A Small Growth Stock for the New Year

01/12/2009 11:00 am EST


James Oberweis

President, Oberweis Asset Management, Inc.

James Oberweis, editor of The Oberweis Report, thinks the market may improve in 2009, and he likes one small growth stock in particular.

For 2009, we expect a far different year [than 2008]. Expectations are very low and we believe it will take only a modest improvement in fundamentals to spark a significant increase in equity markets. 2009 will be a year for bargain buyers and may represent the best buying opportunity in decades for depressed high-growth [small-cap stocks.]

We predict returns for the Russell 2000 Growth index of at least 20%, with the potential for significantly more than that. We believe the risk/reward opportunity for equity investors in nearly every asset class to be better than normal, and the valuations for small-cap growth stocks to be simply extraordinary.

At this point, a nasty recession is already baked into stock prices. The economy will deteriorate further in the first half of 2009, but by the end of 2009, we expect favorable returns for equities, as by then investors will have bid up stock prices in anticipation of a light at the end of this miserable tunnel.

By the end of next year we anticipate that scaredy-cat investors who sought safe haven in the dollar and US Treasurys will have figured out that the world, indeed, has not ended. But above and beyond these less-than-pleasant problems, the absurdly low valuations in our universe of small-cap growth stocks will trump all other worries. Small-cap growth stocks will finally get their time in the spotlight, and 2009 will likely be their opening act.

Alexion Pharmaceuticals (Nasdaq: ALXN) Inc. is a biopharmaceutical company focused on the development of therapeutic products for the treatment of severe diseases including cardiovascular and autoimmune disorders and cancer. The majority of the company’s current sales come from their Soliris product, [which is] used to treat PNH (paroxysmal nocturnal hemoglobinuria).

PNH is a rare, acquired (not inherited) blood disorder that causes an individual’s immune system to destroy its own red blood cells (called hemolysis), resulting in life-threatening thrombosis, recurrent pain, kidney disease, disabling fatigue, and impaired quality of life. Soliris is the only available therapy to block hemolysis in patients with PNH. Soliris was discovered, developed, and marketed exclusively by Alexion following [approval by the Food and Drug Administration] in the US in March 2007. In June 2007, the European Commission (EU) approved Soliris for the treatment of patients, with PNH in 29 countries.

Today roughly 67% of the company’s revenues are derived in the US, with the remainder coming from Europe. In the company’s latest reported third quarter, sales increased approximately 250% to $76.5 million from $21.8 million in the third quarter of last year. Alexion Pharmaceuticals reported earnings per share of 23 cents in the latest reported third quarter versus a loss in the same quarter of last year. (It closed above $34 Friday—Editor.)

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