Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

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 14th 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.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.