Are Any Of These Top Performers A Sell?

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I began using Motley Fool’s CAPS as a way to disclose when I purchased and sold stocks, and my 97.2 rating showcases my last 10 months. CAPS compares your performance against other investors, but like all investments, you have to continuously reassess your positions. In this article, I am looking at my top four CAPS (portfolio) performers to determine if any are now a “Sell”.

Could There Be Any More Upside?

I bought ACADIA Pharmaceuticals (NASDAQ: ACAD) at $6.09, and it has contributed 214.7 points to my 1,535 total point score.

The company has a market cap of $1.6 billion, having exploded with gains of near 1,200% over the last year -- after announcing data on its antipsychotic drug pimavanserin. This is a drug that will enter a Parkinson’s disease psychosis market where there are no current treatments, and most analysts believe that it will also be used off label to treat Alzheimer’s disease psychosis.

Pimavanserin could reach peak sales over $2 billion. Therefore, Acadia trades at 0.8 times potential sales, which is far short of the average four times sales in biotechnology. As a result, I still believe that Acadia has a lot of long-term potential, and I have no plans to sell the stock.

Just Getting Started

In December, the minute that Rite Aid (NYSE: RAD) posted a quarterly profit, I bought the stock, at $1.23. It has since returned a gain of 155%, or 137.7 points.

Despite Rite Aid’s gains, the stock trades at just 0.11 times sales. In comparison, Walgreen trades at 0.70 times its sales, which shows the value present in shares of Rite Aid.

The company’s move from unprofitable to profitable has occurred due to the patent cliff in biotechnology. In this article, I explained how $133 billion in annual sales will be replaced with generic drugs during the years of 2011-2016. The year 2014 might be the best year yet for generic drug introductions.

The reason that generics benefit Rite Aid is because they pay more per script than brand drugs to pharmacies. Therefore, Rite Aid’s margins rise, and since the stock is already very cheap relative to sales, the stock also rises with margins. Looking ahead, I wouldn’t dare sell Rite Aid at this point, as I believe that 2014 and 2015 will be even better than what we’ve seen in the last 12 months. The reason being more generic drugs and higher profitability!

Even More Upside?

Questcor Pharmaceuticals (NASDAQ: QCOR) continues to impress, and has racked up gains of 137% since I bought at $29.47, also contributing 125.6 points to my CAPS.

Questcor markets and sells Acthar Gel, which is used to treat 19 indications including infantile spasms, nephrotic syndrome, and multiple sclerosis among many other diseases. In the last week, Questcor has soared in value by more than 30%. Yet, despite these gains, I am not selling.

The company’s net sales of Acthar rose 64% year-over-year in the quarter, as introductions into new markets fueled growth. The company continues to test Acthar on other diseases, and with trailing 12 month sales of $550 million, Acthar could still triple before reaching peak sales.

At 11.5 times next year’s earnings, Questcor is far from being expensive. In addition, the company buys back shares and pays an annual dividend of 2%. In my opinion, the future is bright for this company, and I’m going to be along for the ride.

Getting A Little Pricey

I bought Anika Therapeutics (NASDAQ: ANIK) back in February at $12.22, after the company posted a strong quarter, and I felt it was undervalued. Since then, Anika has produced gains of 108% and has added 96.5 points to my CAPS.

In the final two days of last week, Anika traded higher with gains of 35%. The company responded with yet another strong quarter where revenue grew 6%. Overall, the company had a very solid quarter, which is what Anika investors have grown accustom to seeing with the company.

The problem with Anika is that it is not a high-growth company nor will it produce rapid growth in the near future. At 4.55 times sales and 23 times next year’s earnings, I do think the stock has gotten pricey. Therefore, with top-line growth of less than 10% year-over-year, I am not sure that it’s worth the premium, thus I am comfortable in taking a large profit off the table.

Final Thoughts

All of my CAPS picks, and investments, are based on the value-finding formulas in my book “Taking Charge With Value Investing (McGraw-Hill, 2013)”. While finding value is very important to success, the ability to reassess your position and know when to sell is equally important.

As of now, I still think Rite Aid has the most short-term upside. Acadia is in a waiting period before its FDA approval next year, but Rite Aid should see continued benefits of new generic introductions – pushing margins even higher.

With Rite Aid, the company’s significant discount to its industry still exists, and as improvements continue, I think Rite Aid could trade several times higher.

Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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