DELAFIELD, Wis. (Stockpickr) -- When I scan the small-cap biotech and health care sectors, I am always looking for a stock that has two major things going for it: a strong fundamental story and a bullish technical chart setup. Those two elements can be a powerful combination, since they can quickly bring together fundamental investors and technical traders who can push a stock substantially higher when they work in concert.
>>5 Rocket Stocks Worth Buying This Week
I believe I have discovered the next small-cap health care stock that has a perfect storm of those two key elements. This potentially perfect storm is still in the early stages, so this stock could very well be offering market players a very attractive entry point.
The company I see big opportunity in here is CombiMatrix (CMBX), which is a molecular diagnostics player that operates primarily in the field of genetic analysts and molecular diagnostics. This company specializes in cytogenetic testing for prenatal diagnosis, miscarriage analysis and pediatric development disorders. The company's microarray testing addresses various common hematological malignancies, primarily chronic lymphocytic leukemia. CombiMatrix's customers are commercial insurance companies, health care institutions, government payers and individuals.
During the firm's latest earnings report, CombiMatrix said revenue for the fourth quarter and full year increased to $1.76 million and $6.37 million, respectively, or 18% and 19% growth from the comparable periods in 2012. Revenue for its core prenatal microarray testing markets grew by 22% from the third quarter of 2013 and 112% year over year. Sales volumes for prenatal microarray testing increased 74% and 126% for the fourth quarter and for the comparable period in 2012.
>>5 Stocks Under $10 Set to Soar
CombiMatrix CEO Mark McDonough said on its most recent conference call that he believes there is no reason why the company can't keep this kind of growth going in 2014 and beyond. McDonough pointed out that the company has been expanding its sales force and plans to hire as many as 15 new members in the near future. You can really understand why he's excited since the estimated market for their products is in excess of $350 million annually.
I believe that CombiMatrix could double or much more from its current price level of around $3.25 per share for a variety of reasons. First, CBMX is an attractive takeover target, since it has accelerated growth and a market cap of just $15 million. That market cap does not reflect the opportunity for CBMX to growth substantially as it takes share and attacks the $350 million market for its products. Second, this stock has favorable technical setup that is rapidly developing as I write this. I will touch more on that shortly. Third, this company has all the reason in the world to announce more new partnerships that will expand its markets and increase cash flow. And finally, CBMX, for whatever crazy reason, has a ton of short-sellers that are currently betting against this company. Those shorts, if wrong, have the potential to be the fuel to this rocket ship if the stock can finally sustain some gains and break out above some key overhead resistance levels.
>>5 Stocks Poised for Breakouts
The current short interest as a percentage of the float for CombiMatrix is ridiculously large at 24.6%. That means that out of the 4.56 million shares in the tradable float, 1.12 million shares are currently sold short by the bears. The shorts have also been increasing their bets from the last reporting period by 14.5%, or by about 140,000 shares. This is a low-float stock with a monster short interest, and it's a company with an intriguing fundamental story -- a powerful combination that can easily send shares of CBMX exploding higher on any good news or large new partnership announcements.
If you take a look at the chart for shares of CombiMatrix, you'll see that this stock has been consolidating and trending range bound for the last two months and change, with shares moving between $2.40 on the downside and $3.43 on the upside. Despite this sideways trading chart pattern for shares of CBMX, this stock has been making higher lows each time it has pulled back over that timeframe. That demonstrates that buyers are eager to snap up CBMX on the dips. This stock has a trading history of being faded whenever it spikes, so it's key for traders to watch for a change in that trading characteristic. I think that change could be happening right now.
Shares of CBMX are spiking sharply higher today by just over 5% with heavy upside volume. Volume so far today has already surpassed 1.6 million shares, which is well above its three-month average action of 888,225 shares. This spike is quickly pushing shares of CBMX within range of triggering a major breakout trade above some key overhead resistance levels.
Traders should look for long-biased trades in CBMX as long as it's trending above some near-term support levels at $2.80 to $2.60 a share and then once it breaks out above those key overhead resistance levels at $3.43 to $3.70 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 888,225 shares. If that breakout begins soon, then shares of CBMX should easily soar back to its next major overhead resistance levels at $4.44 to its 52-week high of $4.62 a share. If those levels get taken out with volume, then all the fun should begin for CMBX since it has little resistance until $7.64 a share.
The bottom line: CBMX has a great fundamental story with high growth rates and a strong technical chart setup. The icing on the cake is the large amount of bears that are involved in this stock. If those bears are wrong, and I think they are, then this stock is going to explode and double easily from current levels.
-- Written by Roberto Pedone in Delafield, Wis.
RELATED LINKS:
>>3 Stocks Rising on Unusual Volume
>>5 Stock Charts Screaming "Buy" in March
>>5 Toxic Stocks to Watch Out For
Follow Stockpickr on Twitter and become a fan on Facebook.
At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including
CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.
No comments:
Post a Comment