Questcor Pharmaceuticals Inc (QCOR), Impax Laboratories Inc (IPXL): Two Stocks That Double Your Chances For Big Gains

At the current price, Questcor Pharmaceuticals Inc (NASDAQ:QCOR) is trading for a puny 8.59 times estimated earnings of $4.06/share for 2013 and has a projected earnings growth rate of 22.50% for the next 5 years. Furthermore, management has produced spectacular returns on equity, assets, and capital for the past 5 years of 62.9%, 47.8%, and 63%, respectively. The dirt cheap valuation currently applied to shares of Questcor Pharmaceuticals Inc (NASDAQ:QCOR) reflects the inherent risk involved in placing investment capital in a business with essentially one product, and the movement of the share price has provided shareholders with a true rollercoaster ride over the past year. However, the failure of Aetna to attract any support among other major insurers for their reimbursement restrictions on Acthar Gel has given investors reason to be optimistic regarding future performance.

As of May 15, 2013, short sellers of Questcor Pharmaceuticals Inc (NASDAQ:QCOR) stock have a net position of almost 25 million shares and would have been experiencing quite a bit of pain on May 14^th when the share price moved above $42/share. The short interest in Questcor Pharmaceuticals Inc (NASDAQ:QCOR) is almost equal to 9 days of average trading volume for the stock so a rising share price that caused the short sellers to begin covering could drive this stock violently higher very quickly.

Final thoughts and actions

Mylan Inc. (NASDAQ:MYL) carries a low valuation well-justified by the projected single digit growth projections and the debt level could prove to be problematic if the overall business does not go smoothly. Mylan Inc. (NASDAQ:MYL) and Questcor Pharmaceuticals Inc (NASDAQ:QCOR) both seem to offer exceptional opportunities for investors who understand the potential risks and rewards presented by each business. An equal allocation of capital between these two businesses would provide the opportunities for excellent long-term returns while spreading the risk between two alternatives. Both of these businesses would also make attractive acquisition targets for larger, more diversified companies within the industry, providing investors with two ways to make big gains in small pharma.

The article Two Stocks That Double Your Chances For Big Gains originally appeared on Fool.com and is written by Ken McGaha.

Ken McGaha has the following options: Short Jun 2013 $35 Puts on Questcor Pharmaceuticals. The Motley Fool has no position in any of the stocks mentioned. Ken is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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