Rite Aid Corporation (NYSE:RAD) has been my favorite stock for the better part of the last year. I first began covering the stock when it was at $1.00 back in December 2012, and then quickly purchased a large position of the company after it reported Q3 earnings, at $1.23.
Rite Aid had gone six years without posting a profit, and then all of a sudden posted two phenomenal and profitable quarters in Q3 and Q4. The company is now expecting full-year profits between $45 million and $200 million.
Rite Aid Corporation (NYSE:RAD) has undergone a very long restructuring program – but the “real” operational improvements are due to the generic cliff in healthcare. For pharmacies, generic drugs pay higher margins, and in 2012 there were many companies with blockbuster drugs that lost patents; more are expected in 2013.
Fortunately, Rite Aid is still cheap. Its profit margin of 0.47% is one-seventh of CVS Caremark Corporation (NYSE:CVS) and its price/sales ratio of 0.10 is about one-sixth of Walgreen Company (NYSE:WAG). As a result, the stock is now climbing higher as fast as possible.
During a four week period starting April 25, Rite Aid fluctuated between $2.50 and $2.65, before breaking out over $3.00. Currently, it’s doing the same, trending between $2.85 and $3.00. Now that it’s priced at $2.94 it will be interesting to see if it exceeds 52-week highs of $3.04. If so, the stock could run significantly higher – after all, it is a very cheap stock!
An Under-The-Radar Uptrend
After five years of almost continuous losses, shares of Alcatel Lucent SA (ADR) (NYSE:ALU) are trending back to levels not seen since early February. Back in late 2012, its trend higher was due to news of its massive restructuring program. The company completed financing with Goldman Sachs and then vowed to monetize its patents and divest all of its ineffective segments.
Alcatel Lucent SA (ADR) (NYSE:ALU) is trading at $1.68, making it a $3.8 billion company with almost $19 billion in annual revenue. Its price/sales ratio of 0.20 is almost unheard of in the telecom equipment industry, a space where most companies trade at 1.2 to 2.0 times sales.
At $1.68 Alcatel-Lucent is just $0.11 from its current 52-week high. Alcatel has seen a 23.5% gain in the month of May – greatly outperforming the S&P 500 – despite underperforming the market in recent months. Thus, due to its trend, Alcatel Lucent SA (ADR) (NYSE:ALU) is definitely a stock to watch, one that could breakout significantly higher. The stock is simply too cheap and is too close to its current high.
Resiliency Proof Of Potential Breakout
During Apple Inc. (NASDAQ:AAPL)‘s seven month $300 billion market cap loss, we saw one pattern in particular repeat itself time-after-time: The stock always went through periods where it would bounce significantly higher off its lows.
In November, it went from $525 to $590 – it went from $510 to $560 to start 2013 – then, $440 to $480 in February. These trends always had one thing in common: the lows were always lower than the previous low, and even after trending higher, these lows were always re-tested.
When we begin to talk about prices and trends I know it can get a little confusing – but the point I am trying to make is that Apple Inc. (NASDAQ:AAPL) tried to retest lows of $385 in mid-May – yet was unsuccessful. Since falling to $425 in mid-May, Apple has trended higher and is currently at $450.
The company recently increased its share buyback program to $60 billion over the next three years, and rest assured, the company is buying like crazy while the stock is this cheap. Moreover, it has a yield of 2.70%, and I believe that because prior lows of $385 were not reached in mid-May that Apple Inc. (NASDAQ:AAPL) will continue to trade higher and breakout into a higher level.
Upcoming Approval To Create New Highs
Pharmacyclics (NASDAQ:PCYC) is a clinical stage biotechnology company with a market cap of $6.65 billion. It is a company that has a great partnership with Johnson & Johnson for its lead product ibrutinib — which is involved in 26 clinical trials, five of which are in Phase 3. Moreover, the company has two other clinical products besides ibrutinib in early phase development.
With a $6.65 billion market cap, the market expects an eventual approval of ibrutinib. If the company earns an approval for all of its 26 clinical trials, the revenue could be north of $6 billion annually.
Over the last two years, PCYC has pretty much seen a continuous uptrend. Its 1,300% gain has seen very few periods of loss, although there has been two. In October 2012 the stock crashed after reaching $70, falling below $50. It then trended higher to over $95 (its current 52-week high). In April, it fell to $72.50 and has since trended higher, currently trading at $91.64.
Pharmacyclics is just $4 from a new high and has a blockbuster product that could very well be approved late this year. Biotechnology stocks have a tendency of trading considerably higher in preparation of an FDA approval, especially when the approval is likely.
Ibrutinib in particular has already been granted three breakthrough therapy designations for three different indications. Thus, I find it difficult to suggest that it won’t be approved. As a result, with it trending higher, I’d watch for new highs sooner rather than later.
Conclusion
Each of these four stocks are companies that I follow closely. I think each has great upside potential and is very cheap compared to fundamentals, or future fundamentals in the case of Pharmacyclics.
Looking ahead, I think all are strong for the reasons noted. I have no favorite, as each trades in a different industry. Thus, I suggest due diligence to determine if one or more of these attractive stocks might benefit your portfolio.
Brian Nichols owns shares of Apple, Rite Aid Corporation (NYSE:RAD), and Alcatel Lucent SA (ADR) (NYSE:ALU). The Motley Fool recommends Apple Inc. (NASDAQ:AAPL). The Motley Fool owns shares of Apple. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 4 Stocks On The Verge Of Breaking Out! originally appeared on Fool.com and is written by Brian Nichols.
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