Bill Gunderson

About the Author Bill Gunderson

Bill Gunderson is the CEO and Chief Market Strategist of Gunderson Capital Managment in San Diego, CA. He is also a professional money manager, former research analyst, author of Best Stocks Now, and developer of the Best Stocks Now smartphone app. He offers four free weeks to his weekly Best Stocks Now to Seeking Alpha readers. http://www.pwstreet.com He also hosts a daily stock market radio show on AM1000 KCEO from 7am-8am. http://www.kceoradio.com Bill has appeared on the Fox Business Channel and on Bloomberg radio numerous times. He has been published in Barron's, Forbes, TheStreet.com and numerous other publications i.e. Los Angeles Business Journal, San Diego Union Tribune, Phoenix Business Journal, Salem News, Rochester Business Journal, and many others.

A Small-Cap Buy That’s Not So Spooky


This October has been one “spooky” month for the market. The underlying fundamentals of the market remain positive. We still have job growth, GDP growth, no inflation, and low interest rates. But the market keeps getting spooked by things like: Europe, Ebola, slowing global growth, and ISIL. The bull market is 5 ½ years old and it is getting old and tired and more cautious, but it continues to hang in there for now.

One of the benefits of market volatility is that it can create some good buying opportunities. I have been taking advantage of the recent pullbacks and buying select names. One of the names I purchased for my Aggressive Growth accounts is Philadelphia-based, generic drug manufacturer and distributor Lannett Company (NYSE:LCI). I continue to like the opportunities in the Health Care sector, particularly in drug and biotech stocks.

Lannett Company, was founded back in 1942. In addition to providing a broad spectrum of generic drugs, it also produces a limited number of private label pharmaceutical products for other companies. With a market capitalization of $1.8 billion, Lannett is a small cap name. I have not been a fan of small cap stocks in the current environment, but this stock is an exception.

As you can see from the stock chart below, Lannett Company has been a recent strong performer.

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We are just starting earnings season. And while we have already seen several high profile earnings misses in names such as IBM (NYSE:IBM§), Coca-Cola (NYSE:KO), Amazon (NASDAQ:AMZN), Lannett Co. positively pre-announced its earnings on October 23rd.

The company announced that revenues and earnings were coming in ahead of previous guidance. Lannett now expects its 1Q15 revenue to be about $93 million, which is above the consensus of $90.2 million. But the big upside surprise was in earnings. The company expects EPS of $0.91-0.94, which is well above the $0.74 consensus. Lannett was scheduled to report its full results on Monday, November 3 after the close.

So what drove Lannett’s upside surprise? The company said the considerably improved performance was driven by strong gross margins. Lannett’s gross profit margin came in close to 71%!

But Lannett’s recent success did not happen overnight. Let’s take a closer look! As mentioned previously, Lannett is a small cap drug stock and has a Speculative risk rating.

Screen Shot 2014-10-29 at 20.20.58

Data from Best Stocks Now app

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Data from Best Stocks Now app

With a trailing PE of 28 and a forward PE of 17, even with a robust 5 year annual growth rate of 17.5%, Lannett stock is not cheap. It receives a Value Grade of B-.

Screen Shot 2014-10-29 at 20.21.20

Data from Best Stocks Now app

This is not the first time that Lannett has been a strong performer. Last year the stock was up a whopping 567%! This year its performance has been more muted, but the stock is still up 49% YTD, giving it a 12 month return of 125%. That performance sets it apart from the market and from other small cap stocks. It receives a Momentum Grade of A+ and a Performance Grade of A.

Screen Shot 2014-10-29 at 20.21.29

Data from Best Stocks Now app

Lannett Company stock ranks #42 out of the more than 3900 stocks in the Best Stocks Now universe. It receives a Stock Grade of A.

I have been taking advantage of the recent market volatility and pullbacks to add to stocks like Lannett which have solid fundamentals, a reasonable valuation, and strong performance. For now, I have not been “spooked” out of this market.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Bill Gunderson has a total average return of 2.0% and a 49.5% success rate. Gunderson is ranked #1271 out of 3897 bloggers.

 

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