Sifting through the wreckage of the recent volatility can be time-consuming or seem like an exercise in futility. After all, many stocks that look like bargains from a technical standpoint, big banks come to mind, may have fallen for a legitimate reason and could continue to sink lower for that reason. Not every depressed stock priced beneath $10 can be considered rubble though. There are plenty of strong plays from small biotechs and other lesser known companies that are looking undervalued and have the potential to rise.
Delta (DAL)-Delta is the biggest airline worldwide and yet is somehow priced in at 8 and change as of the last trade. Shares rocketed 16 percent in yesterday’s trading following Tuesday’s report that profits are on the rise after being depleted early in the year as a result of high jet-fuel costs. Delta has restructured and begun to increase capacity discipline in order to have a stronger bottom line. Third quarter profits have been exceeding expectations and the company has the benefit of a $70 million revenue boost left over from suspended ticket-tax revenue when the Federal Aviation Administration was shutdown. Earnings and the new business plan should continue to help Delta surpass current levels.
Sinclair Broadcast Group (SBGI)-Television broadcaster is currently priced just above $7 a share despite having a television group that includes FOX, WB, ABC, CBS, NBC, and UPN affiliates. The reason for recent losses is some debt on the balance sheet but with the upcoming Presidential election campaign, the company will be generating more revenue to help combat some of that weight. Additionally, Sinclair has a huge upside of close to 60 percent. Shares over the past 52-weeks have traded between $6.60 and a high of $13.07. Their current level puts them at 17 percent above that low level, leaving a lot of room for improvement. An added benefit of the company would be their 6.4-plus percent dividend yield, a rarity for a company trading at this level.
Analysis by the professional services firm BDO argues that larger pharmaceutical firms are increasing reliance on biotech companies to fill their pipelines, which has been a net positive for small biotech companies.
Ariad Pharmaceuticals (ARIA)-Larger pharmaceutical firms have been relying increasingly on small biotech outfits to plug their pipelines. This has had a net positive impact on biotech companies like Ariad which, in partnership with Merck, announced a strong outcome from a Phase 3 study of their sarcoma drug, ridaforolimus. Studies on the drug indicated a 28 percent risk decline for potential progression or death when the drug was used against a placebo. As of yesterday’s close the drug ticked slightly higher than the $10 mark after a 3.34 percent rise but if this drug delivers as many believe it will, the extra couple of cents is worth it.
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