Best Microcaps from Dow Theory's Upside

06/20/2003 12:00 am EST

Focus:

Richard Moroney

Editor, Dow Theory Forecasts

I’ve been reading newsletters from Horizon Publishing for over 20 years. In fact, their Dow Theory Forecasts has been published for more than half a century. One of my personal favorites, Low Priced Stock Survey had been only a 4-page supplement, but beginning this month, it becomes Upside: Best Buys in Small and Mid-cap Stocks . Using its proprietary Quadrix ratings system, the service has added two ‘micro-cap’ stocks to its buy list–a regional bank and a drug distributor.

"Pacific Crest Capital (PCCI NASDAQ) owns Pacific Crest Bank, a specialized business bank serving small businesses and entrepreneurs in California. Major product lines include loans on income-producing properties and small-business loans. Recent loan growth has been modest, as Pacific Crest has tightened lending standards to preserve its stellar asset quality. As business conditions in California improve, the company should be able to accelerate its loan growth. March-quarter earnings per share jumped 38%, thanks to an improved net interest rate spread. Per-share earnings should reach $1.69 to $1.75 for full-year 2003, up from $1.37. Pacific Crest, trading at less than 12 times expected 2003 earnings, is being initiated as a Buy.

"Chronimed (CHMD NASDAQ) distributes prescription drugs to patients with chronic conditions, including HIV/AIDS, organ transplants, and diseases treated with injectable biotech medications. The company has a strong record of sales growth. Profit margins have been volatile, but Chronimed has posted four straight quarters of improved margins and per-share earnings. In the March quarter, net income rose 33% on a 9% sales gain. Year-ahead results should benefit from Chronimed’s exclusive agreement to distribute Fuzeon, a new class of HIV medication. Chronimed should earn about $0.40 per share for fiscal 2003 ending June. For fiscal 2004, the company says it expects per-share earnings of $0.46 to $0.48, excluding contributions from Fuzeon. Chronimed says Fuzeon could provide 'significant upside' to this forecast, though it is hesitant to be precise. The stock has shown bullish price action recently, moving to new highs on strong volume. Chronimed could be volatile but is being initiated as a Buy for its 12-month capital-gains potential."

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