Little-known Stratagene (STGN), which was recently added to the Russell 2000 small-cap index, isn't your ordinary microcap. It is making money where the giants thrive -- supplying life-science research and diagnostic products. Its research arm (75% of sales) includes products used in biochemical analysis, cloning techniques, and the search for new drug therapies. Its clinical diagnostic tools include tests to detect allergies and autoimmune disorders such as lupus and rheumatoid arthritis. The company is in talks with a big U.S. and a European drugmaker, according to an investor close to management, to team up on a key Stratagene product -- the MX3005P, an instrument that analyzes the DNA or RNA makeup in a sample test. CEO Joseph Sorge says in five years he expects to garner upwards of 20% of the $1.5 billion molecular diagnostic market. Adam Chazan of Pacific Growth Equities projects earnings of 43 cents a share in 2005 on sales of $99.7 million and 49 cents in 2006 on $106.6 million. The company earned 36 cents in 2004 on $84 million. Chazan rates the stock, now at 8.80, "overweight." Michael Corbett of Perritt Micro Cap Opportunities Fund (PRCGX), which owns shares, says it's "our kind of microcap -- it's in a niche business and has cash flow and a strong balance sheet."
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial