufactures and sells photovoltaic modules worldwide. It’s now trading for less than half its Aug. 31 close of $15.88. By Oct. 20 it had declined to $7.15. It’s up from there, but not much. At mid-day Dec. 23 TSL stock was trading for $7.39.

Shanghai-based JA Solar Holdings Co. (Nasdaq: JASO, http://www.jasolar.com) makes solar cells and other solar

products and has hit by the downturn. On Aug. 31 its stock closed at $3.66; by Oct. 20 it closed at $2.14; at mid-day Dec. 23 it was trading for $1.39.

Logo courtesy Occidental Petroleum website

When, back in July, we last wrote about reverse mergers (a means by which a private company can buy the shell of a defunct public company to gain quick access to public markets) the Securites and Exchange Commission (SEC) had begun an investigation of the process, partly prompted by financial irregularities related to some foreign companies.

Then, in early November, the SEC approved a set of more stringent listing requirements that the three major U.S. stock exchanges (Nasdaq, NYSE, NYSE Amex) will impose on reverse merger companies seeking a listing. (If the reverse merger company completed its reverse merger long enough ago so that it had filed four or more audited annual financial reports with the SEC it would be exempt.)

The new rules now stipulate that a reverse merger company must:

• Trade for a one-year period on a regulated U.S. or foreign exchange after the merger and file all required audited financial statements and reports required by the SEC. This is often called a “seasoning period.”
• Maintain the market’s requisite minimum share price for at least 30 of 60 trading days prior to its listing application.

Perhaps these new rules will help eliminate the negative stigma often associated with companies that go public via reverse mergers rather than through the typical IPO process. In many cases, particularly for those companies based in foreign countries, investors, regulators and auditors suggest it is more difficult to obtain reliable financial information on reverse merger companies.

But there have been some major reverse merger success stories over the years. According to gopublic.com, oil magnate Armand Hammer invented the reverse merger back in the 1950s by merging Occidental Petroleum with a small shell company (http://gopublic.com/examples-successful-reverse-merger-public-shell.html). Ted Turner also used a reverse merger with Rice Broadcasting, which ultimately became Turner Broadcasting, according to the gopublic.com story.

There are hundreds of reverse merger companies trading today. Here are two chosen at random that are old enough that they will not be affected by the new listing requirements:

Scotts Valley, CA-based VirnetX Holding Corp. (Amex: VHC, http://www.virnetx.com/) is a developer of software and technology for securing real time security solutions over the Internet. VHC had the proverbial hockey stick chart, up as high as $41.77 last summer from $1.95 in November 2009. Market corrections and some major selling in small cap stocks have brought it down. But it is still trading very well. On Dec. 14 it closed at $20.25, down 63 cents on the day

Wall Street Journal

The story offers statistics that show “from 1927 through 2004 small stocks beat large stocks by an average of 2.5 percentage points during January.” At least two theories are offered for why this occurs. Some suggest the weaker small stocks are often sold off in December so losses can be used for tax purposes, and then bought back in January; others say it’s about mutual funds selling stocks that have had losses in December so they don’t get mentioned in their year-end report, then buying them back in December, according to the WSJ.

The article adds that Ned Davis Research (http://www.ndr.com/) publishes a list of its January Effect Stocks each December. The list is created by “screening for the smallest 150 stocks in the S&P 1500-stock index that also are among the 10 percent of stocks furthest from their calendar year closing high.” Also noted is that Ned Davis Research’s list returned an average of 8.6 percent from mid-December through the end of January and much less from Jan. 1 though the end of the month.

We don’t have a formula for picking stocks that might be boosted by the January Effect like Ned Davis Research does, but here are three smallcap stocks that have been hit hard this year and show promise for 2012:

Manitoba-based IMRIS, Inc * (Nasdaq:IMRS, http://www.imris.com/) provides hospitals with a new take on a new trend called intraoperative imaging: fully integrated image guided therapy solutions – actually a fully functioning surgical suite –  that delivers images and information to clinicians during surgical or interventional procedures. The IMRIS suites incorporate magnetic resonance imaging and fluoroscopy into the operating room, actually allowing the patient to be imaged without moving.  IMRIS stock has been as high as the $8 range but has fallen in the past few quarters due to much weaker than expected bookings in 2011. On its quarterly conference call, however, management told investors they expect a much better 2012. IMRS, which traded at $4.15 as recently as Sept. 2, closed Nov. 15 at $2.59.

Poway, CA-based Digirad * (Nasdaq: DRAD, http://www.digirad.com/) has two business segments: Digirad Imaging Systems, or DIS, provides physicians with personnel and equipment services for performing nuclear imaging, echocardiography and vascular ultrasound; the product side of the business sells cameras for nuclear imaging including its new ergo large field-of-view, general purpose portable imaging system. Ergo’s unique, ergonomic, lightweight design allows it to be moved easily anywhere in might be needed in the hospital.

Digirad is small ($40 million market cap) and on November reported revenue for the first nine months of 2011 of $41.9 million.  But it also reported a cash balance of $31.6 million as of the end of the third quarter on September 30, so it has the resources  to make an important strategic move. DRAD stock, which has been as high as $3.10 back in May, closed November 15 at $2.13.

Mountain View, CA-based Iridex * (Nasdaq: IRIX, www.iridex.com) is another small company on the rise.  Following a 3-year turnaround placing the company on solid footing, a new CEO, Dominik Beck, has taken the reins and promises a more commercial orientation.  Based on the flat nature of the valuation for the past year, and a new catalyst in the management ranks, this might be one to watch.  Iridex was trading at $3.66 on Novemnber 16.  The 52-week range is $3.08-$4.75.

* Denotes a client of Allen & Caron Inc., publisher of this blog

J. Craig Venter, a pioneer in genome sequencing and founder and president of the J. Craig Venter Institute, is co-chair of the X Prize competition, which begins in January 2013 and is sponsored by MedCo. The official name of the contest is the Archon Genomics X Prize.

Venter told the Times that he joined the X Prize competition to encourage the invention of new genome sequencing methods. He considers having a rapid, accurate method of DNA sequencing the key to meaningfully improving its use in medicine.

Venter decided to sequence the genomes of centenarians because they had to have good genes to live to be 100 and they all share a unique trait: “remarkable old age.”

“The DNA sequence is only one component. Without associated information about traits–did your mother have this disease or did your father have it–genetic information is useless,” Venter told the Times.

He predicts having a genome sequenced will quickly become an important part of medicine and it is already playing a role in cancer research. As researchers look at the genetic changes caused by cancer they are finding certain genetic mutations. “One of the first things you will want to know if you have cancer will be if you have any of these genetic mutations,” Venter told the Times.

Large caps like Carlsbad, CA-based Life Technologies Corporation (Nasdaq: LIFE, http://www.lifetechnologies.com/), which specializes in molecular diagnostics, regenerative sciences and genomic medicine, could make a good run at the $10 million X prize. LIFE, with a $7.3 billion market cap, closed Oct. 31 at $40.67, down $2.35 for the day. Its 52-week range is $35.30-$57.25.

Mountain View, CA-based Complete Genomics (Nasdaq: GNOM, http://www.completegenomics.com/) develops and commercializes a DNA sequencing platform for human genome sequencing and analysis. GNOM introduced a new cancer sequencing service in early October that “addresses the substantial challenges inherent in sequencing cancer genomes,” according to a press release. GNOM, with a market cap of $188.5 million, closed Oct. 31 at $5.70, up 70 cents on the day. Its 52-week range is $4.70-$18.55.

Los Angeles-based Response Genetics (Nasdaq: RGDX, http://www.responsegenetics.com/) is developing tests for types of cancer that identify genetic profiles of tumors that recur after surgery. RGDX has a market cap of $33 million and closed Oct. 31 at $1.70, down 20 cents and near its 52-week low of $1.60. Back in early June it traded for more than $3.

The Times notes that drilling in the gulf is “coming back to normal” although the permitting process is now much slower than before the accident and compliance standards for deepwater drilling are much more strict. The proposed exploratory wells are more than 6,000 feet deep, actually deeper than the Deepwater Horizon well.

We last looked at five smallcaps that loosely fit this space in February (Please suggest others). Let’s see where they are now.

Houston-based Cal Dive International (NYSE:DVR, http://www.caldive.com/ ), a contractor of offshore platform, diving and underwater pipelay services, had a market cap of $609 million and was trading at about $6.50 a share in February. It closed Oct. 26 way off those marks at $2.02, up 7 cents on the day. It’s market value is now about $193 million. 

Texas-based Lufkin Industries(Nasdaq:LUFK, http://www.lufkin.com/), a $2.2 billion market cap company in February, sells, manufactures and repairs oil field pumping units. It was trading in the $75 range back then, toward the top of its 52-week range of $35.13 to $78.89. It closed Oct. 26 at $54.97, up $2.07 or nearly 4 percent on the day.

Woodlands, TX-based Tetra Technologies, Inc. (NYSE:TTI, http://www.tetratec.com/) operates as a diversified oil and gas services company in three divisions:  Fluids, Offshore and Production.  It was a $962 million market cap company on the upswing last February 24 when it closed at $12.63 with a volume of nearly 680,000 shares.  On Oct. 26 it closed at $9.75, up 50 cents on the day. Its market value is currently about $753 million.

Tulsa, OK- based Matrix Service Company (Nasdaq:MTRX, http://www.matrixservice.com/), with a market cap today of $289 million, specializes in helping oil companies with infrastructure needs and provides repair, construction and maintenance services to the energy sector in the US and Canada.  Its stock price closed at $10.90 on Oct. 26. Back in Febrary its market cap was about $290 million.

The smallest company in our brief survey is Calgary-based CE Franklin Ltd (Nasdaq:CFK, http://www.cefranklin.com/), a company that distributes and repairs oilfield equipment including pipes, valves and flanges.  On Feb. 25 it closed at $9.00, down $0.15, on 4,030 shares for the entire day. On Oct. 26 it closed at $8.24 and currently has a market cap of about $144 million.